As the House of Representatives considers a bill to renew the Commodities Futures Trading Commission (CFTC), Congresswoman Maxine Waters (D-CA), criticized provisions that would hamstring regulators’ ability to regulate the complex and important derivatives marketplace.
The Ranking Member of the Committee on Financial Services criticized the provisions as a multifaceted Republican attempt to roll back Wall Street Reform, by opening up overseas loopholes for big banks, imposing heavy administrative burdens on our financial regulators, and exposing our financial regulators to endless litigation.
Specifically, the provisions would impede the CFTC and Securities and Exchange Commission’s enforcement abilities by allowing bank operations to substitute Dodd-Frank protections in favor of lenient, foreign rules in foreign markets, even though that risk may be imported into the U.S. Additionally, the bill imposes burdensome cost-benefit analysis requirements, despite the CFTC’s current policy of considering stakeholders, markets, and many other factors in its decisions.
Waters will also offer an amendment to the measure that would protect the CFTC’s cost-benefit considerations from frivolous and excessive litigation by special interest groups. She also supports an amendment offered by Rep. Gwen Moore (D-WI) that would have struck the cost-benefit provisions and would have been a modest improvement in the bill.
On the House floor, Waters made the following statement:
“I rise today in opposition to H.R. 4413, legislation that would reauthorize the Commodities Futures Trading Commission.
This measure addresses an important goal for this Congress – reauthorization of the CFTC, our regulator whose mission it is to ensure fair rules of the road for the majority of derivatives traded by U.S. firms.
I know that Rep. Peterson and Rep. Scott, the Ranking Members of the Committee and Subcommittee, respectively, have worked in good faith to improve this legislation, and that they care deeply about making the CFTC work for farmers, manufacturers and other businesses that use futures and derivatives. I thank them for their efforts.
However, I’m concerned about provisions in the bill – unrelated to reauthorization of the Commission – that I believe would undermine the CFTC’s authority and hamstring its ability to regulate a complex and important marketplace.
Mr. Speaker, this legislation imposes heavy administrative burdens that prevent, delay, or weaken CFTC’s efforts to implement important reforms called for by the Dodd-Frank Wall Street Reform Act.
H.R. 4413 would also make it much more difficult for the CFTC and the SEC to regulate derivatives transactions involving foreign operations of U.S. banks. It does so by establishing hard-to-overturn exemptions that allow their operations to substitute Dodd-Frank rules in favor of more lenient, foreign rules in foreign markets – despite the fact that the risks may come back to the United States.
These types of derivatives transactions contributed to the massive taxpayer bailout of AIG in 2008, created enormous losses to JP Morgan in the “London Whale” episode in 2012, and brought down the hedge fund Long Term Capital Management in the 1990s.
This bill makes the job of the CFTC and the SEC to police derivatives operations of large U.S. banks and their foreign affiliates much more difficult.
In addition, under the guise of cost-benefit analysis, the bill imposes heavy administrative hurdles and new litigation risks on the CFTC, significantly impairing the Commission’s ability to do its job of regulating our derivatives markets. Like other agencies, the CFTC already considers the costs and benefits pursuant to numerous existing laws. And unlike any other regulator, the CFTC goes even further, considering the protection of market participants and the public, the effect on futures markets, price discovery, sound risk management practices and other public interest matters.
Even the courts have weighed in – finding that the CFTC has fulfilled its duty to consider the costs and benefits.
H.R. 4413 not only burdens an agency already facing limited funding with additional administrative burdens, but it also opens up new avenues for special interests to endlessly challenge the CFTC in court. Former CFTC Chairman Gensler noted that if this provision in H.R. 4413 is enacted, “it may well be hard to get any rule out of the building.”
Together, these changes undermine the CFTC’s ability to guard against some of the most complex and risky activities in our financial system.
And it is all just part of a multifaceted Republican effort to undercut laws and regulations that protect consumers, investors and the economy. It also comes just a week after House Republicans proposed an appropriations measure that dangerously underfunds the CFTC at 22 percent below the President’s request – a level which will lead to either agency wide closures or employee layoffs.
Mr. Speaker, we cannot continue to undercut and underfund Wall Street’s top derivatives cop with the authority to ensure compliance with the law. This bill is widely opposed by the Obama Administration, the AFL-CIO, broad coalition groups like Americans for Financial Reform and the Consumer Federation of America as well as derivatives end users, like the Petroleum Marketers Association of America.
I urge my colleagues to oppose this legislation.”