Better Markets: CFTC Is the Wrong Agency for Retail Crypto

A well-known financial reform nonprofit has thrown a sharp challenge at the Commodity Futures Trading Commission, arguing publicly that the agency's proposed framework for retail cryptocurrency transactions would leave individual investors materially less protected than they would be under SEC oversight. For accounting firms, auditors, and CFOs managing digital asset exposure, the dispute is more than political noise: it signals that the US regulatory perimeter for retail crypto is still genuinely contested, and that compliance strategies built around a single agency's rulebook carry real risk.

What Better Markets Is Actually Arguing

Better Markets, a Washington-based nonprofit that advocates for financial regulatory reform, directed its criticism at the CFTC's recently proposed framework covering margined, leveraged, and financed retail crypto transactions. The organisation's director of securities policy, Benjamin Schiffrin, made the core argument plainly: the CFTC does not have an investor protection mandate.

The Mandate Gap

Schiffrin's position rests on a structural point about how the two agencies were built. The CFTC was designed to oversee commodity and derivatives markets that have historically been dominated by large institutions, not retail participants. Its ruleset reflects that origin. The SEC, by contrast, operates under an explicit investor protection mandate and has layered decades of retail-facing disclosure, suitability, and fiduciary requirements on top of it.

From that starting point, Better Markets draws a straightforward conclusion: routing retail crypto activity through CFTC oversight strips individual investors of protections they would otherwise receive. The organisation argues this is not a gap that can be patched by the CFTC writing tighter rules; it is baked into the agency's statutory design.

The Statutory Authority Question

Better Markets also challenged the legal foundation the CFTC is leaning on. The statutory authority the agency cites was originally passed to address fraud in leveraged precious-metals trading, a narrow context that Better Markets says does not signal congressional intent to make the CFTC the primary regulator for retail digital assets at scale. This is a meaningful argument because it suggests that, even if the CFTC finalises its framework, litigation risk remains high. Any party with standing to challenge the rules could raise the same statutory mismatch argument in court.

The FTX Structural Concern

Beyond the mandate debate, Schiffrin raised a specific structural concern about the CFTC's proposed framework: it may permit affiliations between market participants that Better Markets argues were a contributing factor in FTX's collapse. The nature of those affiliations, where exchanges, market makers, and proprietary trading desks operated under common ownership with limited segregation, allowed conflicts of interest and customer fund risks to accumulate without adequate external checks.

Why This Matters for Compliance Teams

If the final CFTC framework preserves similar affiliation structures, accounting firms auditing digital asset entities and CFOs managing treasury crypto positions will need to scrutinise counterparty relationships more carefully than a surface-level regulatory approval might suggest. A platform holding a CFTC licence would not automatically signal the kind of structural separation that reduces concentration and commingling risk. Due diligence checklists will need to go deeper than licence status alone.

For firms using crypto accounting software to track and report digital asset positions, the practical implication is that exchange-level risk categorisation cannot rely solely on regulatory classification. Internal controls should account for the possibility that a CFTC-supervised platform may not carry the same investor-protection architecture as an SEC-regulated one.

The Broader Regulatory Race

The Better Markets critique lands at a moment when both the CFTC and the SEC are pressing forward on crypto policy under their existing statutory authority, without waiting for Congress to pass new legislation. The CLARITY Act, which would have drawn cleaner jurisdictional lines between the two agencies, has stalled. In the absence of that legislative clarity, each regulator is effectively staking out territory through rulemaking.

CFTC's Proposed Federal Category for Crypto Platforms

The CFTC's framework under consideration goes beyond leveraged retail transactions. It also contemplates a new federal category for crypto trading platforms, which would bring qualifying exchanges directly under CFTC oversight. That is a significant structural proposal: it would create a distinct licence type, separate from existing SEC-registered categories, and potentially allow platforms to operate under lighter investor-protection requirements.

This connects directly to the earlier CFTC proposal on leveraged retail crypto trading, which outlined the agency's initial thinking on margined transactions. Better Markets' intervention is a formal, public counter to that direction, and it will likely generate comment letters from other institutional and consumer-facing stakeholders as the rulemaking process continues.

What the SEC Is Doing in Parallel

The SEC has not been passive. It has pushed ahead with its own crypto measures, including a proposal that would ease certain custody requirements for investment advisers holding digital assets, alongside new interpretive guidance on how existing securities laws apply to crypto. For firms advising clients on both sides of the regulatory divide, that means two sets of proposed rules, from two agencies with overlapping but non-identical jurisdictional claims, are developing simultaneously.

NovaDius Wealth Management's president, Nate Geraci, offered a counterpoint to Better Markets' framing. His view is that the crypto industry is primarily seeking clear rules rather than a particular regulator, and that if Congress cannot supply that clarity, the CFTC and SEC may each need to act within their existing authority. That pragmatic position reflects where many regulated firms currently sit: they want a framework they can plan around, whichever agency provides it.

For a deeper look at how the spot market gap complicates this picture, see our earlier analysis of CFTC crypto rules and the spot market gap.

Accounting and Tax Implications for Firms

The regulatory uncertainty created by this dispute has direct consequences for how accounting professionals and CFOs should approach digital asset reporting and compliance planning right now.

Classification Risk in Financial Statements

Whether a crypto asset is treated as a commodity or a security affects how it is classified on a balance sheet and what disclosure obligations attach to it. Under FASB's ASC 350-60, digital assets held by entities are generally treated as indefinite-lived intangible assets unless a specific exception applies, but that treatment does not resolve the regulatory classification question. If a court or a future legislative settlement ultimately determines that certain retail crypto products are securities, entities that have been accounting for them as commodities may need to restate positions or revisit their disclosure frameworks.

Digital asset accounting software that tracks positions across multiple exchanges should be configured to flag assets where the regulatory classification is disputed, so that auditors and preparers can document the judgement calls made at each reporting date.

AML and KYC Exposure

The agency that ultimately oversees retail crypto will determine which AML and KYC standards apply at the platform level. CFTC-supervised platforms currently operate under different customer due diligence obligations than SEC-registered broker-dealers. If your clients hold retail crypto through platforms operating under a CFTC framework, verify that those platforms' AML programmes meet the standards your firm would apply in a securities context, because the regulatory floor may be lower than you assume.

Audit and Assurance Considerations

Auditors signing off on financial statements that include material digital asset positions need to document the basis on which those assets have been classified, valued, and disclosed. The Better Markets intervention is now part of the public record of regulatory uncertainty around the CFTC framework. That uncertainty is relevant to going concern assessments for crypto-native entities and to the risk assessment phase of audits for any entity with meaningful digital asset exposure.

Crypto bookkeeping software used in audit workflows should be generating audit trails that capture the regulatory status of each exchange or custodian used, along with any changes to that status during the reporting period. Static snapshots taken only at year-end are not sufficient when the regulatory environment is shifting mid-year.

What Firms Should Do Now

The Better Markets critique does not change any existing rule. What it does is increase the probability that the CFTC's proposed framework faces sustained legal and political challenge before it is finalised. That probabilistic shift has practical implications.

Near-Term Steps for Accounting Firms and CFOs

First, map your clients' retail-facing crypto activity against both CFTC and SEC frameworks. Do not assume the CFTC framework will be finalised unchanged, or at all. Second, review counterparty due diligence processes for crypto exchanges and custodians, paying particular attention to affiliation structures and the segregation of customer assets. Third, ensure that engagement letters and management representation letters for digital asset audits reference the regulatory uncertainty explicitly, so that scope and responsibility are clearly documented. Fourth, stay alert to comment periods on the CFTC's proposed rules; submissions from trade bodies, consumer groups, and other regulators will materially shape the final framework and give you advance visibility into where the rules are heading.

Frequently Asked Questions

What did Better Markets argue about the CFTC and retail crypto?

Better Markets argued that the CFTC is structurally ill-suited to oversee retail crypto transactions because it lacks an investor protection mandate. The organisation's securities policy director contended that the CFTC's statutory authority was designed for institutional commodity and derivatives markets, not for retail investors, and that routing retail crypto through CFTC oversight would leave individuals with weaker safeguards than they would have under SEC regulation.

How does this affect accounting firms advising digital asset clients?

The dispute keeps the regulatory classification of many retail crypto products in flux. That has direct implications for balance sheet classification, disclosure obligations, and AML compliance standards. Accounting firms should document the regulatory uncertainty in their workpapers and avoid building compliance frameworks that assume the CFTC's proposed rules will be finalised in their current form.

What is the CFTC's proposed new federal category for crypto platforms?

As part of its framework under consideration, the CFTC is exploring a distinct federal licence category for crypto trading platforms. This would bring qualifying exchanges directly under CFTC supervision, separate from SEC-registered categories, potentially with different investor-protection requirements. Better Markets has criticised this element of the proposal for potentially allowing affiliation structures it says contributed to past exchange failures.

Does the SEC's parallel activity change anything for compliance planning?

Yes. Both agencies are advancing crypto policy under existing authority simultaneously, which means firms may face overlapping or conflicting requirements depending on how their clients' activities are ultimately characterised. Compliance planning should account for both frameworks rather than betting on one agency prevailing.

What should auditors look for when reviewing clients with retail crypto exposure?

Auditors should verify the regulatory status of every exchange or custodian used, document the basis for asset classification given disputed jurisdiction, assess whether counterparty AML programmes meet standards appropriate to the asset type, and flag any affiliation structures at platform level that could create conflicts of interest or commingling risk. Digital asset accounting software used in the audit workflow should capture this information at transaction level, not just at year-end.

Source: Cointelegraph