The Commodity Futures Trading Commission, the main U.S. derivatives regulator that pried $1.7 billion in fines and other penalties from the firms it regulates during the past year, is furloughing workers because it doesn’t have enough money to pay them.
“This is the budget reality we face,” Chairman Gary Gensler told employees today in an e-mail, which announced they would be asked not to work on as many as 14 days in the fiscal year that began this month. “I understand this is extremely tough news for your families and you. I want to thank each and every one of you for your dedication to this agency and your hard work, which is of great benefit to the American public.”
The CFTC’s investigation of manipulation of the London InterBank Offered Rate, which sets rates on products such as mortgages and interest-rate derivatives, led to fines this year including $700 million from UBS AG. The furloughs coincide with the Washington-based regulator’s mandate, stemming from the 2010 Dodd-Frank Act, to start overseeing the $633 trillion over-the- counter derivatives market.
“The timing is unfortunate given the need to implement Dodd-Frank,” said Robert Webb, a finance professor at the University of Virginia. The 16-day partial U.S. government shutdown this month also disrupted the agency, and further time off will only make the CFTC’s job harder, he said.
“The work has piled up,” Webb said.
The Dodd-Frank Act has provisions designed to move swaps, which helped fuel the 2008 credit crisis, from largely unregulated trading negotiated off exchanges to more transparent systems including swap-execution facilities. The CFTC is currently implementing rules for that transition, and the new government-mandated SEFs were required to open on Oct. 1.
Gensler mentions his need for increased funding in almost every speech he delivers, noting that the swaps market that just fell under the CFTC’s jurisdiction is more than 10 times bigger than the regulator’s prior territory. Yet, the CFTC employs 676 people, only 40 more than it did 20 years ago, he said today during an interview.
“I consistently advocate, the president consistently advocates, for new resources,” Gensler said in the interview. He, like President Barack Obama, is a Democrat. “Our agency is smaller than any of the large law firms,” Gensler said.