The CFTC Office of Inspector General ("OIG") alleged that the CFTC's stress-testing capabilities for testing margin models associated with uncleared swaps have been undermined by "a failure of leadership, poor decision-making, and territoriality" in the Risk Surveillance Branch of the Division of Clearing and Risk. The report by the OIG resulted from allegations of mismanagement conveyed to it "by multiple CFTC whistleblowers."

The allegations, which appear in the OIG's Semiannual Report issued on December 14, 2018, and which refer to a report by the same office issued earlier in the year, claim that staff leadership "shut down and abandoned" the development of superior stress-testing tools created by the agency's Margin Model Group, and otherwise interfered with efforts that "threatened to contradict the leadership's previous assessment" of the efficacy of such tools. In so doing, the OIG report alleged, the actions of the Division's leadership at the time "retarded the development of CFTC stress-testing capabilities, [and] undermined efforts to improve the usability of uncleared swaps data."

The report also alleged that agency leaders and senior staff members made public statements that may have created a false impression of the robustness, independence, and coverage of its active stress-testing program.

Commentary / Bob Zwirb

According to the OIG, the intramural agency conflict here is "motivated by little more than bureaucratic territoriality." To observers of bureaucratic behavior, this is nothing new. As the late eminent political scientist James Q. Wilson once observed, "[t]urf problems [in bureaucracies] are large, and largely insoluble." (James Q. Wilson, Bureaucracy: What Government Agencies Do and Why They Do it, New York: Basic Books, 1989, at 195.) As the OIG report reveals, the CFTC's legal staff found the Margin Model Group's efforts to be of "poor quality," while a third-party review conducted by NERA Economic Consulting found the opposite, i.e., that the approach followed by that group "provides value-added regulatory oversight capability."

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