Congressional CFTC Budget Decision Lacks Vision and Reason

John Lothian

John Lothian

Executive Chairman & CEO

A reasonable person could see that the U.S. Commodity Futures Trading Commission needs an increase in its budget to address the growing responsibility it has acquired over US markets in recent years and the dramatic development and investment in fintech and cryptomarkets.

A reasonable person, Democrat or Republican, would vote for the modest increase the CFTC requested unless they suffer from a chronic case of market myopia.

But alas, the budget passed by the U.S. House of Representatives cuts the CFTC’s funding by $1 million to $249 million, and reason was not what ruled the day. The adjective that comes to my mind to describe this is shortsighted.

Now, if I were the CFTC I would make my case for increased funding in other ways, like increasing the fines levied on bad actors. There is more than one way to get a point across, or a request for increased funding. Make every case look like a big nail and use the hammer Congress gave you. Start throwing some big numbers around for fines to spotlight the magnitude of the infractions and the challenges the commission faces.

Now, no one involved in the markets wants to see that, and that certainly is not the approach CFTC Chairman Chris Giancarlo and Commissioners Rostin Behnam and Brian Quintenz have touted in recent months. They’ve pushed sensible regulation that integrates a cost benefit analysis.

Yet, there is the anti-bank crowd that believes you can’t set fines high enough. Maybe the CFTC will start to support this view more given the lack of political support they seem to be getting from the powers that be.

Whatever side of the argument you are on, one thing is clear. The agency has been punching well beyond its budget for years. And while the CFTC is about to take a budget cut, it is bringing in more revenue than it spends. It took in $412.7 million in restitution, disgorgement and penalties during fiscal year 2017, making the CFTC and the SEC two of the few regulators that are revenue positive for the US government.

That is not, nor should it be, the measure of its success or failure, but it is noteworthy in today’s market environment. Regulators are facing a huge challenge and the current commission has a plan to meet it. This could be the best slate of CFTC commissioners in recent memory and will be even better when Dawn Stumpf finally gets confirmed with a yet-to-be-nominated Democrat.

I would like to see what CFTC Chairman Giancarlo, the commissioners and the staff could do to modernize the CFTC and meet the challenges they face if they receive their budget request of $281.5 million. Giancarlo’s speech at the FIA Boca event outlined the plan to reduce the regulatory burden, enhance US markets and adjust its regulatory footprint.

Starving regulators for resources does not make for better or smarter regulation. It does nothing in the way of attracting new talent, nor does it serve the existing staff well.

As Commissioner Behnam said on Thursday in a prepared release, “Growing cyber threats, domestically and internationally, examinations of our clearinghouses at home and abroad, and the rapid growth of the FinTech industry present new, challenging issues that the CFTC will not have the resources to address in a timely and adequate manner. Simply put, the CFTC cannot responsibly innovate and meet the needs of rapidly evolving markets and market participants absent additional funding.”

How is this budget good for the commission and US competitiveness in an increasingly global marketplace? Paring back resources at this critical time is just shortsighted.

(Also contributing to this commentary: Jim Kharouf. Edited by Sarah Rudolph)

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