CFTC Commissioner Sharon Y. Bowen presented an approach to improving the governance of CFTC-regulated entities. She criticized firms for concentrating on short-term gains at the expense of long-term profitability, and proposed a number of measures to address this "misaligned focus."
Commissioner Bowen urged financial regulators to improve corporate governance requirements in the following ways:
- craft qualitative and quantitative standards for directors, including certain fitness and level-of-independence standards;
- require boards to consider issues of culture in their mandatory annual self-review, particularly when reviewing any ongoing enforcement, criminal action or market manipulation settlements, or court judgments involving the entity;
- limit the tenure of independent members of audit and compensation committees – while permitting board members who exceed said limit to remain on committees as long as they are not considered to be independent – in order to "marry the need for independence and fresh and diverse thinking with the need for experience and institutional knowledge";
- require all registrant boards (as the boards of designated contract markets are required) to disclose the percentage of their directors and senior management that have diverse experience and backgrounds;
- require Swap Execution Facilities ("SEFs") to fall under the governance of a single Self-Regulatory Organization ("SRO") by either (i) turning over SEF surveillance and enforcement functions to the NFA or another SRO or, alternatively, (ii) requiring SEFs to become NFA members; and
- require all swap intermediaries to be registered with, and tested robustly by, the CFTC, the NFA or another SRO.
Commissioner Bowen also spoke about implementing a CFTC "fiduciary standard":
At the very least, given that the SEC and DOL are in the process of implementing fiduciary duties for entities they regulate, the CFTC should take stock of their rules and see if [it] can't replicate those rules in the derivatives space. This would have the benefit of increasing standardization across the financial industry, thereby reducing compliance costs.
Commissioner Bowen delivered her remarks before the Managed Funds Association Forum 2016.
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