Commissioner Calls for a Review of the CFTC

This week, in a rare turn, CFTC Commissioner Pham delivered a strongly worded statement (click here) heavily criticising the CFTC over the lack of proper procedures, the alleged overreach of jurisdiction, the disregard for due process, and failure to comply with laws like the Administrative Procedure Act. It appears that the final straw for this statement was this announcement by the CFTC on a proposed rule amendment relating to so-called “event contracts”. These are listed contracts which pay out based on the outcome of certain events, such as a political or gambling outcome. The amendment proposes to ban contracts referencing unlawful activities involving, for example, gaming, war, terrorism or assassination. Perhaps crucially in the context of 2024, the rule amendment would bar any contract relating to an election outcome from being listed under the Commodity Exchanges Act.

Commissioner Pham issued a separate dissenting statement (click here) voicing her disapproval over the process used to arrive at the proposed amendment:

“I am simply disappointed in this wasted opportunity to regulate retail binary options, sidestepping our responsibility, and concerned about its legal impact.”

In her statement criticising the CFTC, Commissioner Pham cites numerous court rulings against the CFTC, alleging misconduct and arbitrary actions, particularly regarding event contracts rulemaking as outlined above. She goes as far as calling for a Government Accountability Office (GAO) study to review the CFTC's operations, structure, and adherence to laws. For the uninitiated, the GAO is an independent, nonpartisan Federal agency that works for the US Congress and which is often referred to as the "congressional watchdog". Commissioner Pham argues that an external review is crucial to ensure the CFTC can effectively oversee markets, particularly as new areas like crypto assets and Artificial Intelligence are emerging. In her conclusion she notes:

“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.”

 RegTrail Insights

Commissioner Pham is clearly dissatisfied and frustrated at the inner workings of the CFTC at present and has taken the rare step of “washing dirty laundry in public”. Whether this will result in the desired GAO inquiry is unclear, nor is it clear whether the systemic issues outlined by the Commissioner detrimentally impact the agencies abilities pursue day to day activities such as market oversight and enforcement. RegTrail will continue to track this topic with interest.