CFTC acting chairman testimony on financial services and general government

As Prepared for Delivery
Good morning, Chairwoman Capito, Ranking Member Coons and members of the Subcommittee.  Thank you for the opportunity to testify on the Commodity Futures Trading Commission (“Commission” or “CFTC”) FY 2018 Budget Request.

I appreciate the support your Committee has shown the Commission and for understanding the critical role we play in regulating the derivatives markets.  I am pleased to be here today with Securities and Exchange Commission’s (SEC) Chairman Clayton, and I very much look forward to our discussion today and working collaboratively with him as we move forward.

For more than 100 years, farmers and ranchers have used listed derivatives markets to hedge their costs of production and delivery price so that Americans can always find plenty of food on grocery store shelves.  But derivatives markets are not just beneficial for agricultural producers.  They influence the price and availability of heating in American homes, the energy used in factories, the interest rates borrowers pay on home mortgages and the returns workers earn on their retirement savings.  In addition, more than 90 percent of Fortune 500 companies use derivatives to manage commercial or market risk in their worldwide business operations.  In short, derivatives serve the needs of society to help moderate price, supply and other commercial risks to free up capital for economic growth, job creation and prosperity.

It is imperative that we get our regulation of America’s derivatives markets right, and that regulation needs to be supportive of economic growth.  To do that, our oversight of market participants, here and abroad, should provide a model of regulatory excellence.  We need to review, and where it makes sense, reform, rewrite, and appropriately simplify our regulations to allow market participants to effectively manage risk.

It is these basic tenets that form the basis of the Commission’s FY 2018 Budget Request.  With this Budget Request, the Commission will be able to support regulatory excellence without sacrificing other important Commission work, such as Enforcement or Surveillance activities.  In the FY 2018 request, the Commission placed importance on specific capabilities that will allow the Commission to enhance economic cost-benefit analysis capabilities; strengthen Commission examinations capabilities over swaps clearinghouses, and address the regulatory challenges related to market innovation.

Budget Request
The Commission is requesting $281.5 million and 739 full-time equivalents (FTE) for the fiscal year 2018 operations.  This is an increase of $31.5 million and 36 FTE over the FY 2017 level.  The $31.5 million in additional funds is not a formulaic or superficial number, but a thorough and informed assessment of what the CFTC needs to execute its mission in FY 2018.  This amount differs from the President’s Budget Request of $250 million.

Under my direction, the Commission has utilized its ability to provide a budget directly to the Congress.  This is the first budget submission under my leadership, and I believe it is important to articulate the needs of the Commission based on my perspective and vision for a renewed and refocused CFTC.

On January 20th, I began a process of looking at every function and every expenditure undertaken by the Commission.  In the private sector, we would never simply take last year’s budget number and add a percentage increase.  Rather, each dollar requested had to serve a purpose.  Likewise, when I sat down with our leadership team, my budget baseline was zero.  We built our budget from the ground up.  Drawing on my business experience, I have already identified several areas in which the agency can run more efficiently and save taxpayer dollars.  For example, I reviewed the needs of the offices that provide various support services to our divisions, and I intend to gain efficiencies by instituting a central service organizational model that is a best practice in the private sector.  We also discovered areas within our current mission where we need additional investment.  The $281.5 million FY 2018 budget request reflects the current needs of the CFTC based on this analysis.

The era of Dodd-Frank implementation at the CFTC is now drawing to a close.  It is time for the agency to resume normalized operations and practices.  That means a return to greater care and precision in rule drafting, more thorough econometric analysis, less contracted time frames for public comment and a reduced docket of new rules and regulations to be absorbed by market participants.  It also means that the CFTC will embrace the Administration’s directive that each federal agency minimize the costs incurred by regulation.  We plan to accomplish this through the KISS initiative I launched in March, which includes both internal and external reviews of rules and processes.  It is another way of looking for opportunities where we can reinvest and maximize current resources.

Normalizing operations at the CFTC also means working cooperatively with other federal market regulators, like the SEC, and where appropriate, the CFTC should look to delegate responsibility to the National Futures Association and other SROs for certain compliance matters.

In addition, we are reevaluating the focus of our enforcement efforts.  The Commission’s enforcement function is staffed by experienced and decorated former prosecutors, and I can proudly say is one of the premier civil law enforcement arms of the federal government.  Yet, the Commission’s enforcement efforts must look to benefit from cooperation, and where appropriate, defer to the civil and criminal capabilities of other federal and state regulators and enforcement agencies.

Page 1 of 3
About the Author