The role of the CFTC’s official debate agency in the transition to a low-carbon economy – finance and banks

The role of the CFTC’s official debate agency in the transition to a low-carbon economy – finance and banks

Mr. Berkovitz reiterated the recommendations made by the
Climate-Related Market Risk Subcommittee of the CFTC Market Risk
Advisory Committee in its “Managing Climate Risk in the U.S. Financial
System” report, including: (i) research on the impact of
climate-related risks on central counterparties, futures commission
merchants (“FCMs”), traders and funds; (ii) coordination
with other regulators; and (iii) expansion of risk management rules
and related quarterly risk exposure reports to cover material
climate-related risks.
securing the integrity of the carbon markets (he urged a better
understanding of how the primary, secondary and derivatives carbon
markets interact, and how companies comply with their obligations,
manage risks and discover prices);

promoting “responsible innovation” by exchanges and
market participants in climate-related products and services;
and

ensuring appropriate management and disclosure of
climate-related risks by CFTC registrants, including an examination
of currently reported climate-related risks and whether additional
disclosures are appropriate.
Mr. Behnam also underscored the Climate-Related Market Risk
Subcommittee’s September report, pointing to his testimony
before the House Select Committee on the Climate
Crisis and the establishment of the Climate Risk Unit
(“CRU”). Mr. Behnam stated that the future of the CRU
will involve “raising risk management awareness and visibility
within our markets and the broader economy so that we can identify
where the holes are; where we need to be most vigilant in both our
support and leadership as regulators.”

CFTC Commissioner Dan M. Berkovitz and Acting Chair Rostin Behnam described the CFTC’s
role in facilitating the transition to a low-carbon economy. At an
Energy and Environmental Markets Advisory Committee
(“EEMAC”) meeting, the Commissioners focused on
cap-and-trade programs, the current state of exchange-listed carbon
derivative products and the use of the derivatives markets as risk
management and price discovery tools.
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Mr. Berkovitz said the CFTC can support the transition to a
carbon-neutral economy by:
Cadwalader, Wickersham & Taft LLP

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances. POPULAR ARTICLES ON: Finance and Banking from United States Since Dodd-Frank was adopted, the number of FCMs has gone down.
As a consequence, the futures business has become increasingly
concentrated. The CFTC should be mindful that regulatory enthusiasm
for climate-related rulemakings does not impose material expenses
that further shrink the number of industry participants.

While it is clear that the CFTC Commissioners are enthusiastic
about playing a role in climate change, that role should be
limited. In the case of carbon markets that are regulated by the
CFTC, the CFTC has an obligation to understand how price discovery
in those markets works so that it can regulate trading and be on
the lookout for improper trading activities. It is not apparent why
the CFTC would deem it necessary to mandate “climate risk
disclosure” by CFTC registrants. The CFTC should not be
seeking to expand its authority to the far periphery of the
relevant statute or beyond, given the limitations of its
resources. Commentary Steven Lofchie

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