Craig Donohue, CEO of the CME Group, sent a letter to the CFTC strongly criticizing the Commission’s approach to the rulemaking process. Donohue responded to a CFTC proposal to periodically review and revise existing regulations with a comment denouncing the Commission’s cost-benefit analysis and abandonment of a “principles-based” regulatory regime.
The proposal for a periodic review stems from a January 2011 Executive Order urging regulators to “tailor [their] regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.” This is not a requirement for the CFTC, but a voluntary encouragement.
However, Donohue insists that during the Dodd-Frank rule-making process (Phase One of the CFTC’s regulatory review) the CFTC has made only a cursory effort to analyze the costs of new and revised regulation. He calls the current cost-benefit analyses “uninformative, almost boilerplate” and argues that they “fail to acknowledge many of the economic costs of proposed rules.” Inadequate analyses have already cost the SEC one rule, and Donohue believes that ill-considered CFTC rules may suffer a similar fate.
Furthermore, the Executive Order also instructs regulators to “specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt.” Donohue points out that the CFTC has laid out detailed core principles and other day-to-day, detail-oriented rules generally better left to self-regulatory organizations like the NFA. He urges a return to principles-based regulation that allows SROs discretion in how the implement new rules.
However, since the CFTC is not required but only encouraged to follow the Executive Order, Donohue and the CME may go unheeded. Scott O’ Malia and Jill Sommers, CFTC Commissioners with strong voices in favor of more thorough cost-benefit analyses, have not made significant headway within their own organization.