Lack of additional funding could hamstring the Commodity Futures Trading Commission’s (CFTC's) oversight of markets, including investigating fraud in crypto assets.
CFTC commissioner Brian Quintenz, speaking at the Securities Industry and Financial Markets Association (Sifma) annual operations conference in Phoenix, said a small increase in the agency’s budget could significantly improve its ability to monitor the capital markets, but further budget cuts will hamper its mission.
“The CFTC is making the best use of the resources it has been given. … However, without sounding alarmist, I do want to express my genuine concern that the recent budget cuts hinder the CFTC’s ability to meet its core missions,” Quintenz said. “Staff’s ability to conduct regular risk, compliance, and cybersecurity examinations will be curtailed; enforcement efforts to police fraud and manipulation—particularly in the cryptocurrency spot markets—will be strained.”
The regulator sought a budget of $281.5 million for 2018 but was only granted $249 million in the appropriations bill approved in late March. This represents about a $1 million cut to the agency’s previous year’s outlay.
Quintenz said the CFTC has identified three areas where a budget increase would bring more efficiency: cultivating a more econometric focus and higher funding for the office of the chief economist to hire more quants, a focus on examinations and stress testing for clearinghouses, and oversight of financial technology, particularly in the crypto market.
“An increase in funding for the office of chief economist would promote the agency’s use of sophisticated econometric and quantitative analyses necessary to model risk, conduct stress tests, and assess the impact of regulations,” said Quintenz. “The transformational challenges associated with fintech advancements and oversight of the burgeoning cryptocurrency markets require a forward-looking regulator with in-house fintech expertise and an ability to proactively engage with innovators. A small funding increase would build on the chairman’s highly impactful LabCFTC initiative.”
He added that counterparty risk has increased, which has resulted in “the supersizing of clearinghouses,” making it more important the agency ensures each clearinghouse is regularly examined for liquidity, risk management, and cybersecurity. LabCFTC is the agency’s outreach to the fintech sector launched last year.
The CFTC, Quintenz noted, will do its best with its current budget and that a review of its departments will create efficiencies, but hopes to receive a higher allocation in the next year.
Quintenz laid the blame for the agency’s budget cuts on the previous administration’s mismanagement that he said eroded trust in the CFTC. He cited lease agreements on office expansions that were not appropriate for government agencies, unnecessary staff furloughs in 2013, and failed union negotiations in 2016 as issues that cast doubt on its fiscal responsibility.
“I believe that the CFTC’s grim budget situation today is largely attributable to the irresponsible stewardship of the prior administration. Under the leadership of Chairman Gary Gensler and Chairman Timothy Massad, years of unrealistic budget requests, fiscal mismanagement, and political gamesmanship with Capitol Hill damaged the agency’s reputation and credibility with appropriators who, when now forced to pick and choose between competing priorities, remember those past affronts like yesterday,” he said.
Despite budget issues, the CFTC maintains it will ensure its regulatory mission is strong. Quintenz said he and his counterparts at the Securities and Exchange Commission have discussed harmonizing rules and are in the process of identifying which areas can be coordinated. This move, he said, will not only improve regulatory efficiency but will make it easier for reporting firms to meet requirements.
It’s a trio of problems: Mifid II’s data problem; blockchain projects stalled; and data quality issues for machine learning.Subscribe to Weekly Wrap emails