U.S. financial reform group Better Markets has publicly opposed the Commodity Futures Trading Commission's plan to oversee some retail cryptocurrency trading.

On Oct. 6 local time, blockchain outlet Cointelegraph reported that Better Markets said the CFTC's proposed regulatory framework could lower investor protection standards compared with Securities and Exchange Commission supervision.

The issue is that the CFTC is reviewing a new framework to oversee retail crypto trades that involve margin, leverage and the provision of financing, based on its existing authority. The CFTC began a public comment process on Oct. 5. The review also includes an option to create a new federal category under which the CFTC would directly supervise crypto trading platforms that meet certain requirements.

Benjamin Schiffrin, who is in charge of securities policy at Better Markets, countered that the CFTC is not suitable to handle retail investor protection. He said that unlike the SEC, the CFTC has no investor protection mandate and that its original mission is geared toward regulating commodity and derivatives markets centered on large institutions. He added that CFTC rules lack safeguards that apply to securities trading overseen by the SEC, and said the CFTC is the "wrong agency" to regulate retail customers' crypto trading.

The dispute comes as the CFTC and the SEC separately push crypto policy within the existing legal framework after the Clarity Act failed to make progress in the U.S. Congress. Both agencies have already indicated they can take action even without new legislation.

Better Markets also raised questions about the CFTC's legal basis. Schiffrin said the provision the CFTC cited was originally introduced to prevent fraud in leveraged precious metals trading and cannot be broadly interpreted as the main supervisory authority over the retail crypto market. He also drew a line against the interpretation that Congress intended to give the CFTC the lead on retail crypto regulation through that provision.

Criticism also emerged over market structure. Schiffrin said the framework under review could allow affiliated and conflict-of-interest structures among market participants that were cited as having influenced the FTX collapse. He said the regulatory design may not sufficiently block close ties between exchanges and related businesses.

Comments by CFTC chief Mike Selig, the chair, also came under scrutiny. Schiffrin criticized the goal of making the United States the world's crypto capital, saying, "It does not explain why that is a good thing." He also said, "Crypto has failed to prove real use cases over 18 years despite various claims, and is used for speculation or criminal purposes."

Not only opposition has emerged. Nate Geraci, head of Novadius Wealth Management, said what the industry wants is clear rules, and argued that if Congress cannot provide them, the CFTC and SEC may ultimately have to step in. The longer the regulatory vacuum lasts, the greater the need may become for regulators to act on their own, he said.

The SEC is also accelerating separate measures. The SEC recently proposed easing parts of custody rules for investment advisers, allowed limited tokenised trading of U.S. stocks and issued new guidance on how securities laws apply to crypto. As a result, U.S. crypto regulation appears to be developing in a direction where the CFTC and SEC each expand their own authority amid a legislative vacuum.

The key point to watch is which agency will oversee retail crypto trading and on what legal basis. Even if the CFTC presents a detailed proposal after the comment process, debate over investor protection standards and the level of market-structure regulation is likely to continue.