CFTC chair cites Binance breach in push for offshore exchange oversight
Michael Selig said the Binance breach supports proposed CFTC rules, though the plan would offer voluntary registration rather than require it.
By Sofia Marchetti · Columnist
· 3 min read
CFTC Binance hack oversight became the focus of Chairman Michael Selig’s latest pitch for crypto-market rules after the reported $6.3 billion to $6.4 billion Binance breach. For investors using crypto exchanges, the key distinction is that the CFTC proposal described in reporting would create an optional federal registration route, not put every offshore venue under U.S. control.
Speaking to CNBC on Friday, Selig said the incident supported regulations the agency proposed earlier in the month. He argued that unregulated offshore exchanges do not have the cybersecurity protections used in U.S. financial markets, according to Decrypt and Yahoo Finance’s report of the interview.
Selig said the CFTC wants to provide a “federal option” for exchanges that choose to register. Participating venues would be subject to cybersecurity safeguards applied in U.S. markets, he said.
What would CFTC oversight of offshore crypto exchanges do?
The reported framework would not compel Binance or another offshore exchange to register. Yahoo Finance reported that the CFTC’s Oct. 5 action was an advance notice and request for public comment, rather than an adopted rule. It was published in the Federal Register on Oct. 13, with comments due within 60 days.
The notice concerns potential rules for certain retail commodity transactions in crypto assets under the Commodity Exchange Act, according to Yahoo Finance. It also seeks input on a crypto-asset-market category within designated contract market registration, a status for platforms operating under CFTC rules.
Selig has also said the agency lacks authority, without action from Congress, to require crypto assets to trade on CFTC-registered platforms, Yahoo Finance reported. That leaves the proposal as a voluntary path for exchanges that decide to participate, rather than a universal requirement for crypto trading platforms.
What is known about the Binance breach?
The reported theft has been described as roughly $6.3 billion to $6.4 billion. Selig told CNBC that he did not believe the incident reflected a failure in Ethereum or its smart contracts, instead describing what he believed was a vulnerability introduced through someone’s laptop, Decrypt reported.
Binance initially attributed the breach to a compromised DevOps engineer’s laptop. The company later said its investigation found additional points of breach, and CEO Richard Teng described the intrusion as a more complex process than the use of one engineer’s permissions, according to Decrypt.
TRM Labs said the incident pointed to a compromise of Binance’s signing infrastructure rather than a weakness in a blockchain, Decrypt reported. The company said it had set aside $6.34 billion to cover losses and that customer assets were safe. Decrypt also reported that the FBI and Secret Service opened an investigation, while TRM Labs and Chainalysis linked the theft to North Korea’s TraderTraitor group.
Selig also pointed to the public record of blockchain transactions as a potential enforcement tool. Funds can move quickly and may be routed through services intended to obscure their path, he said, but on-chain activity can still give regulators transaction data to follow.
This story draws on original reporting from Decrypt.
