CFTC To Outsource Regulation To Companies It Regulates

Let’s be friends, guys!
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By U.S. Government [Public domain], via Wikimedia Commons

By U.S. Government [Public domain], via Wikimedia Commons

Combine an undermanned, underfunded financial regulator with the philosophy that any regulation is stifling and should be minimized, and you wind up with today’s Commodity Futures Trading Commission: A four-member-going-on-three-where-there-should-be-five body begging for scraps openly admitting that it doesn’t feel much like looking for wrongdoing on the part of the entities it was established to regulate before revising those statements to pretend that it does.

Mr. McDonald said in the draft speech and in an interview that the agency expected to reduce penalties by roughly 75 percent for those that fully cooperate. In rare instances, he said, cases would be dropped altogether.

Late Friday, Mr. McDonald told The Times that he and the commission’s chairman, J. Christopher Giancarlo, had changed their minds and decided against setting a 75 percent target. Instead, he said, they will reduce penalties by a “substantial” amount case by case….

“We at the C.F.T.C. are committed to working together with the companies and individuals we regulate — transparently and in partnership — to identify and prosecute wrongdoing that has occurred, and to stop future wrongdoing before it starts,” he initially planned to say in Monday’s speech.

But late Friday, Mr. McDonald said he had decided to delete references in his speech to that “partnership” with the industry, out of concern that such language would come across as overly conciliatory.

What is this partnership that dare not speak its name? Well, here’s the gist of the CFTC’s new enforcement strategy: You tell us when you do something wrong, and we’ll give you the lightest slap on the wrist imaginable, and maybe not even that! After all, if we’ve learned nothing over the past decade, it’s that people on Wall Street just want to do the right thing. It’s just that sometimes they get tripped up by a few thousand bad apples who wildly misinterpret incentives to do bad things as incentives to do bad things. Could happen to anybody. Wouldn’t be fair to get all Gary Gensler on people, would it?

“We start with the shared understanding that the vast majority of businesses want to comply with the law,” Mr. McDonald will say Monday, according to a draft of the speech reviewed by The New York Times.

“But we also know that companies with even the best intentions can make mistakes or have a few bad actors,” he will say. “We also recognize that no matter how much corporate leaders may want to foster compliance within the company, when they detect misconduct their decision whether to voluntarily report it often comes down to their perception of whether they’ll be treated fairly.”

Thanks in advance for the help, guys. What could possibly go wrong?

Regulator Wants Financial Industry to Self-Report Wrongdoing [NYT]

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