CFTC Commissioner Highlights MRAC Developments

At the first Market Risk Advisory Committee ("MRAC") of the year, CFTC Commissioner Kristin N. Johnson outlined the latest findings and recommendations from the MRAC Subcommittees on (i) Central Counterparty Risk, (ii) Market Structure and (iii) Climate-Related Risk.

Subcommittee on Central Counterparty Risk and Governance

Commissioner Johnson reviewed the findings from the Subcommittee's extensive report on "recovery & resolution" which included recommendations on: (i) implementation of supervisory stress tests, (ii) recovery scenarios and analysis, (iii) non-default losses; and (iv) the provision of data for resolution planning and challenges to porting of customer positions and collateral during resolution.

She also updated the MRAC on regulatory developments on the use of AI, citing, among other things, the CFTC's issuance of a request for comment "to assess the benefits ..., to inform staff’s supervisory oversight and to evaluate the need for any future guidance and rulemakings (See related coverage). She said the Subcommittee proposed surveying market participants on how AI risks are being mitigated and the integration of AI into existing oversight mechanisms. She also said the Subcommittee is considering potential recommendations on guidance, including on disclosure of AI risk, testing and monitoring of AI models and oversight and governance expectations.

Subcommittee on Market Structure

Commissioner Johnson highlighted the developments in several work streams of the Subcommittee, including the creation and analysis of a database of publicly available financial information for futures commission merchants ("FCMs"). The Commissioner stated that the database and analysis, by the "FCM Capacity Workstream" examined industry consolidation and an increased concentration in the market for FCM services.

Subcommittee on Climate-Related Market Risk

Commissioner Johnson reflected on the CFTC's Proposed Guidance Regarding the Listing of Voluntary Carbon Credit Derivatives Contracts (see related coverage,) calling the effort "necessary, but insufficient." In response, she said that the Subcommittee convened a roundtable to give "robust consideration of how the CFTC might be able to use its authority to foster and improve the market going forward," and to offer guidance "on their understanding of the foundational issues challenging the market for carbon credits". She highlighted the Subcommittee's deliberations on climate change and market integrity, market design, and intermediation and product design and reliability. Commissioner Johnson said that "[a]cross the board, the roundtable participants were enthusiastic for the CFTC to create more robust standards."