Defining the Scope of a Consumer Education and Protection Program for the Post-Dodd-Frank World
Commissioner Scott O’Malia
April 28, 2011
Good morning. I’d like to welcome you all to the first public meeting to explore how the CFTC should rebuild its consumer education, protection, and outreach program as required by the Dodd-Frank Act. I have organized this meeting today as a way to initiate the dialogue among individuals, organizations, and fellow regulators at the forefront of the most successful financial literacy, education, and outreach programs to advise the Commission as to how to establish a quality consumer education and outreach program. It would be foolish for the Commission to try and attempt to establish a program out of whole cloth without consulting the experts.
I am overwhelmed by the levels of experience and expertise that we have on the panels today. Not only do we have representatives from six of our fellow federal financial regulators, but we have representatives from the CFA Institute, The Options Industry Council, the National Futures Association—the self-regulatory organization to the futures industry, AARP, Steben & Company, the American Savings Education Council (ASEC) of the Employee Benefits Research Institute (EBRI), the National Endowment for Financial Education (NEFE), the Financial Fraud Enforcement Task Force, MetLife, FINRA, the American Institute of CPAs (AICPA), and the North American Securities Administrators Association (NASAA).
The Dodd-Frank Act has radically expanded our responsibilities. Today, the CFTC has a new mandate to oversee the nearly $300 trillion U.S. swaps market coupled with requirements to thwart, detect and prevent violations of the Commodity Exchange Act and regulations through establishment of a new whistleblower program and the provision of educational initiatives. Alongside this, commodities have become a new favored investment class with consumers seeking exposure in metals, oil and gas, and currencies. In many cases consumers are not well informed about the fees, investment strategies or the structure of the investment itself.
The Commission is preparing to reorganize itself to meet these challenges. The Commission has established an internal working group and I am pleased my counsel Laura Gardy is part of that team, which held its first meeting on Tuesday. This meeting today will attempt to leverage your collective wisdom and I intend to continue this dialogue as our program develops and matures. Laura will serve as the conduit between the external information gathering efforts and the internal working group.
I recognize that establishing an effective program is more than filling some new boxes in an org chart. I believe there are three basic elements we need to figure out as we organize the CFTC program.
First, we need your recommendations as to how we establish an effective public outreach program. What are the first steps we need to take in developing a program aimed at enlightening the public as to their rights, their risks and their responsibilities in dealing with the futures, swaps and options markets?
Second, we will only be successful if we establish a program that is organizationally effective and efficient within our own building. In other words, we need your assistance in establishing an effective consumer and whistleblower organization that can resolve consumer issues in a rapid manner. We must leverage technology to automate our processes to track, manage and analyze complaints, and ensure that the correct office (or offices, as the case may be) is aware of and takes ownership of the complaint.
Third, we must develop a program that works cooperatively with the self regulatory organizations and other regulators. This will require that we continue to work with our friends at the National Futures Association, the exchanges and clearing houses which also have responsibility to serve and regulate the futures, swaps and options markets as well as the SEC, FTC, DOJ and state regulators. The good news is that we are not alone in this venture.
I do believe it is important to note that the Dodd-Frank Act did not include CFTC regulated products under the umbrella of “consumer financial products or services” that will be regulated by the new Consumer Financial Protection Bureau (CFPB). However, the Dodd-Frank Act did give us something. It amended the Commodity Exchange Act by adding Section 23(g), which establishes within the Treasury of the United States a revolving fund that will be available to the CFTC for the payment of whistleblower awards and education initiatives.
This new Customer Protection Fund will be fully funded by civil monetary penalties collected through the Commission’s enforcement program. To give you an idea as to the potential funds available, during fiscal year 2010, the CFTC’s enforcement efforts resulted in the imposition of more than $136 million in civil monetary penalties.
I have a lot of experience with federal appropriations, and I have been very vocal as to how I believe the Commission ought to be using its funds. In times of tight resources, when you get non-appropriated funding to implement statutory mandates there is no reason to waste any time in getting that ball rolling.
In the interest of time, I propose we do that right now. We have three panels on the agenda today. The first panel will focus on identifying the gaps in current consumer education and outreach initiatives to be filled by the CFTC. The second panel will focus on the benefits of having a consumer education and outreach program. The third and final program will explore communication, messaging and outreach. I’ll begin each panel with panelist introductions. As well, I’ve asked each panelist to briefly present their view as to what the CFTC needs to think about as it defines the scope of a consumer education and protection program. I will then lead an open discussion.
I’d like to thank you all for taking time out of your busy schedules to share your knowledge and expertise with the Commission. I’d especially like to thank Ken McDonnell of ASEC who assisted my staff in putting these panels together and ensuring that we had the right folks at the table. I would also like to thank Kathy Floyd from the SEC who has worked closely with my staff in ensuring that we ask you all the right questions.
Consumers are facing more sophisticated, more complex, and more diverse financial markets than ever before. While the amount of available information in terms of quantity is astounding as compared to any other time, it is also deeply complex. New products are coming out every day, and technological developments are creating more distribution and communication channels than ever before. We’ve got increasing numbers of new participants in our regulated markets, and we’ve got a duty to ensure that they understand the risks and how to manage them, because in the futures markets, there can be little margin for error.