July 3, 2012

Government Agency Turns Barclays Settlement Into a Power Grab

Hester Peirce

Former Senior Research Fellow
Summary

The CFTC went beyond merely fining Barclays. It inserted itself into a private, foreign benchmark-setting process and used its enforcement process to set industry-wide rules. And it did so without the administrative checks and balances or cost-benefit requirements that govern agency rulemaking.

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Last week, the Commodity Futures Trading Commission, known as the CFTC, confirmed its regulatory jurisdiction has no bounds and that it is unwilling to play by the rules laid out by Congress. First, the CFTC announced a $200 million settlement with Barclays based on the international megabank's alleged attempts to manipulate two widely used global financial benchmarks, the London Interbank Offered Rate and the Euro Interbank Offered Rate. In the settlement, the CFTC attempts to take over the process that creates those benchmarks. Second, it issued its long-awaitedcross-border guidance, which set forth its aggressive plans to regulate derivatives transactions all over the world. 

The behavior of Barclays, as described by the CFTC and the other regulators that brought companion actions, is not defensible. Neither is the CFTC's regulatory response. 

The CFTC went beyond merely fining Barclays. It inserted itself into a private, foreign benchmark-setting process and used its enforcement process to set industry-wide rules. And it did so without the administrative checks and balances or cost-benefit requirements that govern agency rulemaking. 

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