By J. Christopher Giancarlo
May 12, 2017 at 5:00 am ET
Let this be a first in Washington: At the CFTC we are going to KISS and tell. We’re also going to put a whole new meaning on the phrase. Many of us can recall in our youth of being taught, “Keep it simple, stupid.” In most tasks in life there’s a simplicity beyond the complexity, and we must hone in on it in order to be successful.
I’ve been thinking about this principle since being sworn in as acting chairman of the U.S. Commodity Futures Trading Commission on Jan. 20. The risk-hedging markets the CFTC regulates are large (interest rate swaps, by example, represent the largest sector space of the global financial market at some $700 trillion) as well as complex. As a former executive of a publicly traded derivatives platform before becoming a commissioner, even I have had to learn some things about how swaps and futures are regulated across the economy.
I believe more than ever that simplicity is a critical foundation for regulation. Complex markets like derivatives serve America’s economy by transferring the risks of fluctuating costs from those who can’t afford them to those who can. This transfer of risk can only function well if the rules of the road are straightforward and comprehensible. The harder they become to understand and comply with, the less dynamism and vibrancy these markets have in them. When that happens, goods we buy like groceries, heating oil and airline tickets are at risk of going up because their production prices cannot be hedged as well.
I’ve found that too often the CFTC’s rules for derivatives are applied in a needlessly complex manner. Across many areas, they make it too hard, costly or time-consuming for market participants like farmers and ranchers to comply. Whether it’s overlapping risk management record requirements, ambiguity in the threshold for regulatory oversight, or just overly vague language, the rules don’t operate with the underlying simplicity that they should. They deserve a fresh look at how they can be amended to function as they were intended.
Although the CFTC is an independent agency and therefore not strictly bound by White House executive orders, I was inspired by President Donald Trump’s order on regulatory reform and review. Therefore I have directed CFTC staff to review all existing rules for potential cleanup. We are not content to do this solely in-house as a group of regulators. I am issuing here a call for suggestions from the public to make our existing regulations function better. This invitation extends across the spectrum to those affected by our regulations, from industry leaders to consumers. We are seeking sensible recommendations that we can consider implementing. The name of this initiative, harkening back to what many of us like myself learned growing up, is Project KISS. You can visit our web portal to offer your input: CFTC.gov/ProjectKISS.
Let me be very clear, this exercise is not about identifying existing rules for repeal or even rewrite. It is about taking our existing rules as they are and applying them in ways that are simpler, less burdensome and less of a drag on American economy. The CFTC is one of the premier civil law enforcement arms of the federal government, and there will be no let-up in punishing bad actors who seek to cheat or defraud others in the derivatives markets. Regulatory reform should help us enforce our rules better since the lines between compliance and rule-breaking will be brighter.
I hope that other federal regulators, as appropriate, will formally seek recommendations from those affected by their rules. Those affected members of the public are, after all, our constituencies. They are the people we in government have taken an oath to serve. We must do our best to ensure that the rules they must live by avoid complexity and other elements that may only confuse their purpose. Let’s take heed of that useful adage: Keep it simple, stupid!
J. Christopher Giancarlo is acting chairman of the U.S. Commodity Futures Trading Commission and was nominated by Trump on March 14 to be its full-time chairman.
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