By Sarah N. Lynch
WASHINGTON, March 6 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
His testimony comes just two days after the White House
unveiled its budget request for fiscal year 2015, which begins
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
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
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
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,"
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.