July 24, 2018

Senate Committee on Agriculture, Nutrition & Forestry “Nomination Hearing”

Key Takeaways

  • Regulatory Review and Harmonization: Berkovitz highlighted the need for the CFTC to evaluate whether its regulations currently serve their intended functions and emphasized the importance of maintaining transparency and involving public feedback in agency decisions.  He specifically noted that it was important for the CFTC to tailor its regulatory approach to appropriately correspond to specific markets.  He also noted the importance of the CFTC’s ongoing consultation and coordination with other federal regulators to avoid generating conflicting or duplicative regulatory schemes. Berkovitz also noted the importance of coordination on an international level in reducing market risk.
  • CFTC Rulemaking: Berkovitz responded to queries from members on both sides of the aisle regarding the finalization of the position limits rule, stating that the CFTC needs to establish rules on speculative positions to ensure they do not have a negative impact on commodity prices, and that it must be done in a timely manner.  He added that finalization of a swap dealer de minimis threshold also needs to be a priority of the Commission.
  • Volcker Rule: In response to questioning by Sen. Deb Fischer (R-Neb.) on proposed changes to the Volcker Rule, Berkovitz noted that potential update appears to establish tiers of compliance based on the size of banks.  He explained that the proposed changes seem intended to lessen compliance obligations for those banks with lower amounts of assets, adding that while the public comment period is still going on, and he looks forward to consulting with the other Prudential regulators on the proposed rule if confirmed. 

Nominees

  • Dan Michael Berkovitz, to be a Commissioner of the Commodity Futures Trading Commission (CFTC)
  • James E. Hubbard, to be Under Secretary of Agriculture for Natural Resources and Environment

Opening Statements

Chairman Pat Roberts (R-Kan.) and Ranking Member Debbie Stabenow (D-Mich.)

In his opening statement, Roberts introduced the two nominees and discussed the “critically important roles” the CFTC and Department of Agriculture have in the economy. Stabenow echoed Roberts’ comments and praised the Senate for passing the Farm Bill in a historic bipartisan 86-11 vote.  She stressed the important positions the nominees will hold at their respective agencies if confirmed, noting the professional experience of each nominee, and discussing some of the Committee’s actions most recently.

Testimony

Dan Michael Berkovitz, to be a Commissioner of the CFTC

In his testimony, Berkovitz highlighted his qualifying experience, including prior work at the CFTC leading the agency’s legislative drafting and assistance team during the development of the Dodd-Frank Act.  Berkovitz emphasized, however, that the CFTC’s implementation of Dodd-Frank requires continued work, including finalizing rules on position limits and capital requirements for swap dealers. Berkovitz made note of the CFTC’ s recent proposal of a rule regarding the de minimis threshold for swap dealer registration and emphasized his goal of working with the other Commissioners to be timely in carrying out rulemaking.

Berkovitz highlighted the need for the CFTC to evaluate whether its regulations currently serve their intended functions and emphasized the importance of maintaining transparency and involving public feedback in agency decisions.  He specifically noted that it was important for the CFTC to tailor its regulatory approach to appropriately correspond to specific markets.  He also noted the importance of the CFTC’s ongoing consultation and coordination with other federal regulators to avoid generating conflicting or duplicative regulatory schemes. Berkovitz also noted the importance of coordination on an international level in reducing market risk. He noted that such coordination can help reduce systemic risk globally, avoid market fragmentation, prevent regulatory arbitrage and promote liquidity.

James E. Hubbard, to be Under Secretary of Agriculture for Natural Resources and Environment
In his testimony, Hubbard noted his previous experiences and outlined his top three priorities if confirmed: (1) to provide a safe and inclusive work environment; (2) to increase sustainable active land management; and (3) to share fire protection across jurisdictions. Hubbard emphasized his plans to address and prevent harassment in the workplace and to promote safety and accountability, and specifically stressed the responsibility he will take as a leader to ensure that everyone in the workforce is “treated right.” Hubbard ended by noting that the U.S.’s forests constitute a unique natural resource and asset, and that he aims to promote a sustainable future for them.

Questions & Answers

Hedging

When asked by Sens. Roberts and John Hoeven (R-N.D.) about the importance of hedging, Berkovitz noted that hedging provides predictable pricing for agricultural products, protects against future price volatility and ensures price stability.  He added that if confirmed, he will have an open-door policy for all agriculture producers, farmers and ranchers to hear their concerns.

In response to questioning from Sen. John Thune (R-S.D.), Berkovitz stated that if confirmed, he will look into price manipulation issues on exchanges to ensure contracts perform correctly and can be used for appropriate hedging purposes.

CFTC Rulemaking

Berkovitz responded to queries from members on both sides of the aisle regarding the finalization of the position limits rule, stating that the CFTC needs to establish rules on speculative positions to ensure they do not have a negative impact on commodity prices, and that it must be done in a timely manner.  He added that finalization of a swap dealer de minimis threshold also needs to be a priority of the Commission.

Future Priorities

Berkovitz noted the CFTC has made “substantial progress” implementing the Dodd-Frank Act, which has led to more resilient markets and a reduction of systemic risk, but more needs to be done.  He stressed the need for the Commission to be forward thinking as the next crisis will not be the same as what happened in 2008, explaining the importance of good, consistent data that is properly interpreted by staff.

Regulatory Consistency

Sen. John Boozman (R-Ark.) noted his concern with the EU’s proposal to expand their regulatory and supervisory authority over central counterparties (CCPs).  Berkovitz did not have time to comment.

Volcker Rule

In response to questioning by Sen. Deb Fischer (R-Neb.) on proposed changes to the Volcker Rule, Berkovitz noted that potential update appears to establish tiers of compliance based on the size of banks.  He explained that the proposed changes seem intended to lessen compliance obligations for those banks with lower amounts of assets, adding that while the public comment period is still going on, and he looks forward to consulting with the other Prudential regulators on the proposed rule if confirmed. 

Trade

Sen. Heidi Heitkamp (D-N.D.) asked how the current trade environment could impact the futures markets, to which Berkovitz replied that many commodity prices have had “significant declines” due to numerous factors, which may include trade issues.  He noted that while his current information comes from the press, if confirmed he will look into this, along with the market surveillance team at the CFTC, if confirmed.

Enforcement

Hoeven asked how the CFTC can make sure people can have confidence in the financial system and ensure credibility among financial institutions.  Berkovitz replied that when someone violates the law, they are “vigorously prosecuted,” regardless of size, stressing the need to implement laws “equally and fairly.”

For more information on this hearing, click here.