UPDATE 1-Acting CFTC head pleads with U.S. Congress for more funding
By Sarah N. Lynch
WASHINGTON, March 6 (Reuters) - The acting head of the U.S. derivatives regulator pleaded with federal lawmakers on Thursday to give his agency more funding, saying a tight budget has prevented staff from completing compliance exams and threatens to hobble enforcement.
"I do not intend the testimony that follows to sound alarmist ... but I do want to be sure that Congress, and this committee in particular, have a clear picture of the potential risks posed by the continued state of funding for the agency," said Mark Wetjen, the acting head of the Commodity Futures Trading Commission, in prepared remarks before a House of Representatives appropriations panel.
"When not overseen properly, irregularities in these markets ... can severely and negatively impact the economy as a whole and cause dramatic losses for individual participants. The stakes, therefore, are high," warned the normally mild-mannered Wetjen.
His testimony comes just two days after the White House unveiled its budget request for fiscal year 2015, which begins Oct. 1.
The Obama administration proposed $280 million for the CFTC in its proposed budget, which is more than its current $215 million budget, but considerably less than the $315 million the White House had sought last year.
The CFTC in 2010 won broad new powers from Congress to police the over-the-counter derivatives market, which broadened its oversight beyond just futures and options.
It is now the leading regulator in charge of inspecting and enforcing regulations for numerous swap dealers, clearinghouses and swap trading platforms.
The Republican-controlled House is expected to unveil its own more conservative budget later in the year.
The Democrat-controlled Senate, meanwhile, has said it has no plans to pass a budget this year. The House and Senate already struck a two-year budget deal in December to cover 2014 and 2015 budget levels.
Nevertheless, Wetjen urged the Republican-controlled appropriations panel to strongly consider the funding boost for his agency.
The CFTC over the last few years has faced a series of high-profile failures of firms it regulated, from MF Global's collapse to the 20-year fraud perpetrated by the now-jailed founder of Peregrine Financial Group.
Since then, the CFTC has worked to conduct risk-based examinations of futures brokerages to ensure customer money is safe.
Wetjen told lawmakers Thursday that because of budget constraints, the agency has been unable to meet its targets.
"The reality is that the agency has fallen far short of performance goals for its examinations activities, and it will continue to do so in the absence of additional funding from Congress," he said.
"The Commission failed to meet performance targets for system safeguard examinations and for conducting direct examinations" of futures brokerages and intermediaries, he added.
He also warned that the CFTC might be forced to scale back its enforcement efforts against law-breakers at a time when it has been bringing some of the largest cases in its history against banks accused of manipulating the Libor interest rate.
"It is not clear that we could maintain the current volume and types of cases, as well as ensure timely responses to market events," he said.
But Representative Robert Aderholt, the Alabama Republican who chaired Thursday's hearing, accused the agency of exaggerating its resource needs and playing politics.
He noted that previously, under former CFTC Chairman Gary Gensler, the agency failed to use its authority to avert two days of unpaid leave for employees, even though the law permitted it. But a short while later, he said, the agency did utilize those powers to avoid additional furloughs.
"CFTC's choice to not prevent all agency furloughs rests squarely on its own shoulders, and those of its employees," Aderholt said.
According to an internal agency memo from January 2014, the Government Accountability Office in December launched an inquiry into exactly what legal authority is at the CFTC's disposal to avert the furloughs.
His complaints contrasted starkly with some Democrats on the panel who advocated for greater funding.
Democratic Representative Rosa DeLauro of Connecticut said more money is needed to reduce fraud risk, and will in fact help the government make more money in the long run because the CFTC's enforcement actions led to a collection of $1.7 billion in sanctions for the 2013 fiscal year.
That figure, she said, is a "heck of a return" on the government's investment in the CFTC.