United States: CFTC Acting Chair Giancarlo Defends Budget Proposal

CFTC Acting Chair J. Christopher Giancarlo defended the Commission's 2018 Budget Request in testimony before the U.S. House of Representatives Committee on Appropriations Subcommittee on Agriculture, Rural Development and Related Agencies. The CFTC requested a budget increase from $250 million to $281.5 million. The request also called for the hiring of 36 additional full-time employees. Mr. Giancarlo asserted that the budget request represents a purposeful evaluation of the CFTC's mission and core responsibilities:

Mr. Giancarlo stated that the CFTC needs additional funding in order to conduct appropriate market analyses, such as systemic risk monitoring, to improve oversight capabilities and develop a more comprehensive understanding of the markets. Mr. Giancarlo warned that the current staff is incapable of delivering the level of quantitative analysis necessary to monitor and oversee all market participants effectively. In addition, Mr. Giancarlo noted the increasing number of designated clearing organizations as an area that will require additional and more sophisticated examination. Finally, Mr. Giancarlo argued that additional funding will help the CFTC to (i) integrate technological advancements that improve regulatory functionality and efficiency, (ii) cooperate with FinTech companies in order to support innovation, and (iii) address the regulatory challenges that will emerge as technology develops.

Mr. Giancarlo affirmed the Commission's commitment to streamlining processes and focusing on more efficient resource usage. He said that enforcement actions could benefit from better allocation of resources, improved staff management, and appropriate deferment to other government regulatory bodies or self-regulatory organizations. As an example, Mr. Giancarlo suggested the delegation of further compliance oversight responsibilities to the National Futures Association.

Commentary / Bob Zwirb

If the goal, as Acting Chair Giancarlo explains, is to "maximize how [the CFTC's] limited resources are used," a good place on which to focus is enforcement, deciding which cases make sense to bring. For example, the recent Davisco Foods matter – where a dairy company was sanctioned for providing a convenient price protection service for its milk suppliers – may not be the best use of limited resources if the objective is to pursue real wrongdoing, rather than technical violations that result in no harm.

Similarly, there are a lot of bread-and-butter fraud and financial misappropriation cases – retail forex being a prominent example – where neither the CFTC nor the NFA's direct involvement or expertise is always needed. Delegation of some of these matters to other agencies with experience prosecuting financial fraud, such as the U.S. Attorney's office and the FTC, might free up CFTC enforcement resources.

On the regulatory side, it is very encouraging that Chair Giancarlo is calling for greater resources to conduct cost/benefit analysis, and for more serious "quantitative assessments" and "econometric analysis" of such costs. The CFTC should also implement more qualitative analysis of such costs and benefits. In the words of the CFTC's own Market Intelligence Chief Andy Busch, "we're at the point now where we need to ask, do all these rules make sense?" The Risk Desk, Vol. 16, Issue 8, at 11 (Apr. 28, 2017). Such an inquiry would seem to dovetail nicely with the ongoing review promised by Chair Giancarlo.

Commentary / Steven Lofchie

In a recent article in Bloomberg BNA, I explained why Congress should look favorably upon the Acting Chair's request.

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