The House Agriculture Committee held a hearing on Oct. 11 to receive an update from Chris Giancarlo, the chairman of the Commodity Futures Trading Commission, on the CFTC’s agenda. Giancarlo's testimony covered a wide range of issues and initiatives at the CFTC, including cybersecurity, fintech, enforcement, Project KISS, swap trading and reporting rules, clearinghouse supervision, and cross-border issues.
Giancarlo also made an announcement related to the CFTC's swap dealer registration requirements. He said the CFTC will delay a pending reduction in the registration threshold from $8 billion to $3 billion in notional value, which is due to take effect in December. He explained that this delay would give the two new CFTC commissioners time to review the most recent data, and promised a "final resolution" in the first half of next year.
During the question-and-answer period of the hearing, members of the committee raised the following concerns:
Clearinghouse supervision: Several members of the committee, notably Rep. Mike Conaway (R-Texas), the committee's chairman, expressed concerns about a proposal now under consideration in Europe that would strengthen EU oversight of non-European clearinghouses. Giancarlo noted that his predecessor Tim Massad spent three years negotiating an agreement on equivalence of clearinghouse oversight with the European authorities, and said Europe should remain committed to that agreement. "Where I come from, a deal is a deal," Giancarlo said.
Clearinghouse resolution: Several members, notably Reps. Bob Goodlatte (R-Va.) and Frank Lucas (R-Okla.), raised concerns about the "orderly liquidation authority" in Title II of Dodd-Frank, which creates a legal framework for resolving systemically important financial institutions. Giancarlo agreed that this authority was designed for banks, but said it should be "retailored" for clearinghouses rather than abolished altogether. Putting the process into the hands of a bankruptcy judge instead of regulators would be "not a good outcome," he said.
Enforcement: Several members of the committee asked Giancarlo to explain the recent change in enforcement policy aimed at encouraging market participants to voluntarily self-report their misconduct to the CFTC in return for lower penalties. Giancarlo explained that this should not be interpreted an indication that the CFTC is taking a more lenient approach. He said he remains fully committed to the whistleblower program initiated by Massad and has taken several steps to strengthen enforcement. The purpose of rewarding companies that self-report, he said, is to provide an incentive for cooperation, which will make it easier for the CFTC to identify bad actors and remove them from the industry.
Cyber: Rep. Frank Lucas (R-Okla.) and several other members asked Giancarlo to discuss what steps the agency is taking to protect its records and systems from being hacked. Giancarlo commented that the CFTC faces roughly 10,000 cyber-attacks each month and reiterated his views on the importance of constant vigilance. He noted that the agency recently conducted a disaster recovery exercise based on a simulated cyber-attack on U.S. derivatives markets and said several more have been scheduled in the months ahead. He also said the CFTC is cataloguing all of the records it holds that contain personal identification information and is looking for ways to reduce that information and strengthen the protections. He cautioned, however, that the CFTC needs more funding to fill the vacancies in its cyber security staff.
CFTC-SEC Harmonization: In response to a question from Rep. Lucas, Giancarlo said that he has formed an "ad hoc working group" with Jay Clayton, his counterpart at the SEC, to identify the areas where the two agencies can harmonize their rules and regulatory practices. He did not say what areas this initiative is covering, but promised some announcements by the end of the year.
Fintech: Numerous members of the committee, including representatives from both parties, expressed concern about regulatory obstacles to innovation in financial technology and asked Giancarlo what Congress should do to address this issue. Giancarlo noted that regulators in other countries have taken the lead in encouraging new and emerging companies to develop innovative products and services, whereas in the U.S. the "alphabet soup" of regulators has made it more difficult for innovators. He described his LabCFTC initiative and his efforts to transform the CFTC into a "21st century regulator," and agreed that legislation may be needed at some point in the future to provide the agency with more flexibility. He cautioned against creating a special charter for fintech companies, saying this would favor larger companies with sufficient resources to navigate the regulatory process.
Project KISS: Giancarlo gave committee members a brief overview of this initiative, which is meant to apply the agency's existing rules in ways that are "simpler, less costly, and less burdensome." Giancarlo said the CFTC has received more than 60 comments from the public with suggestions for areas where the rules could be simplified, and added that CFTC staff have identified more than 40 examples of ways to fulfill this objective.