WASHINGTON (Reuters) - The U.S. House of Representatives on Tuesday voted to weaken the Commodity Futures Trading Commission's power to regulate swaps overseas and take other steps likely to loosen regulation in derivatives markets, a shift critics say could weaken market stability.
The bill, which reauthorizes the agency's mandate, would reverse the CFTC's tough rules on U.S. businesses' swaps with counterparties abroad, requiring it to draw up a new regime together with the Securities and Exchange Commission.
In addition, the law would make the agency's staff responsible to the full five-strong commission, not just its chairman, which critics said would slow down decisions. It also subjects all the agency's decisions to cost-benefit analysis, a tool that opponents of regulation have used to defeat rules in court.
Small market players like farmers, who use futures to protect revenue from their crops against wild swings in market prices, would be exempted from some of the CFTC's costly new rules aimed at speculators.
Better Markets, a pressure group critical of the large banks that run much of the $710 trillion swaps market, said the bill was a "wish list of deregulation provisions that put Americans at risk of another devastating financial crash."
The House adopted the bill with 265-144 against largely along party lines with Republicans in support.
The CFTC, which regulates swaps and futures trading, needs to be reauthorized every five years, although it has in the past gone for several years without that stamp of approval.
The bill aims to improve protection of customers in futures markets, to reform the agency itself and fine-tune changes in the swaps market for those clients who use it to hedge risk, not to speculate.
The CFTC was a little-watched overseer of agricultural and other futures before the 2007-09 financial crisis, but the Dodd-Frank law put it in charge of the swaps market. It has since become a prolific reformer of Wall Street.
The Senate is separately working on its own bill to reauthorize the CFTC, and getting a bill through Congress is likely to be a drawn-out process. President Barack Obama's office said last week it strongly opposed the House bill, which it said undermined the CFTC.
The House bill also required the CFTC to carry out a review of metals warehousing and address a years-long controversy after complaints from brewers - which use aluminum for beer cans - about artificially high prices.
Reporting by Douwe Miedema; Editing by Cynthia Osterman