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November 6, 2013

An Underfunded CFTC and the Wall Street Crime Spree

Budget woes are creating major challenges for the CFTC as it struggles to adequately regulate Wall Street on a Congressionally-mandated shoestring budget. The CFTC oversees the $650 trillion swaps and futures markets with a budget of less than $200 million. That number is down $10 million from last year’s budget due to sequestration. Cutting the CFTC budget irresponsibly endangers investors and markets and leaves Main Street at the mercy of Wall Street again.

Recently, the CFTC announced that it will have to furlough staff if its budget is not increased. Unless the budget is raised to appropriate levels, the CFTC will be forced to decide which financial crimes to investigate, which ones to delay and which ones it simply cannot pursue.  

The impact of Congressional efforts to choke off funding to the CFTC is already being felt. The agency recently acknowledged that it was unable to bring civil charges against traders in the $6 billion London Whale trading loss due to budget constraints. Oversight of the derivatives markets requires aggregating massive amounts of data about swaps transactions, yet budget woes have kept the CFTC from hiring sufficient staff or acquiring the proper technology to make sure the data is accurate.

Unlike the self-funded SEC, FDIC, CFPB and every other financial regulator, the CFTC depends on Congressional funding. However, there is a simpler, fairer, cost-effective alternative: require the financial industry to fund the CFTC itself through a user fee. Better Markets has conducted an analysis of why a CFTC user fee is so desperately needed and how it can be done at a very low cost. Barring Congress recognizing the need to adequately fund the CFTC, or adoption of the self-funding model, the derivatives market will be under-regulated, increasing the likelihood of a repeat of 2008. 

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