CFTC Panel Focuses on Non-Cleared Margin Issues

SIFMA leader Wendy Yun chairs the agency's newest advisory subcommittee; New York regulator and Washington's CFPB launch consumer task forces

Friday, January 24, 2020

By Jeffrey Kutler


It is neither new nor uncommon for U.S. financial regulators to maintain dialogue with constituencies that they supervise and other interested parties through committee structures. The Commodity Futures Trading Commission (CFTC), for one, has five active advisory committees, covering such areas as market risk and technology. The Federal Reserve Board has five advisory councils, including community depository institutions and model validation, and there are numerous other committees at the regional Federal Reserve Bank level.

But lately there has been a bumper crop of new advisory panels - notably the Securities and Exchange Commission's Asset Management Advisory Committee, which held its inaugural meeting January 14 - or, in the CFTC's case, subcommittees, most recently one on non-cleared swap margin requirements.

These activities reflect not only hot issues of the moment, ranging from the Libor benchmark transition to climate change to diversity and inclusion, but also to the dynamic and interconnected nature of markets and their risks. As SEC chairman Jay Clayton stated in remarks to the asset management group, “on a macroeconomic level, Main Street investors are a primary driving force of, not just the asset management industry, but the broader capital markets. And, on a microeconomic and far more personal level, the ability for these investors to access our markets on fair terms is central to their ability to meet their long-term financial needs.”

Dawn D. Stump Headshot
Dawn D. Stump is sponsor of CFTC's Global Markets Advisory Committee.

(Congress is noticing. Clayton was sent a letter on January 14 from the House Financial Services Committee “to express concern about the continued lack of ethnic and racial diversity” on the SEC's four advisory committees. “SEC's October 2019 announcement of the 23-member Asset Management Advisory Committee includes no black committee members,” it said.)

It is happening in state government, too. In November, New York Governor Andrew Cuomo announced a Cyber Security Advisory Board, with the superintendent of the state's Department of Financial Services (DFS), Linda Lacewell, as co-chair, and Justin Herring, executive deputy superintendent of the DFS Cybersecurity Division, as a member.

On January 9, the New York regulator announced the creation of a Consumer Protection Task Force, saying it “will further DFS's mission to protect consumers as the federal government rolls back important consumer protections.” That same day, the Consumer Financial Protection Bureau (CFPB) in Washington, which some critics have accused of not sufficiently fulfilling its mandate under the 2010 Dodd-Frank Act, named four members of a Taskforce on Federal Consumer Financial Law to “examine the existing legal and regulatory environment facing consumers and financial services providers” and recommend “ways to improve and strengthen consumer financial laws and regulations.”

Margin Subcommittee

Late in 2019, the CFTC Market Risk Advisory Committee added three subcommittees under Commissioner Rostin Behnam, the committee sponsor. The new panels - on Central Counterparty Risk and Governance, Market Structure, and Climate-Related Market Risk - joined an existing one on Interest Rate Benchmark Reform, formed in 2018.

The CFTC Subcommittee on Margin Requirements for Non-Cleared Swaps - Margin, for short - was announced January 10 by Commissioner Dawn Stump, the Global Markets Advisory Committee (GMAC) sponsor.

Wendy Yun, co-chair of the Derivatives Committee of the Securities Industry and Financial Markets Association (SIFMA) Asset Management Group, is chair of the 14-member subcommittee. Other members include Mark Bailey, head of financial resource management, Two Sigma Investments; Darcy Bradbury, managing director, D.E. Shaw & Co.; Dominick Falco, head of collateral segregation product, BNY Mellon Markets; and Christine Stevenson, chief compliance officer, British Petroleum Energy Co.

Market participants are in the latter stages of complying with phased-in margin rules for non-cleared swaps. (See Firms Covered by Next Phases of Margin Rules Need to Get Moving) The Margin subcommittee will look to “identify challenges associated with forthcoming implementation phases, and to make recommendations via a report for the GMAC to consider in advising the commission,” CFTC said.

Commissioner Stump said, “As we prepare for the final stage of global margin implementation, we should reflect on lessons learned to date while also recognizing the unique complexities presented by the final phase. I am confident that the expertise of the newly formed Margin subcommittee will prove valuable to the Global Markets Advisory Committee and ultimately the commission.”

Examining Consumer Laws

The CFPB Taskforce on Federal Consumer Financial Law “will conduct a thorough examination of our current regulatory framework and report on how we can improve federal consumer financial laws to benefit and protect consumers,” the agency's director, Kathleen Kraninger, said in a statement.

Kathleen L. Kraninger Headshot
CFPB director Kathleen L. Kraninger has called for “a thorough examination of our current regulatory framework.”

The panel is expected to “produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the federal consumer financial laws - and their implementing regulations - and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance,” CFPB said.

Todd J. Zywicki, professor of law at George Mason University (GMU) Antonin Scalia Law School, senior fellow of the Cato Institute, and former executive director of the GMU Law and Economics Center, was designated taskforce chairman.

The other members are: J. Howard Beales III, former professor of strategic management and public policy, George Washington University, and former director of the Federal Trade Commission's Bureau of Consumer Protection; Thomas Durkin, a retired Federal Reserve Board senior economist; and L. Jean Noonan, partner at law firm Hudson Cook, former general counsel of the Farm Credit Administration, and former associate director of the FTC Bureau of Consumer Protection's Credit Practice at the Federal Trade Commission.

“Consumer Protection Capital”

New York's Consumer Protection Task Force is the state financial agency's third “standing advisory board”; it reports to Superintendent Lacewell, who appointed its 12 members to three-year terms. They include Chuck Bell of Consumer Reports, Beth Finkel of the New York State office of AARP, and law professors Paul Kantwill of Loyola University Chicago and Peter Kochenburger of University of Connecticut.

“Consumers are at the center of all that we do, and this task force will ensure that consumers always come first as the department develops policies and regulates the financial services industry,” Lacewell said. “The collective experience of the members of this task force will be an invaluable resource for DFS as we implement the expansive consumer protection agenda outlined in the Governor's 2020 State of the State agenda, and further solidify New York's reputation as the consumer protection capital of America. With the federal government stepping down and refusing to enforce critical consumer protection laws, we must make 2020 the Year of the Consumer, and this task force will enable DFS to keep leading our state's efforts to fight for the interests of individuals, families, and small businesses.”

Separately, on January 14, Lacewell announced the appointment of Leandra English, a former CFPB official, as special policy adviser.

Most recently director of financial services advocacy at the Consumer Federation of America, English was an early member of the CFPB implementation team during the Obama administration and served as deputy director, chief of staff and deputy chief operating officer.

Lacewell described her as “a fierce consumer advocate with extensive experience in leadership positions across the federal government,” also including the Office of Personnel Management and Office of Management and Budget. “Her commitment to public service, knowledge of key consumer-facing financial products, and experience with managing a strategic policy creation and implementation process will help lead the department's consumer protection agenda for the benefit of New Yorkers and the state's financial services industry, especially as Washington continues to step down from critical consumer protections.”


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