Today, the Commodity Futures Trading Commission (CFTC) will take yet another step down a misguided path that encroaches so far onto States’ rights that it makes a mockery of the Tenth Amendment.  It pains me to say that despite the road here being paved with good intentions, today’s event contracts rulemaking is yet another example of how far the Commission has strayed from the requirements of the Administrative Procedure Act (APA) and the Constitution, and how little the Commission seems to care for fairness and due process under the law.  I have repeatedly raised troubling concerns that the breakdown of the Commission’s internal procedures and processes I have observed in the past two years severely compromises the Commission’s ability to fulfill our mission and statutory mandate set forth in the Commodity Exchange Act (CEA), faithfully serve the public interest, and treat market participants fairly.  That is why, before the Commission is granted or usurps any additional jurisdiction over products or asset classes, I believe that a Government Accountability Office (GAO) study is necessary of the Commission’s procedures for rulemaking, examinations and compliance reviews, investigations and enforcement, adjudicatory proceedings, due process protections, and compliance with the CEA, APA, Good Accounting Obligation in Government Act, Government Management Reform Act of 1994, Government Performance and Results Act (GPRA) Modernization Act of 2010, and other laws and requirements applicable to administrative agencies.  A GAO study and recommendations for improvement will ensure that the Commission has the internal operations, structure, technology, expertise, personnel, and funding to be effective in our oversight of commodity derivatives markets.  The Commission must be able to walk in a straight line before we run headlong into any expansion of jurisdiction.

As Commissioners, it’s our duty to ensure adequate governance of the CFTC.  We must support our talented staff with the tools, training, and resources to be successful, and ensure that we are sticking to our mission, our authority, and our own rules.  And it’s our duty to take appropriate corrective action if we ever lose sight of those principles.  The Commission must uphold the highest standards of integrity, diligence, and excellence to maintain the public’s trust in the CFTC’s ability to oversee our markets with fairness and in service to justice.[1]  Unfortunately, in the last two years, there has been a disturbing number of judicial opinions and public reports that the Commission is failing to meet those standards.[2]  This is a challenging time for all of us, and I thank Chairman Behnam for his leadership through it.

Identifying and Reporting the CFTC’s Issues

Six months into my term as a Commissioner, I gave a speech to leaders and practitioners in compliance and enforcement on the well-known maxim, “If you see something, say something.”[3]  In my career as a senior Compliance officer in the private sector overseeing billion-dollar compliance programs, my job was to implement policies and procedures, controls, monitoring, testing, and assessment to achieve compliance with laws and regulations to ensure safety and soundness of the bank and market integrity and conduct.  These efforts included processes to identify, escalate, and report issues, and ensure remediation and self-reporting to authorities as appropriate.  These responsibilities might not always be popular—as anyone familiar with Compliance and Internal Audit is aware—but they’re absolutely necessary.  Not only did they keep the firm out of trouble, but they promoted trust with our regulators and clients and upheld the firm’s reputation.

As a public company, nothing less than the highest standard is owed to investors and other stakeholders. Well, the CFTC is a public institution, and I believe the Commission owes the American taxpayer that same high standard.  At my last job, if I discovered the kind of issues that I’ve seen here at the CFTC, I would escalate and report those issues so they could be fixed.  Now that I’m a Commissioner, it’s still my job to say something if I see something wrong. And it’s what the CFTC expects of its registrants.

In the government, the public trust is paramount.  Failing to adhere to the law and principles of fairness that are essential to American democracy not only causes us to fail at our mission, but it ultimately hurts the Commission and its dedicated public servants.  We’ve seen a recent cautionary tale at one of our sister agencies that resulted in the resignation of two members of staff.[4]  It’s important that the Commission is proactive now and takes stock of our own approaches to rulemaking, enforcement, and other administrative actions, that we acknowledge our issues, and that we get help when we need it.

I have consistently raised concerns both internally and publicly about the CFTC’s lack of procedures,[5] improper expansion of jurisdiction,[6] incorrect application of the law,[7] increased delegation of authority,[8] dubious enforcement actions and unfair adjudicatory proceedings,[9] failure to comply with the APA,[10] and general disregard for due process.[11]  Over the past several years, a concerning number of CFTC complaints filed in litigation in federal court have been dismissed for failure to state a claim (insufficient facts to support a charge or incorrect as a matter of law) or on summary judgment (incorrect as a matter of law), or overturned in appellate court, meaning that the CFTC does not understand and is wrong about the application of our own statute and our own regulations.[12]  I am deeply disturbed that just a few weeks ago, a federal judge has called the CFTC’s recent actions in another litigation matter “troubling at best” and ordered a hearing on sanctions against the CFTC for an alleged “pattern of misconduct” that includes knowingly submitting false statements to the court and attempting to intrude on attorney-client privilege.[13]  This is cause for alarm and the Commission must address this crisis.

The Commission’s recent history with event contracts is another example of the CFTC’s issues.[14]  The CFTC is currently a defendant in two litigation matters relating to event contracts that allege that the CFTC violated the Administrative Procedure Act, due process, and other Constitutional rights.  In one of the lawsuits, the U.S. Court of Appeals for the Fifth Circuit has called the CFTC the “epitome of arbitrary and capricious,” and found that the CFTC violated the Fifth Circuit’s injunction.[15]  U.S. Senators and Members of Congress have sent letters to the Commission to express their concerns with the CFTC’s conduct of the event contracts rulemaking.[16]

My concerns are informed by my decades of experience in both the public and private sectors.  Not only did I have the privilege of serving at the CFTC between 2009 and 2014 during the response to the 2008 financial crisis, but I have also served at the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC).  I know the standards that the CFTC used to meet, and the standards expected at the SEC and the OCC, two of the preeminent U.S. financial regulators that are much larger and older than the CFTC.

I’ve had to use my voice not only because it’s my job as a Commissioner, but out of true devotion to an agency that I have loved and cared about so much that I’m back for the fourth time.  The CFTC is where I started my career, and I believe deeply in our mission and our people.[17]  Like a mom who will always hold her kids to a high bar and push them to reach their potential, I want to see us all succeed.[18]  That means not being afraid to look inward, seek guidance, and be honest with ourselves about our missteps.  The most important leadership lessons I’ve learned is to never be complacent, have a growth mindset, embrace diverse viewpoints, and focus on continuous improvement.[19]

GAO Study and Implementing Reforms to Ensure the CFTC’s Effectiveness

Sometimes fresh eyes are warranted, and that’s why I’m calling for a GAO study and recommendations.  And, I’m also calling for the Commission to adopt review and accountability measures to regularly assess the CFTC’s effectiveness and identify areas of improvement.  Absent these forward looking and proactive measures, I am seriously concerned that the Commission will continue to lack the procedures and controls needed to be effective at our mission, making the CFTC susceptible to failure to protect our markets and the public.

If this sounds like a surprising request, consider this: Subtitle F—Improvements to the Management of the Securities and Exchange Commission of the Investor Protection and Securities Reform Act of 2010 (Dodd-Frank Act Title IX) required the SEC, which has existed nearly twice as long as the CFTC and has six times the amount of budget and employees, to hire an independent consultant to perform an organizational study and review of the SEC’s internal operations, structure, funding, and the need for comprehensive reform, and for the SEC to report to Congress on the progress of its implementation of the consultant’s organizational reform recommendations.[20]  Dodd-Frank also requires the SEC to submit annual reports and certifications to Congress with an assessment of the effectiveness of the SEC’s internal supervisory controls and procedures applicable to staff performing examinations, enforcement investigations, and reviews of corporate financial securities filings, and for the GAO to conduct regular reviews of the adequacy and effectiveness of the SEC’s internal supervisory control structure and procedures.[21]  And, Dodd-Frank requires the GAO to regularly review and report to Congress on the quality of the SEC’s personnel management, including effectiveness of supervisors, promotion criteria and fairness, competence of the professional staff, efficiency of communication between divisions and offices, staff turnover, excessive numbers of managers, initiatives to increase the competence of the staff, performance improvement and termination, and recommendations to use staff more effectively and efficiently to carry out the SEC’s mission.[22]

At that time back in 2010, the SEC not only had greatly expanded jurisdiction over new products and categories of registrants, but was facing new challenges in securities markets from technological developments like high-frequency algorithmic trading.  These Dodd-Frank studies, reviews, and reports were a sensible way to ensure the SEC would be well prepared to take on its new oversight responsibilities.  The CFTC also had greatly expanded jurisdiction over new products and categories of registrants, including the swaps market and systemically important financial institutions, and the CFTC faced similar challenges from technological developments.  But there was no similar Dodd-Frank mandate to improve management at the CFTC.  Now in the present day, the CFTC may potentially have its jurisdiction expanded again, and is facing a new wave of technological developments like crypto assets and generative artificial intelligence (AI).  It’s time for the CFTC to finally have the benefit of comprehensive studies and recommendations to make sure we are prepared and able to carry out our mission.

These accountability measures are not only standard practice for management at any organization and common sense, but they have already been proven at our peer agencies.  I think we’d all agree that the CFTC’s mission is no less critical. Shouldn’t we be just as accountable?

In addition, a GAO study would provide a roadmap for implementation of reforms.  I have made a number of proposals to improve the CFTC’s effectiveness to better serve the American people.  These proposals have ranged from preserving our institutional knowledge by establishing a CFTC Historical Society;[23] to enhancing retail protection by establishing an Office of the Retail Advocate, studying retail binary options reform, and considering a new registration category for direct clearing retail derivatives clearing organizations (DCO);[24] to promoting responsible innovation through market pilot programs;[25] to creating executive champions for our employee resource groups;[26] to launching leadership skills and professional development initiatives;[27] to a transformation of the agency across five pillars: governance, culture, talent, operations, and excellence.[28]  Most urgently, I have proposed that the Commission establish a CFTC examination program for systemically important swap dealers because the CFTC is an outlier and the only regulator in the world who directly oversees global systemically important banks (G-SIB) and lacks such an examination program to protect financial stability and mitigate systemic risk.[29]

Demanding the CFTC’s Accountability

Government accountability is the cornerstone of the U.S. system of federalism and individual liberty.  As public servants sworn to uphold the Constitution, we should embrace the opportunity to improve.

Nobody, and no regulator, gets it right all the time.  This obvious fact is a good thing—it creates opportunities to address challenges, fix problems, and build for the future.  Change is hard, and transformation is even harder.  But as someone whose career has been to drive change and transformation, I know it’s worth it.

Some of my statements and staff questions as a Commissioner haven’t always been popular. Speaking truth can be uncomfortable to hear, but that’s essential to governance and oversight to ensure accountability.  That’s been my job as a Compliance officer, and that’s my job as a Commissioner.  My objective has always been for the Commission to excel at its mission to promote market integrity, and to avoid embarrassment and the degradation of our reputation as a leading regulator.  I believe at this point, a third-party review could help us get back to the basics and on track to do what we do best.

Thank you.