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Elizabeth Warren’s Latest Proposal Is Unfailingly Tough on Banks

Senators Elizabeth Warren (D-MA) and Mark Warner (D-VA), along with Representative Elijah Cummings (D-MD), introduced new legislation that would amend the Commodity Exchange Act (CEA) to require the Commodity Futures Trading Commission (CFTC) to impose fees, increase civil penalties, mandate that FX swaps and FX forwards be treated as swaps (reversing the Treasury Determination), and tighten swap data reporting and capital requirements, among other new obligations.

Overview of New Mandates

The legislation proposes to do the following:

  • Require the CFTC to set fees and increase civil monetary penalties, as discussed in greater detail below.

  • Reverse the Treasury Determination under the Dodd-Frank Act, which excludes foreign exchange (FX) swaps and FX forwards from the definition of “swap.” Thus, all FX (other than bona fide spot), whether deliverable or not, would be deemed a swap.

  • Overturn the CFTC’s exemption from collecting margin for uncleared swaps from affiliates by requiring the collection of margin between affiliates.

  • “Close the Cross-Border Loophole” by imposing Dodd-Frank Act requirements on foreign subsidiaries of US financial companies unless the CFTC deems the foreign subsidiaries to be subject to equivalent regulation under foreign law.

  • Ramp up the regulation of swap data quality reported to swap data repositories (SDRs) and require the CFTC and US Securities and Exchange Commission (SEC) to revoke the registration of swap dealers that do not report data accurately to SDRs.

  • Increase sharing of swap data between the CFTC and other financial regulatory agencies.

  • Tighten the calculation of regulatory capital by prohibiting the use of close-out netting in the calculation unless certain requirements are certified.

  • Mandate a joint report on clearinghouses issued by the CFTC, Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The joint report must (1) address questions related to clearinghouse governance and default management (including the adequacy of clearinghouse funds), and (2) make policy recommendations based on the responses to such questions.

CFTC’s Imposition of Fees

The CFTC would be required to impose regulatory service fees for registration, compliance reviews and examinations, rule submissions, and product submissions on all registered entities, such as designated contract markets, derivatives clearing organizations (DCOs), swap execution facilities (SEFs), SDRs, foreign boards of trade, swap dealers, futures commission merchants, and retail foreign exchange dealers.

Under the proposal, the CFTC must set fees in a way that produces funds equal to the amount of the CFTC’s annual appropriations. However, fees must minimize negative impacts on market liquidity and support market access for small market participants, including farmers and ranchers. The fees would be used to offset the appropriations amount designated to the CFTC (and may not be credited as general revenues of the US Treasury). It is unclear whether fees in excess of appropriations would be used to offset future appropriations. Mid-year adjustments to fees would be permitted, making it difficult for CFTC registrants to estimate the costs of registration, even on an annual basis.

While it is unclear how the CFTC would issue fees and at what rates, it is reasonable to expect that the bulk of the fees (at least those billed to non-intermediaries) would fall on ICE and CME, who each have multiple exchanges, a SEF, an SDR, and a systemically important DCO. Although the CFTC is under no obligation to examine most registrants on a predetermined schedule, the Dodd-Frank Act mandates that the CFTC and Board of Governors of the Federal Reserve System conduct an annual examination of each systemically important DCO. Thus, an annual systemically important DCO examination fee would automatically accrue to ICE and CME. It is unclear how swap dealers—which already pay annual membership dues in the amount of $150,000, $250,000, or $1 million (depending on their “tier”) to the National Futures Association—would be implicated.

Increased Civil Monetary Penalties

The proposal would significantly increase civil monetary penalty and criminal penalty authority for violations of the CEA and CFTC regulations, and increase the statute of limitations for violations of CEA and CFTC regulations to 10 years.

  • Under the proposed legislation, not only would the standard civil monetary penalty increase, but a distinction would be created between the penalty imposed on individuals and the penalty imposed on entities. The standard civil monetary penalty would increase from the current $152,243 (for both individuals and entities) to the greater of (i) $1 million for individuals and $10 million for entities, and (ii) triple the amount of monetary gain or losses to other persons.

  • The CFTC could impose treble damages on top of the new penalties where the person has been, within the preceding five years, (1) found to have recklessly, knowingly, or willfully violated any provision of the CEA, Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, Investment Advisers Act of 1940, or statutes for which the Federal Energy Regulatory Commission (FERC) is responsible for overseeing, and the CFTC, SEC, or FERC regulations thereunder in a civil proceeding by the CFTC, SEC, or FERC (as applicable) or (2) criminally convicted of a CFTC or SEC violation that involves any conduct, transaction, advice, or activity related to any commodity interest or security-based swap.


With the current Republican control of US Congress, it is unlikely that this legislation would be considered in its current form either by the Senate or the House during this session of Congress. There may be very limited aspects of the legislation that might be more amenable to bipartisan consideration, such as the proposal for increased swap data sharing between the CFTC and other financial regulatory agencies. The time period for serious legislative activity in Congress prior to the November elections, however, is growing very short, given the upcoming summer and pre-election recesses, and the inevitable impact of the fall election campaign on Congress after it reconvenes in September. Should the Democrats regain control of the Senate next year, however, it is a fair bet that Senator Warren’s legislation will acquire new, and perhaps even stronger, life.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VI, Number 196

About this Author

Charles Horn, financial services attorney, Morgan Lewis

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

Michael Philipp, Morgan Lewis, Securities Attorney

Michael M. Philipp counsels financial services clients in futures and securities transactions. He also advises them in derivatives regulation, legislation, compliance, and enforcement matters. United States and foreign exchanges and clearing organizations, banks, investment managers, proprietary trading firms, brokerage firms, and end users turn to Michael for guidance in connection with exchange-traded and over-the-counter derivative instruments. He also represents foreign exchanges and clearinghouses in their US offerings of futures and equity options products and...

Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

Sarah Riddell, Morgan Lewis, regulatory attorney

Leveraging her experience as a lawyer at the US Commodity Futures Trading Commission (CFTC), Sarah V. Riddell advises domestic and foreign exchanges, derivatives clearing organizations, swap execution facilities, and other financial institutions on a broad range of regulatory matters, including CFTC registration and compliance. While at the CFTC, Sarah worked on Dodd-Frank-related rulemakings and participated in examinations of derivatives clearing organizations, including those designated as systemically important.​