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US Regulatory Updates

US Regulatory Update


Senate Banking Committee Testimony by Treasury Secretary

On 18 May, Treasury Secretary Steven Mnuchin testified at a Senate Banking Committee hearing on domestic and international policy updates. Among other things, Secretary Mnuchin discussed: (i) his review of the Dodd-Frank Act and its regulations as mandated by President Trump’s “Core Principles” Executive Order; (ii) capital requirements for banking institutions; and (iii) FSOC’s nonbank SIFI designation process.

  • President Trump's “Core Principles” Executive Order: Secretary Mnuchin testified that Treasury will produce a series of reports, rather than just one report, in response to the President’s “Core Principles” Executive Order, which requires Treasury to report to the President on the extent to which financial regulations can be reformed to be consistent with the Order’s “core principles.” The first report is expected to be delivered to the President in early June as scheduled by the Executive Order. Secretary Mnuchin indicated that it will focus on banking regulation. Subsequent reports will reportedly be completed in the coming months, and will focus on regulatory environments affecting capital markets, clearing houses and derivatives, the insurance industry, asset managers, and financial innovation.
  • Capital Requirements:  Secretary Mnuchin testified that “large financial institutions actually have plenty of capital” and indicated that he intends to recommend raising the $50 billion in total consolidated assets threshold for banks that currently automatically results in a “systemically important” designation. Secretary Mnuchin did not comment on the new threshold he would recommend.
  • FSOC’s Nonbank SIFI Designation Process: Secretary Mnuchin expressed his support for a more transparent nonbank SIFI designation process, contending that institutions should be given the opportunity to identify the factors by which they are evaluated and “what would be required to be de-designated if they want to de-risk their business.”

Financial CHOICE Act

On 17 May, Rep. Dennis Ross (R-FL) reportedly stated that he does not expect the House of Representatives to vote on the Financial CHOICE Act of 2017, H.R. 10, until Congress returns from its Memorial Day recess on 6 June 2017.

On 17 May, Senate Banking Committee Chairman Mike Crapo (R-ID) statedduring his remarks at a Financial Industry Regulatory Authority conference that he is seeking “bipartisan support for legislation” that reforms financial markets regulation this Congress, casting doubt on whether the Financial CHOICE Act of 2017, recently passed by the House Financial Services Committee along party lines by a vote of 34-26, would be approved by the Senate Banking Committee in its current state. Chairman Crapo noted that his “goal this Congress is to work in a bipartisan manner with members of the Senate Banking Committee, the administration, with [House Financial Services Committee] Chairman Hensarling [R-TX] and with the regulators to strike a smart balance with thoughtful regulation that promotes economic growth.”

On 17 May, the Council of Institutional Investors, on behalf of 53 pensions, unions, and other institutions, sent a letter to House Speaker Paul Ryan (R-WI) expressing “concerns with several provisions currently included in the Financial CHOICE Act of 2017.” The letter argues that the CHOICE Act would: (i) “set prohibitively costly hurdles on shareholder proposals”; (ii) “roll back curbs on abusive pay practices” for CEOs; (iii) “restrict the right of shareholders to vote for directors in contested elections for board seats”; (iv) “create an intrusive new regulatory scheme for proxy advisors that provide shareholders with independent research they need to vote responsibly”; and (v) “shackle the [SEC], including with excessive cost-benefit analysis requirements, unwise limits on enforcement and Congressional review requirements that appear designed to foster the ability of special interests to block needed rules.”

Legislative Approvals of Rulemaking Reform

On 17 May, the Senate Homeland Security and Governmental Affairs Committee approved several legislative proposals aimed at amending the rulemaking process.

  • The Committee approved, by a vote of 9-5, the Regulatory Accountability Act of 2017, S. 951, that aims to improve and modernize the regulatory process by: (i) promoting greater transparency in the rulemaking process through public participation and the use of the “best reasonably available scientific, technical, and economic information”; (ii) requiring regulatory agencies to conduct cost-benefit analyses and adopt the “most cost-effective” regulatory alternative; (iii) giving the White House Office of Management and Budget’s Office of Information and Regulatory Affairs (“OIRA”) oversight authority over new regulatory process requirements established for federal agencies by the Act; and (iv) allowing parties affected by a “high-impact rule” to challenge in administrative hearings the accuracy of the evidence and assumptions made by the agency in drafting the regulation.
  • The Committee approved, by a vote of 8-6, the Midnight Rules Relief Act of 2017, S. 34. It would amend the Congressional Review Act to allow Congress to use joint resolutions to “disapprove multiple regulations that federal agencies have submitted for congressional review within the last 60 legislative days of a session of Congress during the final year of a President's term.” Under existing law, Congress can only use its Congressional Review authority to issue joint resolutions of disapproval for one rule at a time.
  • The Committee approved, by a vote of 8-6, the Regulations from the Executive in Need of Scrutiny Act of 2017, S. 21. It would require regulatory agencies to provide for every proposed rulemaking to Congress and the Government Accountability Office: (i) a determination of whether the rule constitutes a “major or nonmajor rule”; and (ii) a cost-benefit analysis of the rule. A rule would be considered “major” if it has “an annual effect on the economy of $100 million or more.” The act requires that “major” rules obtain a joint resolution of approval from Congress in order to take effect. 
  • The Committee approved by voice vote the Providing Accountability Through Transparency Act of 2017, S. 577, that would require regulatory agencies to provide for every proposed rulemaking a "summary [of the rule] of not more than 100 words in length" to be posted on
  • The Committee approved, by a vote of 11-3, the Early Participation in Regulations Act of 2017, S. 579, that would require regulatory agencies to publish “advanced notices of proposed rulemaking” at least 90 days before issuing a proposed rulemaking for most “major” rules that OIRA determines are likely to cost the economy at least $100 million, would result in a major increase in costs for public and private stakeholders, or would have a major negative impact on U.S. economic competitiveness and vitality.


On 8 May, the FSOC held an executive meeting discussing, among other things: (i) an update from the Department of Treasury staff on the 21 April 2017 Presidential Memorandum on FSOC’s process for designating firms as “systemically important financial institutions” (“SIFIs”); (ii) the Council’s “ongoing annual reevaluation” of a nonbank’s SIFI designation, “including preliminary staff analysis”; (iii) interagency coordination efforts; and (iv) and President Trump’s “Core Principles” Executive Order for financial regulation, which included a discussion assessing the “efficacy of the Volcker Rule.”

  • According to Bloomberg, Treasury Secretary Steven Mnuchin has established a working group of the five federal agencies that wrote the Volcker Rule – the Fed, SEC, FDIC, CFTC, and OCC – to review the Rule’s scope and applicability.

On 12 May, the U.S. Court of Appeals for the District of Columbia suspended for 60 days the FSOC’s appeal of MetLife’s lawsuit over its SIFI designation. The suspension follows a motion filed by the Department of Justice (“DOJ”) on 4 May 2017, on behalf of the FSOC, agreeing to a 60-day delay of its appeal to the lower court’s March 2016 ruling that rescinded MetLife’s SIFI designation.


SEC Advisory Committee on Small and Emerging Companies Meeting

On 10 May, the SEC’s Advisory Committee on Small and Emerging Companies held a meeting to discuss the underwriting of small offerings, the tick size pilot program, recent enforcement reports from state securities regulators, and recommendations on secondary market liquidity. SEC Chairman Clayton delivered a statement indicating, among other things, that his priorities for the Commission include a “focus on facilitating capital-raising opportunities for all companies, including, and importantly, small- and medium-sized businesses” to “help our economy grow, facilitate innovation, and further job creation.” Regarding the tick size pilot program, SEC staff indicated that findings from the program have been generally in line with reports and studies issued by market participants and that the pilot has not produced any unexpected results. The SEC’s Division of Economic and Risk Analysis indicated that a significant portion of self-regulatory organization (“SRO”) pilot data will not be available to the public until the end of August 2017 and that SROs are expected to publish a full assessment of the pilot by April 2018, with plans to release parts of their analysis as they are completed.

Piwowar Speech: IPOs

On 10 May, SEC Commissioner Michael Piwowar delivered a speech on the state of the U.S. initial public offering (“IPO”) market. Commissioner Piwowar noted that there has been a significant decrease in the number of IPOs in the past 15 years despite there being a similar number of new companies being formed during the same period. Noting that “a vibrant IPO market allows retail investors to add economic exposure from growing firms and industries to their investment portfolios,” he urged the Commission to “revitalize the IPO market” and indicated that both he and SEC Chairman Clayton are interested in suggestions for regulatory reform that could “reverse the more than decade long decline in U.S. IPOs.”


On 8 May, FINRA issued a proposed rule change that would implement a fee schedule for firms under the National Market System Plan Governing the Consolidated Audit Trail (“CAT”). The proposed rule would establish a two-tiered fee structure consisting of: (i) “Industry Members” (i.e., broker-dealers) that would be subject to fees based on events reportable to the CAT; and (ii) “Execution Venues” (i.e., exchanges and alternative trading systems) subject to fees based on their market share.


Capital Requirements for Swap Dealers and Major Swap Participants

On 15 May, the National Futures Association (“NFA”) submitted a comment letter regarding the CFTC’s proposed rule adopting capital requirements for swap dealers and major swap participants indicating that it is prepared to conduct reviews of swap dealers’ and major swap participants’ internal models for calculating market and credit risk exposures to determine if such models are in compliance with the proposed rules. Under the proposed rules, swap dealers and major swap participants are permitted to calculate market and credit risk capital charges using internal models instead of standardized rules-based capital models established by the CFTC or NFA. Due to the complexity of developing internal models, the NFA predicts that firms will submit different models governing different market and credit risk for review, and that such models will need to be thoroughly examined before they may be adopted. The NFA further supports an approach exempting internal models approved by prudential regulators from the proposed review process, and requests that the CFTC: (i) require firms to submit review requests within 90 days of the final rule’s effective date; and (ii) set the compliance date at one year after the effective date.

CFTC Acting Chairman Remarks on Global Swaps Markets

On 10 May, CFTC Acting Chairman and Chairman Nominee J. Christopher Giancarlo delivered a speech discussing the findings of his review of the impacts of existing CFTC regulations on the financial system pursuant to President Trump’s “Core Principles” Executive Order.

  • Market Liquidity: Acting Chairman Giancarlo stated that: (i) “market liquidity has been significantly reduced” since the Dodd-Frank Act’s implementation; (ii) nonbank firms with low levels of capitalization have replaced “bank-dealers” in providing liquidity to the market, “likely caus[ing] gaps in the liquidity profile of our markets, rendering them more vulnerable to stress conditions”; and (iii) the application of the supplementary leverage ratio to clearing customer margin “reflects a flawed understanding of central counterparty (‘CCP’) clearing” that diminishes the ability of investors to hedge risk.
  • International Markets: Acting Chairman Giancarlo argued that the CFTC’s swaps trading rules have: (i) “driven a wedge” between U.S. and European markets; (ii) “put America at a disadvantage globally”; and (iii) contributed to the “continuing fragmentation of global markets” into less resilient “liquidity pools.” He urged the Commission to develop a better framework for swaps trading that allows “market participants to choose the manner of trade execution best suited to their swaps trading and liquidity needs and not have it chosen for them by the federal government.” 
  • Regulatory Comity: Acting Chairman Giancarlo embraced the provision of President Trump’s “Core Principles” Executive Order that directs regulatory agencies to pursue “U.S. interests in international negotiations” and indicated that the Commission will “move to a flexible, outcomes-based approach for cross-border equivalence and substituted compliance.” 


CFTC FinTech Initiative

On 17 May, the CFTC announced the creation of LabCFTC, a new initiative designed to promote “responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” The initiative consists of two key components: (i) “GuidePoint,” a tool for FinTech developers to engage and communicate with the Commission and to seek regulatory guidance regarding the applications of new technologies; and (ii) “CFTC 2.0,” an initiative to assist the CFTC in implementing emerging technologies to “keep pace with the markets” the Commission oversees and “transform the agency into a 21st century digital regulator.” In addition, the Commission aims to: (i) hold an annual FinTech conference to discuss FinTech developments and issues; (ii) engage with “academia” to further develop student engagement with FinTech innovations; and (iii) consult other domestic and international regulators to foster regulatory interest in FinTech.

  • CFTC Acting Chairman and Chairman Nominee J. Christopher Giancarlo delivered a statement supporting the launch of the new FinTech initiative. He emphasized the fact that regulators must continually engage in dialogue with innovators in order to understand the impact that FinTech innovations will have on the marketplace and to “learn where the friction points are between innovation and our regulations” and thus be able to make reforms that ensure regulators are operating as efficiently as possible.


Democratic Senators Urge Labor Secretary to Let Fiduciary Rule Take Effect

On 19 May, Senators Patty Murray (D-WA), Elizabeth Warren (D-MA), and Cory Booker (D-NJ) sent a letter to Labor Secretary Alex Acosta expressing concern regarding the pace at which Secretary Acosta is conducting the review of the DOL’s fiduciary duty rule as mandated by President Trump’s 3 February 2017 Presidential Memorandum, which directed the DOL to determine whether the fiduciary duty rule may “adversely affect the ability of Americans to gain access to retirement information and financial advice.” Referencing a National Association of Plan Advisors blog indicating that Labor Secretary Acosta’s priority has been to  “actively see[k] a way to freeze the rule that will ‘stick,’” the lawmakers expressed their concern over the “definitiveness of [his] statements, after merely three weeks as secretary.” The lawmakers further criticized the Labor Secretary’s actions as “prejudging the outcome of the review” without “meeting with all stakeholders and considering multiple points of view” and urged him to allow the fiduciary duty rule to take effect at the end of the currently imposed 60-day delay.

House Republicans Request DOL Documents Related to the Fiduciary Rule

The House Financial Service Committee recently sent a letter (dated 28 April 2017 and posted online by the American Benefits Council) signed by Committee Chairman Jeb Hensarling (R-TX) and Subcommittee Chairs Bill Huizenga (R-MI) and Ann Wagner (R-MO) to Labor Secretary Alex Acosta raising concerns that the DOL’s 7 April 2017 final rule delaying the fiduciary duty rule’s applicability date by 60 days (“Final Rule”) “prejudged the outcome of the review” mandated by President Trump’s 3 February 2017 Presidential Memorandum. The lawmakers expressed concern that the DOL determined it was appropriate to extend the applicability of the fiduciary duty rule by “only 60 days…despite flatly conceding that the ‘careful and thoughtful’ process…will take significantly longer than 60 days.” Noting that there have been “reports that [DOL staff] adopted this approach in a calculated effort to undermine the President’s directive,” the letter requests that the DOL provide all communications between its staff and any non-governmental entity by 12 May 2017 related to: (i) the 3 February 2017 Presidential Memorandum; (ii) the proposed and Final Rule delaying the applicability date of the fiduciary duty rule; (iii) the cost-benefit analysis of the Final Rule; and (iv) the DOL’s implementation of the 3 February 2017 Presidential Memorandum. The lawmakers also urged Secretary Acosta to “immediately move to extend the applicability date of the fiduciary [duty] rule in its entirety.”


Cybersecurity Executive Order

On 11 May, President Trump signed an Executive Order designed to strengthen the cybersecurity of federal networks and critical infrastructure. Among other things, the Executive Order seeks to: (i) improve risk management of cybersecurity risks by federal agencies; (ii) increase engagement between the government and critical infrastructure; and (iii) improve cybersecurity systems throughout the U.S. and internationally.

  • Risk Management of Cybersecurity Risks by Federal Agencies: The Executive Order: (i) holds the head of federal agencies accountable for implementing risk management measures for their agency; (ii) mandates that federal agencies follow the U.S. Commerce Department’s National Institute of Standards and Technology’s (“NIST”) Framework for Improving Critical Infrastructure Cybersecurity in managing cybersecurity risk; and (iii) requires the head of each agency to provide a “risk management report” to the Department of Homeland Security and the Office of Management and Budget describing the agency’s “risk mitigation and acceptance choices made … as of the date of [the] order” and its “action plan to implement the NIST’s framework.”
  • Engagement Between Government and Critical Infrastructure: The Executive Order: (i) requires the heads of federal agencies to engage with infrastructures deemed “to be at the greatest risk of attack” to ascertain what support agencies can provide to the infrastructures in developing their cybersecurity systems; and (ii) report to the President within 180 days the results of such engagements and any findings and recommendations to better support the cybersecurity systems of critical infrastructures.
  • Improving U.S. and International Cybersecurity Systems: The Executive Order highlights the need to create an “open, interoperable, reliable, and secure internet that fosters efficiency, innovation, communication, and economic prosperity, while respecting privacy and guarding against disruption, fraud, and theft.” To achieve this goal, it requires the heads of federal agencies to issue additional reports to the President identifying “international cybersecurity priorities” and ways to educate and train the “American cybersecurity workforce.”

On 12 May, the NIST published a draft implementation guide of its Framework for Improving Critical Infrastructure Cybersecurity for federal agencies following President Trump’s Cybersecurity Executive Order. The draft guide provides eight “use cases” for federal agencies to address common cybersecurity-related responsibilities and assist federal agencies in integrating the NIST’s Cybersecurity Framework into their cybersecurity systems. The NIST also requests comments on how to further develop the guidance, including comments addressing: (i) the “potential opportunities and challenges” of the Cybersecurity Framework; (ii) whether and how the guidance provided has benefited federal cybersecurity risk management systems; and (iii) how NIST can further integrate its guidance on cybersecurity risk management.

SEC Cybersecurity Risk Alert

On 17 May, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a cybersecurity risk alert urging broker-dealers, investment advisers, and investment companies to remain vigilant against cybersecurity vulnerabilities in light of the recent “WannaCry” ransomware attacks. Referencing a recent study conducted by OCIE, the alert noted that a substantial number of registrants did not conduct “periodic risk assessments of critical systems to identify cybersecurity threats” or “penetration tests and vulnerability scans” on critical systems of the registrants. It also warns that several registrants examined had a “significant number of critical and high-risk security patches that were missing important updates.”


  • 8 June: comments due on SEC proposed amendments on venture capital fund and private fund adviser exemptions.
  • 30 June: deadline to file notice with CFTC regarding third-party record keeping.
MayIanthe Zabel
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