February 28, 2013 / 4:57 AM / in 5 years

CFTC head says tight budgets will hurt enforcement

WASHINGTON (Reuters) - The top U.S. derivatives regulator told lawmakers on Wednesday it was “shelving” enforcement cases because its budget was too tight to properly police the futures and swaps markets.

The Commodity Futures Trading Commission (CFTC) also said that looming federal spending cuts would hamper the implementation of the Dodd-Frank law aimed at preventing a repeat of the 2007-09 financial crisis.

“We are shelving enforcement actions. Our examinations staff are still the same size as they were a couple of years ago,” CFTC Chairman Gary Gensler told lawmakers during a question session in a U.S. Senate committee.

Gensler specified that in some cases the CFTC had not been able to prosecute wrongdoers. He declined to give details or to say whether its work on the global Libor rate-rigging scandal was hampered by the tight budget.

The CFTC took on vast new responsibilities after the credit meltdown and is now in charge of writing rules for the $650 trillion swaps market, which used to be lightly regulated and played a role in bringing about the crisis.

Under the CFTC’s new rules, clearing houses will need to stand in between buyers and sellers and take on massive counterparty risk, while swaps trading will move to exchange-like platforms called swap execution facilities.

The $85 billion in across-the-board spending cuts expected to kick in on Friday unless lawmakers agree to an alternative plan - the so-called sequester - will make it harder to finish the overhaul on time, Gensler said.

“I think if we have registration of 15 or 20 swap execution facilities, many of those applications will probably be sitting on the shelf for a while,” Gensler told the senators, in reference to the sequester budget cuts.

Gensler has often pointed out that the agency’s budget has not materially risen over previous years despite the size of the swaps market, which is eight times as big as the futures market, the CFTC’s original remit.

He said the CFTC would have to tighten its budget by just over 5 percent, or $10 million for the full fiscal year.

A duo of scandals surrounding futures brokers has tarnished the CFTC’s oversight of the futures market, with the collapse of MF Global in October 2011 followed rapidly by that of Peregrine Financial Group, or PGBest.

“We know we have to do a better job in examining futures commission merchants,” Gensler said.

Of all the global agencies involved in Libor, the CFTC has raked in the biggest fines: $257 million last year and more than $1 billion in 2013, money that goes to the Treasury. The CFTC had a budget of just over $200 million last year.

Reporting by Douwe Miedema; editing by Prudence Crowther

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