The Commodity Futures Trading Commission was one of Dodd-Frank’s big winners and has not hesitated to interpret its new and existing powers broadly. So it was with skepticism that I read Monday’s article in the Financial Times that suggests that the CFTC is looking for ways to exempt firms under foreign regulators from its rules.
CFTC Chairman Gensler, often sitting at the elbow of legislators and their staff, played an active role in drafting Dodd-Frank. Not surprisingly, he secured a lot of new power for his agency in the process. Most importantly, the CFTC became the new regulator for almost the entire over-the-counter derivatives market.
There were also more subtle additions to the CFTC’s power, including a new provision in Dodd-Frank that will make it easier for the CFTC to bring enforcement actions against people who did not intend to engage in improper conduct. It also expanded the scope of a number of key definitions, such as “futures commission merchant,” to include any market participant the CFTC deems should be regulated. Another example is a strange provision that gives the CFTC exclusive control over critical derivatives market information. The provision forbids other regulators, including foreign regulators, from getting access to information about the derivatives market without first agreeing to pay any legal costs the CFTC might incur as a result. Foreign governments responded with justifiable anger and threats of retaliatory provisions that would keep European data from American regulators.
The CFTC, even as it argues that it does not have enough money to do its job, acts as if it believes that it is best-suited to regulate just about everyone. The agency, resisting precise definitions of which entities and products are covered by its new authority, has wielded its new powers expansively. In addition, the CFTC has not let the mandatory rulemaking under Dodd-Frank keep it from adding new regulatory burdens not mandated by Dodd-Frank. For example, the CFTC recently required foreign boards of trade that are currently open to U.S. investors to go through a new registration process. And just last week, the CFTC got sued for its attempt to expand its regulatory authority to include many mutual funds previously subject only to SEC regulation.
The CFTC has secured for itself a sufficiently large domestic mandate that it ought to refrain from trying to regulate the rest of the world too.