August 4, 2011
Thank you all for joining us today for our third meeting to consider final rules promulgated pursuant to the Dodd-Frank Act. Today we consider three final rules:
As we progress through the rulemaking process, I find the Commissioners are to my mind doing a good job of weighing and interpreting the public’s comments and directing staff to revise the final rules accordingly. Mr. Chairman, I give you high marks for trying to accommodate the wishes of all of the Commissioners in establishing the final rules. The fact is that no one Commissioner can always get all they believe should be in a final regulation. I find myself in this situation on two of the final rules we consider today. However, this does not mean that the rules should not be adopted.
In regard to the final rule for Swap Data Repositories, or SDRs, I have grave concerns about this rule based solely on the fact that SDRs will not be required to have independent directors on their boards. To date, I have not received a sufficient answer from staff why public directors are necessary to mitigate conflicts of interest at DCOs, DCMs and SEFs, but are not needed at SDRs. While I readily acknowledge that SDRs will most likely face different conflicts than DCMs, DCOs, and SEFs, I do not believe that the conflicts they will face are so different that we should abandon an independent director requirement entirely.
Independent directors can focus on both the interests of the SDR and the interests of the public. This is particularly important in the budget context that we find ourselves in today. The Commission must face the reality that we will not have the resources that we need to do everything that Congress has asked us to do. That reality necessitates more prescriptive rules and passing certain responsibilities on to our registrants. In a perfect world, with a fully funded CFTC, we could simply require SDRs to have directors with an independent perspective and then in follow-up monitor if they in fact have done so. In the real world, staffs’ time will be consumed dealing with registration applications and implementing all the requirements of Dodd-Frank. I would hope that SDRs consider this when establishing their governance regime.
We also consider today a final rule implementing the whistleblower protections of the Dodd-Frank Act. This rule is very important to me because of its potential to protect everyday people from fraud. I commend the rule writing team on fashioning a rule that provides ample protection to whistleblowers, who risk retaliation from their employers in order to do the right thing and bring critical information to the Commission.
I also appreciate that internal compliance systems can and do contribute to detecting, deterring, and preventing wrongdoing. Many companies properly encourage their employees to use such functions to report misconduct internally, and I believe that this is appropriate and benefits the public in many instances. Internal compliance programs, without government intervention, have undoubtedly allowed companies to address and prevent potential violations. However, where there is a corporate culture of corruption, I do not believe that we should force whistleblowers to report internally, either through an explicit requirement or a monetary incentive to do so.
There are, without question, instances where internal reporting will at best delay the prevention of a violation and at worst result in retaliation against the whistleblower or even continuing violations of the law. So, while internal reporting serves a useful and laudable function, it is difficult to support a rule that penalizes a whistleblower for coming straight to the Commission when to do otherwise would lead to continuing violations of the Act and/or retaliation. I would hope that the Commission when contemplating penalties for violators that ignore whistleblowers would increase the severity of fines levied.
I would like to again thank the Chairman and his staff for the tremendous job they have done moving forward on implementation of Dodd-Frank despite limited resources. I also would like to thank the staff at the CFTC for all their hard work on these very important rules. These rule writing teams have put in incredibly long hours drafting rules, reading, analyzing, and summarizing public comments, and answering difficult and time consuming questions from the Commissioners’ offices. I appreciate their effort and look forward to their presentations.
Last Updated: August 4, 2011