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From Securities Regulation Daily, May 14, 2014

SEC and CFTC chairs defend 2015 budget requests before Senate appropriations subcommittee

By Jacquelyn Lumb

SEC Chair Mary Jo White and CFTC Acting Chair Mark Wetjen today testified before the Senate Appropriations Subcommittee on Financial Services and General Government in support of their fiscal 2015 budget requests. Subcommittee Chair Tom Udall (D-N.M.) acknowledged that both agencies have seen an expansion in their responsibilities in recent years, and asked each how they would address the likelihood of receiving less than requested. Wetjen said the CFTC’s request focuses on its responsibilities under the law for enforcement, surveillance, and examinations. If it receives less, the agency will have to make hard choices and it will raise concerns about fulfilling the CFTC’s responsibilities to the investment public. White said the SEC’s functions would suffer across the board from less funding. The funding the SEC has requested is fully justified, she said.

Wetjen noted, for example, that the CFTC oversees 15 clearinghouses and last year was only able to examine two that have been deemed systemically important. The CFTC has to choose which ones pose the most risk when choosing those to examine. If the CFTC does not receive the funding it has requested, it will have to use its best judgment about which entities to examine and which investigations to pursue, he said.

Senator Mike Johanns (R-Neb.) expressed concern that the CFTC was not allocating enough of its resources to technology, an area where he said it is critical to keep up. Wetjen said the CFTC is seeking a slight increase for its technology spending and he would like to spend more.

Johanns asked about the status of rulemaking under the Dodd-Frank and JOBS Act. White said she was pleased with the SEC’s progress since she came on board, but there is still a ways to go. Wetjen said the CFTC is working on a final rule on position limits and plans to repropose two other rules soon.

Johanns asked White about the SEC’s failures in the past with respect to Madoff and Stanford and the likelihood similar events could be avoided in the future. She assured him that significant progress has been made to prevent similar lapses and the SEC is much stronger today than when those events occurred.

Udall asked how the Volcker rule is being enforced and about each agency’s role. White noted that the rule was effective April 1, but the compliance date is in 2015 and beyond. She said there must be continuing coordination among the agencies as they enter the enforcement and compliance stages. Wetjen said there is a continued commitment to coordination among the agencies. He pointed to an interim final rule that was rapidly adopted in January when an issue arose with respect to the treatment of certain collateralized debt obligations backed by trust preferred securities.

Udall asked White to address concerns about the SEC’s money market reform proposal’s impact on municipalities. The SEC is actively involved in finalizing the rule proposal, and she said it is very focused on the concerns raised by municipalities.

Senator Christopher Coons (D-Del.) asked about enforcement actions. Wetjen said the CFTC brought between 150-160 enforcement actions in fiscal 2013 but the numbers are lower for 2014. He noted that the agency lost some enforcement staff, which may be partly to blame, and it has asked for additional enforcement attorneys in its budget request.

White said nothing is more important than a strong enforcement presence. She pointed to a disturbing growth in affinity frauds, which the SEC is pursuing through one of its specialized units. She added that when the staff examines investment advisers and broker-dealers, it finds a lot of issues, which is why adequate funding is so important.

Johanns questioned Wetjens about the margin requirements that have been imposed on non-financial end users in derivatives transactions. Congress never intended that they be subject to these requirements when trading in derivatives, he said. Johanns added that he has introduced legislation that has bipartisan support to eliminate what he referred to as the job killing margin requirements. Wetjens agreed that the Dodd-Frank Act attempted to hold harmless the end-user community.

Udall asked about the status of the credit rating agency rules mandated under the Dodd-Frank Act. White said it is among her top priorities to complete the rulemaking this year.

MainStory: TopStory SECNewsSpeeches CFTCNews BrokerDealers CreditRatingAgencies DoddFrankAct Enforcement

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