Brooksley Born, a former CFTC chairman, and William Donaldson, a former SEC chairman, said recently that sequester cuts imposed on the agencies are “both wrong and dangerous,” saying the regulators already face tight budgets.
Born and Donaldson are current members of The Systemic Risk Council, a nonpartisan organization that monitors and advocates reform of U.S. capital markets, Politico reports.
“Unlike every other financial regulatory agency, the SEC and CFTC must rely on Congress for their annual funding,” Born and Donaldson said, according to Politico. “Other federal financial regulators (including the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and even the new Consumer Financial Protection Bureau) do not have to rely on an unpredictable congressional appropriations process for their budgets. Other regulators assess fees on industry and use those fees to fund their activities as is appropriate. Taxpayers should not have to pay for the costs of regulation.”
Born and Donaldson said that while self-funding assists agencies in hiring and training staff, as well as keeping them relatively independent of the markets they regulate, it also allows the regulators to “make and implement strategic decisions to adapt to changing markets and build needed information technology to become more effective and efficient, all of which require multi-year budget certainty.”
“The SEC and the CFTC have none of those advantages,” Born and Donaldson said, Politico reports. “In coming days, those differences will become crystal clear: The SEC and the CFTC — two agencies responsible for implementing a host of new requirements under the Dodd-Frank Act (including, most importantly, building an entirely new regulatory regime for the multi-trillion-dollar over-the-counter derivatives market) — will start facing millions in cuts. Rather than focusing on critical systemic risk matters like finalizing Dodd-Frank rules or reforming money market funds, the agencies will be required to implement funding cuts, delaying needed hiring, rulemaking and the pace of reform.”
Both Donaldson and Born stressed the importance of self-funding for the CFTC and SEC as they work to meet their rulemaking responsibilities.
“If we want to reduce systemic risk through vigorous oversight of securities and derivatives markets, the SEC and CFTC need to have a process in place that ensures them adequate funds to discharge their enormous responsibilities over the long term,” Born and Donaldson said, according to Politico. “Self-funding would do so.”