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Financial Fraud Law

Fraud Regulator Calls Obama Administration Budget ‘Woefully Insufficient’

 Commissioner Bart Chilton of the Commodity Futures Trading Commission (“CFTC”) is calling the proposed funding for the agency in President Obama’s proposed fiscal year 2015 budget “woefully insufficient” given the agency’s increased responsibilities under the Dodd-Frank Act.

In a statement, Chilton said that he was “disappointed” that the President’s budget – requesting $280 million, a $35 million cut from last year’s request – if adopted, would not adequately fund the agency at the levels required to oversee and enforce markets.

Chilton noted that the CFTC has been given a large swath of the swaps market oversight and regulation – tens of trillions of dollars in formerly dark market trading. However, he continued, the CFTC has “not received a commensurate increase in funding to bring needed light to these markets, despite being assigned the authority to do so by Congress. We have the mandate, but not the money, to do the job.”

In particular, Chilton said, the President’s budget request would fund 100 fewer employees than the CFTC needs – 100 fewer than he requested last year. He cited the following “ugly impacts” of the President’s request:

“1. Our technology people may not be able to support implementing the regular collection of key data in the marketplace. I am fearful to say where, so as not to tip off market participants, but our coverage will not be as robust or comprehensive as is required. Our ability to enhance and supplement surveillance activities will be too limited.

“2. Our Division of Enforcement has substantial staff resources expended in litigation. The inability to fully resource our enforcement efforts will mean, at a minimum, investigations will be slowed and we will have to prioritize the cases. We are already investigating cases that are years old. We may not even be able to get to many cases. That means some may escape justice. I am greatly concerned that we, in our enforcement area particularly, will lose more staff over the next few months. And, generally, CFTC staff, who have gone without any substantial raises for three years and counting, will continue to seek employment elsewhere.

“3. Our Division of Clearing and Risk cannot expect to examine all of our derivative clearing organizations annually, as is needed, under the proposed budget. The budget will not permit us to effectively manage the risk of cleared positions. Given that clearing organizations are one of the cornerstones of Dodd-Frank, hobbling our DCR Division from adequate inspection and management under our new rules is unacceptably risky.

“4. With such a limited budget, the development of our compliance and exam programs in the Division of Swap Dealer and Intermediary Oversight will be drastically slowed. These funds leave us unable to adequately exam and monitor risk of our registrants. At best, we are left only with the ability to react in our monitoring and oversight of the firms – instead of proactively looking for and identifying potential red flags that may indicate a firm is in trouble (like MF Global or Peregrine Financial). Plus, it greatly limits our ability to respond in a timely manner to requests for interpretation and relief in this very important rule implementation phase.

“5. In our Division of Market Oversight, there are significant, unmet needs for additional resources for data and reporting, registration, and surveillance. For example, we won’t be able to keep up with the high frequency cheetah traders who are scooping up microdollars in milliseconds and potentially roiling markets. Again, we will only be reactive.”

Chilton concluded:

“In summary, this budget asks a strained and exhausted CFTC staff to do the impossible with too little. We work hard here, and have been granted needed regulatory tools to do the job. A magic wand, however, is not among those tools, and we are not magicians. The Agency requires basic, minimal support to accomplish our newly assigned tasks. Sadly, in this regard, the President’s budget request fails.”

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