Key Dodd-Frank Agency Is Being Undermined By Budget Cuts


CFTCCongress is underfunding and understaffing the Commodity Futures Trading Commission (CFTC), preventing the agency from fulfilling the expanded role given to it by a very different set of lawmakers under the 2010 Wall Street reform law. The lack of resources is forcing the commission to drop investigations it would likely otherwise pursue, according to top CFTC officials who are close to the end of their terms in office.

Despite facing a higher caseload and more responsibilities, the agency’s enforcement division actually has a smaller staff than it did three years ago according to outgoing director David Meister. At 155 employees, the CFTC enforcement staff is 10 percent smaller than when Meister came into the job, and exactly the same size that it was 11 years ago. “That’s a very small staff compared with the size of the job,” he told the Wall Street Journal. The lack of resources was directly responsible for the CFTC’s decision not to pursue charges against two JP Morgan traders over their alleged involvement in the London Whale trading scandal, even though the two have faced charges from other, better-funded agencies.

As a whole, the commission has just 40 more staffers than it did 20 years ago. Those two decades have seen the financial industry become ever more dependent on technology, requiring similar investments and innovations from regulators in order to keep up. The high-frequency trading that Wall Street’s technology advantage makes possible is supposed to be regulated by the CFTC, which is still drafting the rules. While Congress has upped the agency’s budget from $111 million to $200 million over the past five years, that increase looks less impressive compared to the increase in the scope of the CFTC’s responsibilities. Changes to the law in 2010 increased the size of the markets the commission oversees by more than ten times.

After the high-risk, complex financial products called derivatives helped turn the subprime housing bubble into an international financial crisis, reformers in Congress put the commission in charge of regulating the market for derivatives. That new regulatory system involves an immense and brand-new technology platform for trades involving a type of derivatives called “swaps.” The platform went live on October 1 — the first day of the government shutdown caused by Republican efforts to dismantle Obamacare. “With more than 95 percent of their staff on furlough,” Bloomberg Businessweek reported, CFTC officials “had limited ability to analyze the flood of data” from the new trading platform.

Now the government has reopened, but the CFTC still doesn’t have the budget and staff it needs to properly implement the exchanges, let alone turn the data the exchanges provide into effective oversight of the derivatives market. “Every time I ask someone to go dig into the data, they ask me what three projects do I want them to drop,” CFTC head Gary Gensler told Businessweek. “We’re stretched that thin.” Fellow commissioner Bart Chilton told the Financial Times that the agency simply “will not be able to do everything Congress instructed us to do.”

On top of the underfunding and understaffing, the CFTC has had to contend with internal enemies. Commissioner Mark Wetjen has fought to water down derivatives rules throughout the drafting process. While the agency has earned praise from reformers for its accomplishments under all this strain, Chairman Gensler is stepping down at the end of the year. Insufficient resources and internal divisions make Gensler’s legacy fragile, and the CFTC has a lot of work still to do to fulfill its Dodd-Frank mandates.