CFTC commissioner floats user fee

Sharon Y. Bowen, one of only two commissioners serving at the Commodity Futures Trading Commission (CFTC) called for a user fee to fund the agency in a statement on the CFTC’s 2018 budget request.

Bowen noted that she was voting to advance the budget request for procedural reasons (Bowen and Acting Chairman J. Christopher Giancarlo are the only two sitting commissioners at the agency) even though she does not support it.

She wrote, “I believe that the budget request that we are submitting is inadequate and will prevent us from being able to fulfill our mission of protecting investors and consumers.”

Later in her statement she made the case for a user fee to fund the agency. “Almost all other financial regulators receive some or all of their funding from market participants,” she noted. “I believe the best solution is for the CFTC to have some of its funding provided by user fees.”

Congress on numerous occasions have included a transaction tax on futures trades in budget legislation to fund the agency,  but the industry has always managed to kill it before it could become law.

The National Futures Association, the futures industry’s self-regulatory arm, is funded through a fee on transactions for certain accounts.

THE COMPLETE TEXT OF COMMISSIONER BOWEN’S STATEMENT

I am voting to advance this budget request for procedural reasons, but do not support it. My preference was to abstain, but I was advised that doing so would block the Commission from releasing its own budget because there are only two Commissioners at present.

The reason that I do not support this budget in no way reflects criticism of Acting Chairman Giancarlo, who I know is trying his best to ensure that we have increased resources to enforce our regulations. I appreciate the time and involvement he has put into this document and am especially thankful for the effort he has made to keep me informed of our current budget predicament.

However, I believe that the budget request that we are submitting is inadequate and will prevent us from being able to fulfill our mission of protecting investors and consumers. As I have said before, the markets that we are regulating are vast, comprising over $430 trillion notional of swaps and futures products. Yet, we are currently being asked to regulate these markets, guard against swindlers, and protect investors and ordinary Americans on an annual budget of just $250 million dollars. To use the language of leverage, we are trying to stretch each $1 of government funding we receive each year to cover $1.72 million worth of products. The math just doesn’t work.

We’ve been struggling and trying to regulate our markets on a shoestring for years. And while I believe our staff has done the impossible and more than anyone could have asked, there are limits to how far you can stretch a dollar. At our current level of resources, I do not believe we can fully protect our markets or ward off a new financial crisis, to say nothing of dealing with nascent developments like fintech or cybersecurity. Also, as many industry participants can attest, we have been unable to respond to industry requests for substantial periods of time because of inadequate staffing. Sadly, I do not believe an increase of our budget to $281.5 million next year, though welcome for an agency that has been flat funded for two years, will be enough to enable us to credibly do our jobs and fulfill the demands that our mission requires. Frankly, our small budget belies our independence as it thwarts our ability to make oversight and enforcement decisions based on our own best judgment.

Also, I have come to believe during my time at this agency that the current process of funding the CFTC is inadequate and should be reconsidered. Almost all other financial regulators receive some or all of their funding from market participants. For instance, the SEC’s funding overwhelmingly comes from user fees, which means those who use our markets pay for their protection. These fees are small enough, fractions of fractions of cents per trade, that they do not burden the market while allowing the taxpayers to be freed from the burden of funding another government agency. The CFTC has long-asked for user fees to fund itself, and we have yet to receive them. At a time when there are calls for budget cuts at agencies but also calls for more rigorous protection of consumers and investors from financial impropriety, I believe the best solution is for the CFTC to have some of its funding provided by user fees. To quote from the letter that was sent to the White House in July 2015 regarding possible legislation to grant the CFTC the authority to fund itself through fees:

Fee authorization would bring the CFTC in line with all other financial and banking regulators, which are funded in whole or in part through user fees, and would establish a fairer and more stable source of funding for the Commission. … Fee rates would be designed in a way that supports market access, market liquidity, and the efficiency, competitiveness, and financial integrity of futures and swaps markets in the United States.

I think this is a smart, less burdensome, and more cost-effective solution that will shield our citizens from the pain and suffering of another financial crisis.

I hope that Members of Congress, as they consider how to fund the government for the next fiscal year, will consider granting the CFTC the power to fund itself through user fees. Doing so will lead to a more robust CFTC that is able to respond more quickly to requests from market participants and the resources to better regulate and monitor the futures and swaps markets.

I concur out of necessity, but not on the merits.