Thursday, May 10, 2018

Commissioner Quintenz warns “grim” budget situation threatens CFTC functioning, may cause staff cuts

By Lene Powell, J.D.

CFTC Commissioner Brian Quintenz warned that if the CFTC does not get a funding increase for FY 2019, the agency may be forced to cut staff and may have trouble meeting its core market surveillance and enforcement missions. Blaming mismanagement and “political gamesmanship” by past CFTC chairs for current budget woes, Quintenz emphasized that the budget request is rigorously calculated to meet agency needs without overspending.

“We are already working to prudently manage our resources and cut costs wherever possible,” said Quintenz. “However, without sounding alarmist, I do want to express my genuine concern that the recent budget cuts hinder the CFTC’s ability to meet its core missions.”

Possible staff cuts. Quintenz observed that the agency has had essentially four years of flat funding, which actually decreased last year from to $250 million to $249 million. Given built-in obligations, this funding level threatens the agency’s ability to support its current staffing level. In FY 2016, the CFTC had 715 full time employees. Without a funding increase, the agency will only be able to support 636 employees. This would only be 30 more employees than the CFTC had in 2010—before the Dodd-Frank Act massively expanded the agency’s mission to add jurisdiction over swaps transactions.

“Staff’s ability to conduct regular risk, compliance, and cybersecurity examinations will be curtailed; enforcement efforts to police fraud and manipulation—particularly in the cryptocurrency spot markets—will be strained,” said Quintenz.

The draft House FY 2019 Agriculture Appropriations Bill provides for funding of $255 million. This would increase current funding by $6 million, but put it nowhere near Chairman Giancarlo’s budget request last year of $281.5 million. In a markup session of the Agriculture Subcommittee of the House Appropriations Committee, Subcommittee Chairman Robert Aderholt (R-Ala) said $255 million was a “certainly justifiable increase for the agency’s new regulatory responsibilities.”

A lean, mean regulating machine. Quintenz pointed to a number of factors exacerbating the budget predicament, including past increases in staffing levels in anticipation of funding that failed to materialize, excess office space, and troubled employee union negotiations. But those days are over, said Quintenz, and Giancarlo’s budget was built from the ground up to meet the agency’s real needs. He added that the CFTC has undertaken efficiency measures, including reorganizing departments and reducing office space.

The agency needs to make new investments in three areas, said Quintenz.
  • The CFTC needs more economists to model risk, conduct stress tests, and assess the impact of regulations. “Simply put, we need more quants and fewer lawyers,” Quintenz said. 
  • The CFTC needs more staff to oversee derivatives clearinghouses, which have grown and concentrated risk since the standardization of swaps clearing. 
  • The CFTC needs a “small funding increase” for its LabCFTC initiative to strengthen the agency’s in-house FinTech expertise and ability to proactively engage with innovators. 
According to Quintenz, having the necessary funding would allow the CFTC to target demonstrable problems and asymmetries in derivatives markets. This would increase the integrity of the marketplace, helping to attract capital and liquidity and driving economic growth.

But with the draft FY 2019 funding level so far below Giancarlo’s budget, the agency looks to continue in what Quintenz called a “grim” budget situation.

“I have no doubt that the CFTC’s dedicated staff will do everything in their power to overcome these challenges. But we can only expect them to do so much with the resources they have been given,” said Quintenz.