The CFTC is Off to a Fast Start Under Acting Chairman Pham
In Short
The Situation: In a break from the typical acting agency chairman, Acting Commodity Futures Trading Commission ("CFTC") Chairman Caroline Pham has taken several significant actions, signaled several more, and set the agency on a path to still further significant actions.
The Results to Date: The acting chairman has addressed some longstanding pain points for industry.
What to Expect: Acting Chairman Pham can be expected both to continue to address proposals and statements she made while a CFTC Commissioner and to seek to set the agency on a course for more lasting policy changes.
In a recent industry conference keynote speech, Acting Chairman Pham announced, among other things, an enforcement "sprint" to clean up open matters so that the agency can focus more resources on "pursu[ing] fraudsters and scammers and seek[ing] recoveries for victims." A sprint is an apt way to characterize her tenure thus far (approximately two months), given the number of announced and concluded actions and the fact that the typical acting agency chairman is merely a caretaker for the next confirmed chairman. To illustrate, the following is a partial inventory of the agency's actions under Acting Chairman Pham.
Concrete Actions/Statements to Date
- Reorganized the agency's various ad hoc, issue-of-the-day Enforcement Division "task forces" (informal groups of enforcement lawyers focusing on certain themes) into just two fraud-focused task forces: one focused on retail fraud and other statutory and regulatory violations, and another focused on complex fraud;
- Issued an updated Self-Reporting, Cooperation, and Remediation Advisory to include a matrix quantifying how those three factors work together to decrease by a specific percentage the penalty the CFTC would otherwise likely have sought;
- Announced a forthcoming advisory providing guidelines on operating divisions' referrals to the Division of Enforcement;
- Commenced a 30-day enforcement "sprint" to clean up outstanding enforcement matters in order to concentrate on fraud;
- Announced that there would be no more "gotcha" enforcement for non-intentional noncompliance absent customer or market harm;
- Hosted a CEO Forum to discuss launching a CFTC digital asset markets pilot program for tokenized non-cash collateral such as stablecoins; and
- Likely based on the view that the CFTC need not always enforce its jurisdiction to the maximum extent possible under its jurisdiction when other factors are also relevant, withdrew a staff advisory regarding the scope of the "swap execution facility" definition, which was widely viewed as an overly aggressive application that swept in many other market participants that Congress did not intend to include or did not realize it would include.
Announced Initiatives
- Announced an intent to clarify its cross-border rules as they apply to futures trading;
- Announced a prediction markets roundtable; and
- Announced roundtables on innovation and market structure.
Then there are some more structural changes in the works, like moving certain oversight functions from one division to another and adopting a shared services model for administrative functions and support, presumably to save costs.
As is evident, there has been a significant focus on enforcement and, in particular, an indication that we should not expect to see a lot of development of the law by enforcement during Acting Chairman Pham's tenure. Instead, look for the CFTC to determine how to address new products and market structure developments through other, less-confrontational means. We expect this to continue under a Senate-confirmed CFTC chairman.
Although Acting Chairman Pham has forged a bold, action-filled path as an acting chair, a common thread running through her actions are that these actions are not rulemaking. In other words, they can be done through her authority as chairman; notice and comment rulemaking is not required. This allows swift action, though she may yet commence rulemakings.
These most likely would be to withdraw rules (e.g., large trader reporting for swaps) or introduce rules requested by industry (e.g., to codify relief from certain aspects of the ownership and control reports rules). She has also set the wheels in motion for Brian Quintenz—the nominee to be the next CFTC chairman—to carry on the rulemaking process in other areas by announcing several roundtables. Roundtables are not required as part of rulemaking but can lay the groundwork for the next chairman to modify the CFTC's approach.
Indeed, in the press release announcing the prediction markets roundtable, Acting Chairman Pham is quoted as stating that "the current Commission interpretations regarding event contracts are a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration[,]" "the CFTC is required to follow … the Administrative Procedure Act to change course[,]" and "[t]his roundtable is a necessary first step in order to establish a holistic regulatory framework …." She also announced recently that the CFTC is deliberating whether to reopen the comment period for the 2008 Concept Release on the Appropriate Regulatory Treatment of Event Contracts.
Given that Brian Quintenz's nomination hearing has not yet been announced, we can expect many more actions from Acting Chairman Pham.
Four Key Takeaways
- Given the relatively short expected duration of her term (months, not years), and the criteria for new rulemaking set forth in several executive orders, Acting Chairman Pham is likely to make her mark mostly through staff action (undertaken at her direction).
- Because she and the President's nominee for CFTC chairman, Brian Quintenz, are generally aligned on policy, Acting Chairman Pham can also set several things in motion to lay the groundwork to assist the presumed future chairman in completing various shared priorities.
- The acting chairman is acting from a public playbook, noting in a recent keynote speech at an industry conference that she will be seeking to "deliver on [her] … previous proposals and statements as a Commissioner[]" and outlining and citing a number of those in that speech. Thus, those looking for a roadmap to the acting chairman's term need look no further than her public pronouncements as a commissioner and now as acting chairman.
- Acting Chairman Pham has made it clear that she is open to hearing concerns. Although she has a full agenda, she is likely willing to address additional industry headaches that are low-hanging fruit in order to cap off her term.
