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Congress delivers slap to CFTC

The House of Congress has passed the bill to reauthorise CFTC appropriations to 2018. H.R. 4413, the Consumer Protection and End User Relief Act, aims to substantially limit the Agency’s powers and orders the CFTC to clarify the cross-border regulatory fog. Passed 265-144 along partisan lines, the bill has been handed to the Senate, where it is likely to remain; Govtrack.us, a legislation tracking service, estimates that the bill has a scant 10% chance of receiving final Presidential assent. The White House has already signalled its displeasure, stating that the bill “undermines the efficient functioning of the Commodity Futures Trading Commission (CFTC) by imposing a number of organizational and procedural changes and offers no solution to address the persistent inadequacy of the agency’s funding.” However, the bill contains fundamental features, which, even in their inevitably watered-down final incarnation, would substantially alter the Agency’s remit and powers; a selection is summarised below:

  • Directs the CFTC to issue formal rules governing cross-border regulation of derivatives transactions and to defer to non-US regulators in their respective jurisdictions
  • Requires a new CFTC rule to amend or reduce the $8bn. de minimis swap dealer threshold
  • Increases client protection in the event of FCM bankruptcy by mandating written client-money policies and the subordination of all claims on the bankrupt estate to those of the client
  • Instructs the GAO to examine the sufficiency of CFTC funding and to perform a wide-ranging audit of Agency effectiveness
  • Requires CFTC staff to submit a detailed technology use and acquisition plan every five years and to develop policies for the storage of market data
  • Requires the Agency to perform and publish extensive cost benefit analysis for each regulation, including: its statutory justification, the length of its public comment period and the deadline for compliance
  • Directs the CFTC to amend regulations regarding exemption criteria for certain registered commodity pool operators
  • Excludes physically-settled, non-financial commodities from the definition of “swap”, subject to certain conditions
  • Excludes commercial market participants from clearing requirements if their business is physically settled and is predominantly hedging
  • Requires the CFTC to exempt utility-operations swaps from utility special entity status

The bill’s remedies imply an Agency that has indulged in a legislative spree, unchecked by either due procedure or minimal competence. Aimed largely at the perceived excesses of the Gensler-era CFTC, it is nevertheless likely that a number of the above measures will eventually be imposed: externally by judicial decision, by internal reform, or by the rest of the world’s refusal to bend the knee. Although unlikely, it might be less painful for all concerned if the bill were to be passed in full.

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