In the wake of the financial crisis, the Commodity Futures Trading Commission convinced Congress to expand its mission and its powers. It is now working on a substantial budget increase to go with its increased authority. Congress should not hand more money over to the agency until the CFTC produces a reasonable plan for how it will spend the money and an explanation for its recent spending choices.
The CFTC has a budget of $215 million in fiscal year 2014. President Obama requested $280 million for the agency for fiscal year 2015. Commissioner Bart Chilton, whose tenure at the CFTC is ending, characterized the president's request as "woefully insufficient for needed oversight and enforcement." Mark Wetjen, the agency's acting chairman, called the $280 million request "a significant step towards the longer-term funding level that is necessary to fully and responsibly fulfill the agency's core mission," but warned of "the potential risks posed by the continued state of funding for the agency."
The risks stem primarily from the CFTC's allocation of resources rather than the size of the budget. Congress would be more likely to give the agency additional funds if it were carefully spending the money it already has. A prerequisite to wise spending is a plan for how money will be spent. Commissioner Scott O'Malia recommended that the agency finalize an overdue five-year strategic plan that sets forth objectives by which to measure the performance of each office within the CFTC. Absent such a plan, Congress does not have the information it needs to assess the CFTC funding request.
The information that Congress does have--the priorities that the CFTC has laid out for 2015--raise questions about the CFTC's spending habits. For example, twenty-two percent of the agency's budget is devoted to enforcement--more than the amount devoted to any regulatory activity. The commission explains that it is looking forward to a "first wave" of enforcement actions related to failures to register. Some of these registration lapses are likely to be attributable to the CFTC's own failure to promulgate clear, procedurally sound rules that facilitate rather than frustrate compliance by well-intentioned market participants. The CFTC also anticipates costly cross-border enforcement cases. The CFTC should consider carefully whether it is the proper agency to pursue violations that occur outside of the United States and that are already being pursued by other domestic and foreign regulators. The commission also cited its new anti-manipulation authority under Dodd-Frank as a justification for a larger enforcement budget. This new authority lightened the agency's burden of proof in enforcement cases, so it should be able to win more enforcement cases on a smaller budget. The agency's increasing emphasis on enforcement contrasts with the relative paucity of resources it is planning to devote to economic analysis, which is critical in understanding the markets the CFTC regulates, and information technology--an area that Commissioner O'Malia has consistently argued is underfunded.
As the CFTC settles into its bigger post-crisis role, it should tie its decisions and its budgetary requests to a clear plan for ensuring that the agency's actions make the swaps and futures markets function better. That may mean not pursuing a duplicative, high-profile enforcement action in order to spend more money on inspections. Or it may mean deciding to leave the regulation of foreign markets to foreign regulators in order to spend more resources to speed up the registration process.