U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing and Urban Affairs, today made the following statement at a hearing on derivatives reform.
Statement of Senator Richard C. Shelby
Committee on Banking, Housing and Urban Affairs
May 22, 2012
"Thank you, Mr. Chairman.
"Since the passage of the Dodd-Frank Act, its proponents have repeatedly claimed that both consumers and our financial markets will benefit from the new law. We now know that both of these claims are false.
"Just last year, Chairman Gary Gensler oversaw the largest consumer protection failure in the history of the CFTC. Under Chairman Gensler's watch, customers of MF Global had 1.6 billion dollars of funds improperly taken from their accounts.
"The first and most basic responsibility of the CFTC is to ensure that customer funds are not misappropriated. Yet, despite all the new authorities conferred on the CFTC by Dodd-Frank, the CFTC was still unable to fulfill this primary responsibility to MF Global customers.
"The CFTC's failure is especially troubling because the funds went missing during a time when it was well known that the firm was under severe financial stress and the risk of misappropriation was very high. Even more embarrassing for the CFTC is the fact that there were numerous CFTC officials onsite at the firm when the funds went missing.
"While I am pleased to see that the MF Global Trustee is making progress in returning funds to MF Global customers, Chairman Gensler, nonetheless, owes the public a full accounting of how they failed to protect those customer assets in the first place. Unfortunately, Chairman Gensler continues to recuse himself from all matters pertaining to MF Global which effectively insulates him from Congressional scrutiny.
"Mr. Chairman, the public deserves more from their financial regulators. We need regulators who are willing to explain their actions, rather than run for the hills. If there were regulatory failures, the responsible parties need to be held accountable for their actions. Chairman Gensler's recusal has impeded Congress's ability to examine every facet of the MF Global failure. I hope that today Chairman Gensler will be more forthcoming about his involvement with MF Global, so that Congress can finally begin to understand what role he played and how Congress should respond.
"I also hope that Chairman Gensler will be more forthcoming about his management of the CFTC's implementation of Dodd-Frank. Chairman Gary Gensler and SEC Chairman Mary Schapiro have jointly created widespread uncertainty about the regulation of derivatives.
"According to a recent report, regulators have met only one-third of their Dodd-Frank rule-making deadlines. While there is no question that the rule-writing process mandated by Dodd-Frank makes it very difficult to meet the unrealistic deadlines, the regulators share culpability.
"For example, although the CFTC and the SEC have proposed numerous new rules for derivatives, they have still not proposed rules that clarify the definition of a swap. Let me repeat that. Almost two years after the passage of Dodd-Frank, giving the CFTC and the SEC joint jurisdiction over the swap markets, they have still not agreed on the definition of a swap. Yet, somehow they have finalized rules, based upon swap activities, defining and governing swap dealers and major swap participants.
"If market participants don't know which of their activities will fall under the swap definition, how can they be expected to know whether those activities will be subject to the patchwork of registration, recordkeeping, clearing, and trading rules? And, if market participants do not know if their activities will cause them to be classified as a swap dealer or a major swap participant, how can they be expected to know when to submit comments? This is just one example of how Dodd-Frank and its implementation have created unnecessary uncertainty in our markets.
"As the American economy continues to struggle with high unemployment, sluggish growth and the fallout from the ongoing European crisis, the last thing we need are self-inflicted wounds. This includes those inflicted by Congress, regulators and, most recently, poorly conceived trading and hedging activities in one of our largest banks. Today's hearing presents an opportunity to discuss all of these and how they can be avoided in the future.
"Thank you, Mr. Chairman."