As derivatives regulators hurry to implement key provisions of the Dodd-Frank Act, they face continuing questions over a firm that failed well after last year's passage of the law.

A hearing Thursday before the Senate Agriculture Committee had been scheduled for the heads of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) to report on their implementation efforts. But the hearing quickly shifted focus to MF Global, the large derivatives broker that declared bankruptcy on Oct. 31.

Lawmakers from both sides — citing the estimated $1 billion in missing funds from MF Global accounts — pressed CFTC Chairman Gary Gensler and SEC Chairman Mary Schapiro on efforts to segregate customer money from a firm's own trading. Meanwhile, GOP members grilled Gensler, a past associate of former MF Global chief Jon Corzine, on his decision to recuse himself from a probe of the company.

"Unfortunately, the manner in which Mr. Gensler chose to step aside or recuse himself has raised more questions than it has answered," said Sen. Pat Roberts, R-Kan., the committee's top Republican. "Why did he not recuse himself from MF Global issues from the beginning of his term if there was a conflict based on his previous relationship?"

Roberts, echoing calls by Senate Banking Committee ranking member Richard Shelby, R-Ala., for the CFTC's inspector general to examine oversight of MF Global, questioned whether Gensler's recusal had left a leadership void during the agency's probe of the firm.

"Who was steering the ship while you were deciding what you could and could not be involved in?" he said.

The agency announced Nov. 10 that CFTC Commissioner Jill Sommers would oversee the agency's investigation following the bankruptcy in light of Gensler's recusal. Sommers was also on hand at the hearing to answer specific questions about MF Global.

Gensler, who had been a colleague of Corzine's at Goldman Sachs in the 1990s, and was subsequently a Senate aide when Corzine served in the body, told the committee he did not want to be a distraction as the CFTC pursued customer claims related to the firm. He said he stepped aside from any investigation even though the agency's general counsel said a recusal was not necessary, and "I had not worked at the same firm" as Corzine "in 14 years."

"I indicated to the general counsel … that I thought that it could be a distraction to the very important work of pursuing where was the cash, where was the money, get the money back, and any investigation or enforcement," he said.

While the committee overall sounded alarm over how MF Global's collapse had hurt customers — many of whom were farmers and ranchers in states served by the senators — other members appeared less critical of Gensler's decision to step aside.

"Thank you for your forthright recusal," Sen. Chuck Grassley, R-Iowa, said.

Attempts to resolve the customer funds in MF Global accounts come as the CFTC is expected to consider a proposal Monday to strengthen the segregation of such accounts from the funds derivatives firms use to trade.

"The farmers who have lost a good portion of their fortune, they're angry and they should be angry," said Sen. Max Baucus, D-Mont.

Gensler reiterated his support for tighter rules on segregated funds.

"We know this has to be better. These funds have to be separately segregated," he said. "Probably we need more transparency where" firms "have to tell their customers where they're putting the money. We're actually tightening up the rules on how they invest the money. … What we might do next Monday will help."

While MF Global dominated the hearing, lawmakers also questioned Gensler and Schapiro about their progress implementing the bevy of derivatives rules in Dodd-Frank. The derivatives sections of the law require perhaps the most rulemaking from the agencies, the CFTC in particular, even though the commodities regulator faces funding shortfalls and GOP attempts to block funding increases.

Sen. Debbie Stabenow, D-Mich., the chairman of the Agriculture Committee, said the MF Global failure shows what can happen "if we play politics with agency resources."

Gensler said his agency will finish the implementation effort, but he was less confident about the CFTC's current resources to allow adequate enforcement of new derivatives rules.

"We will complete the rules but not have the people to oversee the markets," he said.

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