CFTC Chief: Funding Cuts Will Kill Agency’s Ability to Write Regulations

By Ellyn Ferguson, CQ Staff

The chairman of the Commodity Futures Trading Commission told appropriators Thursday that his agency will not be able to write regulations implementing a congressionally mandated expansion of over-the-counter derivatives market regulation if the agency’s current funding levels are cut.

And without a funding increase, he added, the agency would lack the resources to enforce the new rules.

A House-passed bill (HR 1) to fund the government through September would cut $57 million from the commission’s current funding. CFTC Chairman Gary Gensler said a retroactive cut on that scale would force him to lay off two-thirds of the commission’s almost 680 employees.

“We could not ensure confidence in the pricing of oil, confidence in the pricing wheat, cotton, corn, interest rates and currencies,” he said.

Funding at that reduced level in subsequent years would leave the commission without sufficient resources to write the new regulations, he said.

The CFTC has requested $308 million for fiscal 2012, an 82 percent increase over the funding level of $168 million for fiscal 2010. Under stopgap spending measures, the commission has been operating at fiscal 2010 funding levels in the current fiscal year.

Jack Kingston, R-Ga., chairman of the House Agriculture Appropriations Subcommittee, told Gensler the funding increase would be a tough sell, given the current budget-cutting mood in Congress.

“It’s going to be a problem,” Kingston said. “We want to work with you. We don’t want to derail anything.”

Last year’s financial regulatory overhaul law (PL 111-203) gave the CFTC new authority to regulate over-the-counter derivatives in addition to its existing duties, which include oversight of futures markets for agricultural products as well as futures contracts involving crude oil, gasoline, metals, interest rates and foreign currency.

Gensler said Congress would be making an investment in a fair and transparent over-the-counter derivatives market if it approves the agency’s two-year budget request to double funding, upgrade technology and add personnel.

“At its core, the mission of the CFTC is to ensure the integrity and transparency of derivatives markets so that hedgers and investors may use them with confidence,” Gensler told the panel.

Gensler is already facing pressure from other congressional panels in his efforts to implement the new regulatory authority.

House Agriculture Chairman Frank D. Lucas, R-Okla., has blasted the agency for what he considers too fast a pace in its rulemaking, while Senate Agriculture Chairwoman Debbie Stabenow, D-Mich., has warned the agency to move with caution and care on proposed rules.

The Appropriations subcommittee’s ranking Democrat, Sam Farr of California, said Congress expanded the agency’s authority to bring transparency to an unregulated derivatives market that contributed to the 2008 financial meltdown.

Lawmakers, Farr said, should make sure there is sufficient funding “to hire the referees to go in there and make sure the game is played right.”

Kingston zeroed in on what the agency could accomplish if its budget is flat funded.

“Do you have enough staff right now to write the rules” for the over-the-counter market? Kingston asked.

“At $168 million, we have enough staff to write the rules,” Gensler said, referring to the agency’s current funding level. “If we went to $112 million, we would not.”

Enforcement would become an issue if there is no additional money, he said.

Kingston expressed concern about the pace of rulemaking and said he would talk with Gensler about prioritizing the sequence of rules. Kingston said if the CFTC gets even a year ahead of its international counterparts in finalizing rules, some U.S. financial companies might move their operations offshore to take advantage of the gap.

Kingston said it is one of the issues he plans to discuss with Gensler as the subcommittee works on the budget.

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