CFTC rushed rules, needs more cost-benefit review-IG

*CFTC rushing to meet arbitrary deadlines – watchdog

*CFTC IG says legal outweighed economic concerns

*Rep. Lucas: US can’t “unleash” without knowing impact

By Christopher Doering

WASHINGTON, April 18 (Reuters) – The U.S. futures regulator has rushed to meet arbitrary deadlines, and failed to sufficiently analyze the costs and benefits of new rules for swaps traders, according to the agency’s inspector general.

In a scathing 21-page report, the U.S. Commodity Futures Trading Commission’s Inspector General also found the agency’s own legal staff has overruled cost-benefit analysis in some cases because of fears of litigation.

“The Office of General Counsel appeared to have the greater “say” in the proposed cost-benefit analyses,” CFTC Inspector General said in the report.

“While we offer no opinion on the cost-benefit analyses for the four rules, we note that similar economic analyses in the context of federal rulemaking have proved perilous for financial market regulators,” it said.

The review was requested in March by Frank Lucas, chairman of the Agriculture Committee, and Michael Conaway, who oversees a subcommittee with CFTC oversight.

Lucas and Conaway asked the CFTC’s Inspector General to review the accuracy of the agency’s calculations of costs for four of its proposed proposals, including a definition on who will be swap dealers and major swap participants.

Republican lawmakers, along with those affected by the new regulations, have accused the CFTC of emphasizing speed over deliberation in writing the rules. Some have called for a delay to collect more data, determine how the measures will affect the market, and study the cost and benefits of the rules.

“The IG’s report confirms the CFTC’s focus on speed rather than deliberation and its bare-minimun approach to cost-benefit analysis,” said Lucas.

“We cannot unleash a wave of new regulations without an understanding of the impact they will have on the markets and the economy,” he said.

A CFTC spokesman could not be reached for comment.

The report found the CFTC has significant challenges estimating costs. In some cases, CFTC staff hoped to obtain costs estimates in comments to the proposed rules, but believed “the industry considers compliance costs to be proprietary and confidential information” and would not share them.

In the proposal defining swap dealers and major swap participants, the Inspector General found staff and management at the CFTC were aware the industry could have difficulty evaluating and commenting on the rule concurrently with other rules.

“However, at this stage in the process, staff indicated the overriding concern was meeting the rule-making deadline under Dodd-Frank,” the report found.

It also found that “generally speaking” CFTC staff did not consider quantifying costs when conducting cost-benefit analysis for the definitions rule.

The opaque swaps market was blamed for helping accelerate the 2007-2009 financial crisis. To try to prevent future financial problems from bad derivatives trades, the Dodd-Frank law requires all swaps be reported, and many of the deals to trade in more transparent venues connected to clearinghouses.

The Dodd-Frank Wall Street reforms of 2010 gave the CFTC, new found responsibility including oversight of the roughly $600 trillion global over-the-counter derivatives market. It has proposed dozens of new, detailed rules to help police the swaps market, but most have not been finalized.

Gary Gensler, the chairman of the CFTC, has said many of the rules the regulator needs to implement by the July deadline will slip into the fall before they are finally in place, and he downplayed the need for Congress to give it more time.

(Editing by Sofina Mirza-Reid)

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