Disarming Financial Weapons of Mass Destruction: Implementing the Dodd-Frank Act

Dan Berkovitz is one of the five Commissioners at the U.S. Commodity Futures Trading Commission (CFTC). This interview touches on a wide range of matters in financial regulation. We first discuss the functions of the CTFC – how it regulates commodities, futures, and swaps which all play an important role in our markets despite sounding like abstract financial terms that are so distant to people’s lives. In 1974 when CFTC was first established, the commodities traded in the U.S. were mainly agricultural products, and the CFTC has since evolved dramatically in the past few decades, playing an ever more important role as hedge funds and institutional investors more frequently use commodities and futures contracts to speculate.

One important duty of the CFTC is to help enforce the Dodd-Frank Act. We walk through the history of the Dodd-Frank Act – how it was a law established after the 2008 financial crisis to address some of its causes – and whether there's much validity in the criticism against the legislation. Another important legacy of the Dodd-Frank Act is the Financial Stability Oversight Council (FSOC), an inter-agency regulatory framework established to help identify risks that affect the financial industry. What are the tradeoffs in creating larger and inter-agency regulatory bodies, and why are some of the rationales preventing the U.S. from further merging more regulators into a single body?

Some critics say that the CFTC has built a reputation as an “overly aggressive watchdog” of financial markets in the decade after the financial crisis, and Commissioner Berkovitz addresses this concern. His approach to shaping regulation in financial markets emphasizes “if it ain’t broken, don’t fix it,” and he favors a data-driven approach that only makes changes to regulation when there is empirical evidence that markets are not functioning well. We dive deep in how regulators reason through their actions and receive feedback from the public.

Lastly, we go over issues in cryptocurrency – how CFTC has been actively hoping to bring about regulatory changes regarding the distributed ledger technology, and why cryptocurrency and decentralization technology fall into the regulatory realm of the CFTC. How do technological and financial innovations challenge existing regulatory frameworks? And how do regulators catch up with those new changes? Will regulators always be a step late?

Full bio: Dan Berkovitz was unanimously confirmed by the Senate in 2018 to be one of the five Commissioners at CFTC. Prior to that, he was a partner at law firm WilmerHale, where he got to work with special counsel Robert Mueller, which we will cover later in the interview. Commissioner Berkovitz also served as a CTFC representative to the Financial Stability Oversight Council (FSOC), and as Deputy Assistant Secretary in the Department of Energy.

Dan Berkovitz