The Dodd-Frank Act is law and rules implementing it are being written, but it could be a lame duck as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are fighting for funding as Congressional Republicans have the agencies’ budgets squarely in their sights.
As Congress continues debating the federal budget, the two agencies are preparing to begin implementation of Dodd-Frank rules by the July deadline. At the time it was passed, Dodd-Frank was hotly contested by Republicans; now that they have control of the House, they may be looking for a way to downplay the Act’s impact.
"Dodd-Frank is not going to be overturned, but [Republicans] will try to defund it to death. If you look at the budget situation, that’s where we are right now," says Paul Zubulake, senior analyst at Aite Group.
President Barak Obama’s initial budget proposal had included increases for both regulators, doubling the CFTC budget, but Zubulake says that was "basically dead-on-arrival." Now, the agencies are facing multi-million-dollar cuts. In the latest proposal put forward, the CFTC’s budget would be slashed by $56.8 million — nearly a third of the agency’s current budget — over the next seven months. Funding at the SEC also would be cut by $25 million over the same time period.
The CFTC in particular is being targeted as it is preparing to begin oversight of the multi-trillion-dollar over-the-counter (OTC) swaps market. CFTC Chairman Gary Gensler told Congress his agency would have to cut personnel from 680 employees to below 440. He also said the CFTC would be unable to police or ensure transparent markets in either futures or swaps.
Regulators have explored other options including user fees, something the futures industry has lobbied against, and outsourcing many market monitoring responsibilities to the National Futures Association (NFA).
Zubulake speculated the CFTC may need to delay implementing much of Dodd-Frank if it doesn’t get the funding it needs. "I don’t know how implementing something without being able to enforce it makes sense," he says.