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Is CFTC “Guidance” law?

Scott O’Malia, the CFTC’s only Republican Commissioner, launched another articulate attack on Dodd-Frank implementation in his 12th July Dissent from Cross-Border Guidance, as usual his remarks are worth reading in full. He opined that the Guidance: (1) fails to articulate a valid statutory foundation for its overbroad scope and inconsistently applies the statute to different activities; (2) crosses the line between interpretive guidance and rulemaking; and (3) gives insufficient consideration to international law and comity. He argues that these shortcomings are compounded by serious procedural flaws in the Commission’s treatment of international harmonization and substituted compliance, as well as in its issuance of the Exemptive Order. In summary, the Guidance is “a regulatory overreach based on a weak foundation of thin statutory and legal authority”, which since it has “the force and effect of law” should have been subject to the Administrative Procedure Act.

Although bearing every hallmark of a last-minute “rush-job”, the cross-border guidance is a vital aspect of Dodd-Frank Title VII implementation. While O’Malia’s objections boil down to procedural criticism, by implication he makes the important point that the guidance will almost certainly be open to substantive legal challenge as to its enforceability as law. That scraping noise in the background may be the sound of lawyers sharpening their quills.

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