Lawmakers Request Review of CFTC's Cost-Benefit AnalysisLucas and Conaway seek information regarding costs of new Dodd-Frank regulations
Washington, DC,
March 14, 2011
Rep. Frank Lucas (R- OK) and Rep. K. Michael Conaway (R-TX) sent a letter to the Inspector General of the Commodity Futures Trading Commission (CFTC) on Friday requesting an investigation of the cost-benefit analysis performed by the agency for the implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
MEDIA CONTACT: Rep. Frank Lucas (R- OK) and Rep. K. Michael Conaway (R-TX) sent a letter to the Inspector General of the Commodity Futures Trading Commission (CFTC) on Friday requesting an investigation of the cost-benefit analysis performed by the agency for the implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFTC is required by the Commodity Exchange Act (CEA) to evaluate the economic impact any proposed regulation will have on regulated entities and markets. The letter, which highlights growing concerns among market participants, follows a previous letter that Reps. Lucas and Conaway sent to Chairman Gary Gensler in late January requesting that the agency voluntarily adhere to President Obama's executive order to "Improve Regulation and Regulatory Review." The CFTC is exempt from the executive order because it is an independent agency. To date, Chairman Gensler has not committed the agency to comply with the order. "Now is not the time to impose poorly vetted regulations on this economy. Taking the time to understand the consequences of the rules will not weaken them - it will only strengthen the CFTC's ability to deliver on the objectives of Dodd-Frank. And whether it's on financial regulation or any other issue, it is a fundamental of responsible government to know the costs of new regulations before they are issued," said Rep. Frank D. Lucas, Chairman of the House Agriculture Committee. "Our overarching objective is to ensure the new regulations do not impose unjustified or unnecessary costs to the detriment of economic growth, competitiveness, and innovation. Chairman Gensler has refused to commit the Commission to performing comprehensive cost-benefit analyses using both qualitative and quantitative data. In light of the mounting public concerns regarding the CFTC’s failure to conduct adequate cost-benefit analyses, Chairman Lucas and I have sought an investigation by the Inspector General to review the accuracy of the CFTC’s calculations. It is my hope that necessary recommendations to the CFTC will be forthcoming," said Rep. K. Michael Conaway, Chairman of the Subcommittee on General Farm Commodities and Risk Management.
A copy of the letter can found here. The text is below. March 11, 2011 A. Roy Lavik Dear Inspector General: It is the responsibility of this Committee to oversee the implementation of Title VII of the Dodd Frank Wall Street Reform and Consumer Protection Act by the Commodity Futures Trading Commission. Principally, our objective in exercising oversight is to ensure that the proposed rules will efficiently and effectively regulate the derivatives markets, without imposing undue or unnecessary burdens that will hamper price discovery and risk mitigation to the detriment of economic growth and job creation. As you know, the task before the CFTC in writing rules to implement Title VII is monumental. It involves a complete and drastic overhaul of swaps regulation, and the consequences, both intended and unintended, will impact every segment of our economy. As such, ensuring the CFTC is meeting its obligations to conduct a thorough cost-benefit analysis of each rule it proposes is critical. Indeed, the assurance of such cost-benefit analysis was set forth as a priority by the Obama Administration in issuing an Executive Order on January 18, 2011 to “Improve Regulation and Regulatory Review.” Unfortunately, despite its role as a principal implementer of one of the most significant regulatory overhauls undertaken by an Administration in decades, the CFTC is an independent agency and therefore exempt from the order. Chairman Gensler has committed to adhering to the order only in “principle” citing inconsistencies between the Executive Order and the cost-benefit analysis required by Section 15(a) of the Commodity Exchange Act (CEA). At the same time, recent public comments indicate that the CFTC is failing to adequately conduct cost-benefit analysis – either as required by the CEA or the principles of the Executive Order. Across diverse market participants, concerns regarding the lack of analysis are noted:
In addition, the CFTC has taken a vague and minimalist approach to cost-benefit analysis that is directly contrary to the President’s Executive Order, and fails to achieve the objectives of Section 15(a) of the CEA. For example, in the Proposed Rule “Swap Data Recordkeeping and Reporting Requirements” issued on December 8, 2010 75 FR 76573, the Commission provides this analysis of the “costs”:
Particularly during tough economic times, it is incumbent upon the CFTC to approach cost-benefit thoroughly and responsibly to understand the costs, and therefore the economic impact any proposed regulation will have on regulated entities and markets. Further, in order to evaluate costs and benefits as the CEA requires, at the very least Commission staff should undertake a detailed analysis that attempts to quantify the impact using an objective, data-driven approach. Such an approach is altogether absent in subjective and unquantified assessments such as, “could impose significant compliance costs.” And without a detailed and diligent approach to cost-benefit analysis, the CFTC appears to be failing to comply with both the Executive Order and the spirit or “principle” of that order. As such, we request that you initiate an investigation of the cost-benefit analysis performed by the Commission. We ask that the investigation include a review of the accuracy of the CFTC’s calculation of the costs and benefits. We further ask that the investigation assess whether the CFTC is abiding by requirements in Section 15(a) to perform cost-benefit analysis in a meaningful manner that instructs the rulemaking process. In addition, we would ask that you make any necessary recommendations to the CFTC regarding its cost-benefit analysis to ensure its rules are consistent with the goals of promoting economy, efficiency and effectiveness. In light of the volume of rules that have been issued since the enactment of Dodd-Frank, we recommend that you limit your review to the following rules:
Please also review the following factors in your investigation:
As the CFTC engages in rulemaking to implement a regulatory regime that fosters transparency and promotes the mitigation of systemic risk, it is essential that it do so deliberately and carefully without burdening the economy and market participants with unnecessary and unjustified costs. Please do not hesitate to contact us if you have any questions. Frank D. Lucas K. Michael Conaway |