The House Ag Committee in a hearing on Wednesday reviewed the progress of reforms to the derivatives market following last week's five-year anniversary of the Dodd-Frank Act.
Dodd-Frank brought new regulation to the financial industry, including the regulation of swaps under Title VII, which had previously not been regulated in the U.S.
Title VII also aimed to reform derivatives products under five categories – clearing, margining, electronic execution, data reporting, and capital standards – to make the markets safer, per G-20 request.
But since the law's passage, market participants have become frustrated with Dodd-Frank implementation, despite supporting its goals.
"The testimony we heard today confirms the committee's concerns over the lack of coordination and harmonization that jeopardizes the implementation of reforms to global swaps markets," House Ag Committee Chairman Mike Conaway, R-Texas, said.
The hearing focused on the progress regulators are making to implement the G-20 goals. Witnesses highlighted the still unresolved impasse over clearinghouse recognition, trade execution requirements that are fragmenting liquidity, reported data that is incomprehensible to regulators, and the U.S. margin and capital rules that are significantly different than international standards.
"Despite 50 rulemakings by the [Commodity Futures Trading Council], so far, these reforms have not lived up to their promises, and there is a lot of work to be done," Conaway said. "Each failure to harmonize rules drives a regulatory wedge between the United States and our global trading partners, needlessly complicating financial markets and weakening the derivatives reforms the G-20 sought to achieve."
The CFTC has 10 more rules to complete as part of Title VII reforms, according to House Ag Committee Ranking Member Collin Peterson, D-Minn.
Funding the CFTC
Conaway also shared that he feels the CFTC – an entity which has an expired Congressional authorization – should not receive any funding until its authorization is approved. The House Ag Committee has reauthorized it twice in the past two years, but the Senate has yet to act.
"I consider it a failure of our institution to allow federal agencies to operate outside of the traditional budget process of authorization, appropriation, and oversight," Conaway said during opening comments. "Despite the lack of authorization, appropriations to the agency have increased from $194 million at the end of FY2013 to $250 million this year, an increase of 29% in two years."
For the full hearing on Dodd-Frank and CFTC, view the webcast.