There is an old expression in Washington – people make policy. Knowing who makes the policy tells a lot about what to expect as the policies are made. That is never more true when a new US president takes office and a new set of officials are appointed across the many agencies of the federal government.
In the first nine months of his administration, President Joe Biden assembled the key members of his policy-making team and filled many vacancies across the executive branch. Now he has turned his attention to the Commodity Futures Trading Commission, the primary regulator of the US derivatives markets.
On 13 September, the White House announced that President Biden intends to nominate Rostin Behnam to serve as the CFTC’s chairman. Behnam has been serving as a CFTC commissioner since September 2017 and as acting chairman since January, so he is not a new face at the CFTC. But if the Senate confirms his nomination as chairman, he will have the full authority of his office and far more ability to set the policy agenda for the CFTC for years to come.
In addition, President Biden announced his intent to nominate two other people to the open Democratic seats at the CFTC: Kristin Johnson, a professor of law at Emory University School of Law, and Christy Goldsmith Romero, the presidentially appointed special inspector general for the Troubled Asset Relief Program and an adjunct professor of law at Georgetown University Law Center and University of Virginia Law School.
All of these nominations require confirmation by the Senate. The confirmation process provides members of the Senate with an opportunity to question the nominees and express their support or opposition. This process may seem somewhat opaque to distant observers, so it is worth taking a moment to explain how this process works and what market participants can expect.
The Nomination Process
Article II, Section 2, of the US Constitution provides that the President shall appoint officers of the United States “by and with the Advice and Consent of the Senate.”
Senate committees play an important role in this process, conducting investigations and holding public hearings that provide Senators an opportunity to vet nominees, ask questions, and highlight priorities.
Jurisdiction over the CFTC falls to the Senate Agriculture, Nutrition, and Forestry Committee, and it is in this committee that the confirmation process will start.
Behnam is no stranger to this committee. In 2011, he joined the committee staff as senior counsel to Senator Debbie Stabenow of Michigan and in 2017 the committee approved his nomination as a CFTC commissioner.
Stabenow is currently chairing the committee, and at some point in the near future she most likely will schedule a public hearing on the nominations. Depending on the circumstances, she may decide to move forward with all of the nominations as a package, or focus first on confirming Behnam as chairman.
Following the hearing, Stabenow will schedule a meeting of the committee members to formally consider and vote on the nominations. Once this phase is completed, the nominations will be placed on the Senate's Executive Calendar that identifies presidential nominations ready for consideration by the full Senate. Confirmation by the Senate is done by majority vote, meaning that at least 50 members of the Senate must vote to approve.
The timing between a hearing and a vote can be fairly short. In 2019, when the Agriculture committee was considering the nomination of Heath Tarbert to serve as CFTC chairman, it took only two and a half weeks to move from a public hearing to an affirmative vote.
The next step can take some time, however. In 2019, over two months passed before Tarbert’s nomination was approved by the full Senate.
More recently, on 18 January President Biden announced his intent to nominate Gary Gensler as chair of the Securities and Exchange Commission. On 3 February, the White House officially transmitted the nomination to the US Senate. On 10 March, Gensler received an affirmative vote in the Senate Banking Committee and, just over a month later, on 14 April, Gensler’s nomination was approved by the full Senate.
The Importance of Senate Confirmation
Although acting chairs of federal agencies have many powers, they face several challenges that prevent them from exercising the full authority of the agency. For example, it can be difficult to hire senior staff and fill division director vacancies because there is no certainty around how long an acting chair may serve in that role. This can have a cascading effect on setting and executing an agenda.
The uncertainty also leaves an agency at a disadvantage to its peers in the domestic and international regulatory community, given that the head of the agency can be replaced by a Senate confirmed nominee at any time.
On the other side of the coin, Senate confirmation removes that uncertainty and allows a chair to set the agency’s direction so long as he or she remains in that office.
The confirmation process no doubt will provide many insights into the priorities that Behnam will bring to the chairman’s office if he wins Senate confirmation. One of those priorities almost certainly will be climate change.
When he was named acting chairman in January, Behnam listed three areas of particular interest: “ensuring that commission rules prioritize customer protections, examining potential systemic market risk, and gaining a better understanding of what regulators can do to address climate-related financial market risk.”
Regarding that last priority, it is worth noting that as a CFTC commissioner he established an advisory subcommittee on climate-related market risk and tasked it with providing the agency with policy recommendations.
In September 2020 this subcommittee released a report titled Managing Climate Risk in the US Financial System, which laid out a blueprint for action by US regulators in combating climate change and addressing climate risk. The report calls on Congress to establish an economy-wide price on carbon to incentivize capital flows “toward accelerating the transition to a net-zero emissions economy.”
While the report recognizes that pricing carbon is “beyond the remit of financial regulators,” it does find that “existing legislation already provides US financial regulators with wide-ranging and flexible authorities that could be used to start addressing financial climate-related risk.” This includes “oversight of systemic financial risk, risk management of particular markets and financial institutions, disclosure and investor protection, and the safeguarding of financial sector utilities.”
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