House Agriculture Committee Approves Bipartisan Legislation to Reauthorize CFTC (with Lofchie Comment)

The House Agriculture Committee today approved the Customer Protection and End-User Relief Act (H.R. 4413) by voice vote. The Bill, which was introduced on April 7, 2014, would reauthorize and improve the operations of the CFTC and to address concerns relating to market certainty and customer protection.

We briefly discussed the bill in yesterday's news when the bill was reported out of Committee. Among the most significant aspects of the bill, which we had not discussed are (i) the more express imposition of cost/benefit requirements on the CFTC and (ii) the required changes that the bill would make in the administration of the CFTC.

The proposed cost/benefit provision would amend the existing one in Sec. 15(a) of the Commodity Exchange Act to make it much more comprehensive and more robust. The new language would, in essence, make the cost/benefit consideration consistent with the cost/benefit analysis requirements of President Obama's Executive Order 13563 for the entire executive branch, which the CFTC some time ago agreed to do when flaws regarding the way it went about it relating to Dodd-Frank rules were exposed by the agency's Inspector General. But this will codify such requirements in the statute. Among the new items that the CFTC would be required to take into account, and presumably, to evaluate in its cost/benefit analysis would be:- considerations of the impact on market liquidity in the futures and swaps markets;- available alternatives to direct regulation;- the degree and nature of the risks posed by various activities within the scope of its jurisdiction;- the costs of complying with the proposed regulation or order by all regulated entities, including a methodology for quantifying the costs (recognizing that some costs are difficult to quantify);- whether the proposed regulation or order is inconsistent, incompatible, or duplicative of other Federal regulations or orders; and- whether, in choosing among alternative regulatory approaches, those approaches maximize net benefits (including potential economic and other benefits, distributive impacts, and equity).

In addition, the legislation would make the Chief Economist and the Division Directors answerable to the Commission, not as current practice, just the Chairman.

Lofchie Comment:While the proposed cost-benefit provisions of the bill are clearly a reaction to the conduct of former CFTC Chairman Gensler, the same would appear to be true of the statutory provision giving the Commission as a whole (and not merely the Chairman) authority with respect to Chief Economist and the Division Directors. Having shared authority with respect to these important posts could go a long way to reducing the future risk of an imperial head of an agency, who is able to exercise authority on a remarkably unchecked basis.

See: H.R. 4413; Summary of Legislation; House Agriculture Committee Press Release.See also: FIA Statement on Bill.Related news: House Agriculture Committee Introduces Legislation to Reauthorize CFTC (with Lofchie Comment) (April 8, 2014).