Wednesday, May 8, 2019 was an important day for the Commodity Futures Trading Commission (CFTC or “Commission”). First, the CFTC’s Division of Enforcement (DOE) published an Enforcement Manual, providing market participants for the first time ever with one-stop-shop guidance on the Commission’s enforcement procedures. Second, CFTC Chairman J. Christopher Giancarlo testified before the Senate Committee on Appropriations about the Commission’s 2020 budget request. Both events confirm what many have come to suspect over the last year: as part of its efforts to ensure that the U.S. derivatives market remains “the world’s best regulated,” enforcement will continue as one of the Commission’s top priorities going forward.
A 21st-Century Tool for a 21st-Century Regulator
Market participants should not sit up and take notice of the brand-new Enforcement Manual because it debuts new policies or creates new rights: it doesn’t. Rather, market participants should sit up and take notice because the Enforcement Manual suggests that the CFTC’s approach to enforcement is moving more in line with that of its sister agency, the Securities and Exchange Commission (SEC), which published its first enforcement manual ten years ago. Since the so-called “Flash Crash” of May 6, 2010, the SEC and CFTC have made a concerted effort to harmonize their regulatory and enforcement efforts, and the publication of the CFTC Enforcement Manual represents a logical next step in those efforts, which have included establishing the CFTC-SEC Joint Advisory Committee and signing the SEC-CFTC Memorandum of Understanding Regarding Coordination in Areas of Common Regulatory Interest and Information Sharing.
CFTC-regulated entities and individuals will also want to familiarize themselves with the Enforcement Manual because it collects and memorializes in a single, cohesive document all the DOE policies and procedures that were previously scattered throughout enforcement decisions and various published and unpublished memoranda. The Enforcement Manual is a how-to guide for the DOE’s processes in conducting investigations, pre-enforcement proceedings, and full-blown administrative actions and litigation. It is also a valuable resource for best practices when interacting with CFTC staff and sets forth their expectations for the various market participants with whom they interact, including whistleblowers, cooperators, self-reporting entities and individuals, as well as parties facing litigation or administrative actions. The existence of a unified resource will not only help market participants prepare more effectively should they find themselves being investigated, but, if the DOE succeeds in achieving one of its objectives, the manual will also make enforcement efforts more consistent and transparent across offices and industries.
Enforcement Will Continue as a Top CFTC Priority
During remarks to the Senate made the same day that the Enforcement Manual was published, Chairman Giancarlo emphasized that enforcement will continue as a top CFTC priority, reiterating his “warning to those who may seek to cheat or manipulate our markets that they would face aggressive and assertive enforcement action by the CFTC,” and citing several trends from the past year (FY2018) that show no signs of slowing down, including increases in:
Chairman Giancarlo also applauded the Commission for making enforcement strides in other ways, including an increase in the number of whistleblower awards, a renewed focus on accountability, and developments in agency programs like the cooperation and self-reporting program, the Market Surveillance Unit and the specialized DOE task forces. This upward trajectory of enforcement efforts is likely to continue after Chairman Giancarlo departs and his presumed successor, Heath Tarbert, is confirmed.
Chairman Giancarlo’s remarks and the publication of the Enforcement Manual thus make one thing abundantly clear: enforcement is the way of the future. But CFTC-regulated entities and individuals may well ask themselves the next obvious question: in what industries and areas is the Commission likely to concentrate its enforcement resources? Recent wins by the CFTC suggest that players in the following two markets are likely to the be the most closely scrutinized.
The publication of the Enforcement Manual as well as Chairman Giancarlo’s Senate remarks go hand in hand with these emerging areas of enforcement, giving market participants greater transparency and access to the DOE’s decision-making process. Those who aim to succeed in today’s rapidly changing market would be wise to keep up, not only with the transformation of the market, but with the corresponding transformation of the Commission as well.