The Costs of Dodd-Frank: The CFTC Turns to Whistleblowers

Actimize FMC Product Team, Financial Markets Compliance

Recently, I attended the 2015 FIA (Futures Industry Association) event in Florida. As you might expect, there was much discussion about cyber security and recent malware attacks from China, Russia and North Korea, the potential of more attacks and how the industry will respond to these latest threats. It was something else entirely that buzzed through the show though – the focus by senior officials on their lack of sufficient budget and resources to properly enforce already rolled out Dodd-Frank rules. It seemed that these officials were there to take a high profile position on why budget increases were necessary, even as they were being debated in Washington DC.

As Congress weighs in on President Obama’s requests for major regulator budget increases, for both the SEC and the Commodity Futures Trading Commission (CFTC) a review of these rules is being conducted by Congress to determine, eight years following the financial meltdown, if the legislation ‘got it right’. The creation of transparency in the OTC SWAPs market, establishment of Swap Execution Facilities and centralized clearing, all while creating a brand new market structure always takes a period of time to digest before we can determine where there might be deficiencies or short falls. I believe we are in that stage now. While we examine the nuances, no one disagrees that it takes a lot of resources and manpower to enforce this massive influx of legislation.

The FIA put some great names up on stage during the conference – CFTC chair Timothy Massad, the CEOs of the CME Group, Intercontinental Exchange, Singapore Exchange, Eurex, and numerous other regulators, bank, clearinghouse and buy-side execs all addressing similar concerns around current rules/market structure and an increase in global collaboration amongst the regulators.  CFTC Chairman Massad himself said here at this event and at other similar venues over the past year that his agency can’t do “a lot of things” because Congress has not given the regulator the budget increases it has requested to handle the new responsibilities it was given to police financial markets.

But his group has promoted another strategy as well, while waiting for its budgets. Here is where I noticed something interesting at the FIA – while walking around the booths, which is what everyone does at a trade show, I noticed the CFTC Whistleblowing booth front and center at the conference, indicating that the CFTC is encouraging whistleblowing at a time of limited resources and budget issues.

Taking a page from the SEC playbook, clearly the CFTC finds that having individuals within an organization who help out and bring suspicious manipulative behavior to the attention of the regulators, helps to foster a better functioning market place. And certainly, it helps expand the budget that is already overstrained and under staffed. As we have seen with SEC whistleblowing activities, this is an excellent way of restoring the stability in the markets and maintaining control with the current resources available.

There was a lot going on at this year’s conference, but as fines go up, as the regulators get more serious, there is nothing like a booth right in the middle of an industry trade show to send home the message that compliance is taken very seriously by the regulators. No, I didn’t get a t-shirt that said, ‘Whistleblowers Apply Here” – but the message that the CFTC takes enforcement seriously is a great way of policing the markets in the current regulatory environment. Time will certainly tell us if the whistleblower promotion is working.


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