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CFTC Enforcement Head Talks Dodd/Frank and Transparency

The head of enforcement at the Commodities Futures Trading Commission (CFTC) said Dodd/Frank ushered in a new era for enforcement.

James McDonald is the Head of Enforcement at the CFTC and he made the remarks at a Fireside Chat at the Futures Industry Association (FIA).

He said that Dodd/Frank, which passed in 2010, ushered an era to, “improve transparency, mitigate systemic risk, and protect against market-related abuse in the U.S. derivatives markets.”

He continued, “This of course, had significant implications for the Commission, and for the Division of Enforcement. Among other things, Dodd-Frank significantly expanded the Commission’s enforcement jurisdiction, and it granted the Commission new enforcement tools to wield in policing this broader jurisdiction. Over the balance of the next decade, the Commission and its dedicated staff of career civil servants have shown themselves to be up to the task Congress laid out in Dodd-Frank.

“Consider just a few data points. Since Dodd-Frank, the Commission’s enforcement program has focused on the most pernicious forms of wrongdoing, bringing more cases involving misconduct that undermines market integrity, like manipulation and spoofing, than ever before. To increase the deterrent effect of our enforcement actions, we’ve imposed substantial penalties, enhanced our evaluation of compliance programs, strengthened remediation requirements, and ramped up our parallel activity with the Department of Justice. To keep pace with our rapidly evolving digital markets, we’ve revolutionized the way we collect, analyze, and use data. And to increase transparency and fairness, we’ve taken significant steps to make public the policies, procedures, and practices that guide our actions, and to explain why we take the actions we do. The penalty guidance we’ll talk about today flows from this final point.”

McDonald continued, explaining that the enforcement division has taken several steps to increase transparency, “We published an Enforcement Manual, laying out publicly for the first time the Division’s practices and procedures. We began issuing Annual Reports at the conclusion of the Fiscal Year, laying out the Division’s priorities, and explaining how the Division’s enforcement efforts were designed to advance them. And we explained in publicly available staff guidances how the Division would handle a variety of issues—ranging from cooperation and self-reporting, to new areas of enforcement activity, to today’s topic, penalties. This push toward ever greater transparency is something that, under Chairman Tarbert’s leadership, I know will continue.”

Part of the push for transparency included penalty guidance. This too was rooted in Dodd/Frank.

“So why issue this penalty guidance at all, and why now? This is where we turn back to Dodd-Frank. In the nine Fiscal Years since Dodd-Frank, the CFTC has obtained more than $13.6 billion in monetary relief. That’s an average of more than $1.5 billion per year. As you might expect, given the dramatic expansion of jurisdiction and authority that came with Dodd-Frank, these numbers mark a sharp increase over the pre-Dodd-Frank averages.

“Just as the size of the penalties have grown, so too has the breadth of cases that have produced these penalties. We’ve pursued misconduct in every corner of our markets, from cattle futures traded by feedyards to financial instruments traded by Wall Street banks. We’ve obtained significant penalties in traditional markets like precious metals, and new-age markets like digital assets. And we’ve kept pace

as our markets transformed from analogue to digital, from order tickets trading hands in the pits to algorithms trading at high frequency on the screen.”