CFTC Commissioner Scott O’Malia has issued a Statement of Dissent to the CFTC’s interpretive guidance and policy statement regarding the cross-border application of the CEA’s swaps provisions.
O’Malia argues that the CFTC’s Guidance: (1) fails to articulate a valid statutory foundation for its overbroad scope and inconsistently applies the statute to different activities; (2) crosses the line between interpretive guidance and rulemaking; and (3) gives insufficient consideration to international law and comity. These shortcomings, he argues, are compounded by serious procedural flaws in the Commission’s treatment of international harmonization and substituted compliance, as well as in its issuance of the Exemptive Order.
In addition to charging that the CFTC’s action constitutes “a regulatory overreach based on a weak foundation of thin statutory and legal authority,” Commissioner O’Malia’s statement argues that, because the CFTC’s action “has the force and effect of law,” it should have been promulgated as a legislative rule under the APA.
Lofchie Comment: The procedural issue raised by Commissioner’s O’Malia’s dissent is not going to disappear. In fact, if anything, the Commissioner understates the problems caused by the CFTC’s decision not to comply with the legislative rule procedure under the APA. Even if no group determines to challenge the CFTC directly on whether its “guidance” is in fact a “rule,” any time that the CFTC seeks to bring an enforcement action that is based upon the guidance, the defendant will be able (and will have every incentive, not to mention a case) to argue that the guidance is not enforceable. This is an issue that I expect to write more about (quite a bit more about).
Unfortunately, this is not just an argument about procedure. One of the reasons that proposed rules are required to go through a public comment period is so that they may receive the benefit of others’ suggestions. The ongoing debate about the process by which the guidance (that is not a rule) was adopted should also serve to spotlight the various deficiencies in the policy behind the guidelines (another topic as to which I expect to write more).
See: Commissioner O’Malia’s Statement of Dissent.
See also: CFTC Approves Cross-Border Guidance and Exemptive Order (July 15, 2013).