CFTC Whistleblower Office Issues Alert Seeking Tips Relating to Carbon Markets Misconduct

This week the US Commodity Futures Trading Commission (CFTC) issued this guidance to help whistleblowers identify improper behaviour in US carbon markets and in voluntary markets in particular.

Beside its enforcement authority over designated contract markets (DCMs), the CFTC also has anti‐fraud and anti‐manipulation enforcement authority over the related spot markets for carbon credits. The guidance specifies the following behaviours whistleblowers should be on the lookout for:

• Manipulative and wash trading or other violations of the Commodity Exchange Act (CEA) in carbon futures contracts;
• Fraud in the underlying spot markets related to ghost (/illusory) credits listed on carbon market registries;
• Double counting or other fraud related to carbon credits;
• Fraudulent statements relating to material terms of the carbon credit, including: quality, quantity, additionality, project type, methodology substantiating the emissions claim, environmental benefits, the permanence or duration, or the buffer pool;
• Manipulation of tokenized carbon markets.

RegTrail Insights

As carbon markets continue to grow rapidly in the US, it seems clear that the CFTC has concerns over the ongoing integrity of these markets. Firms actively trading in US carbon markets should ensure that this commodity class is included in their trade surveillance programmes. Firms active in the origination of such credits should review and reinforce their governance and control arrangements over these activities and ensure that senior management has appropriate knowledge and oversight of these activities.