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US Regulatory Updates

US Regulatory Update


Appropriations Legislation

On 23 March, President Donald Trump signed into law the Consolidated Appropriations Act, 2018, H.R. 1625, to provide $1.3 trillion in funding to the government through September 2018. The Act, among other things: (i) provides the SEC with $1.652 billion in funding for fiscal year (“FY”) 2019, $47 million more than the agency received in FY 2018; (ii) provides the CFTC with $249 million in funding for FY 2019, $1 million less than the agency received in FY 2018; (iii) instructs the Office of Management and Budget, within 90 days of enactment of the bill, to issue “a report to the Committees on Appropriations of the House of Representatives and the Senate on the costs of implementing” the Dodd-Frank Act; and (iv) provides funding to the National Flood Insurance Program through 31 July 2018.

House Committee on Financial Services Passes 8 Bills

On 21 March, the House Committee on Financial Services announced via press release that it had recently reported 8 new bills out of committee, including:

o    H.R. 4659, a bill to require federal banking regulators to recognize the exposure-reducing nature of client margin for cleared derivatives, which passed by a vote of 45-15. As explained in the release, the bill would “amend the Federal Deposit Insurance Act, the Bank Holding Company Act and the Home Owners’ Loan Act to allow for the supplementary leverage ratio to recognize the exposure-reducing effect of initial margin posted for centrally cleared derivatives.”

o    H.R. 4790, the Volcker Rule Regulatory Harmonization Act, which passed by a vote of 50-10. As explained in the release, the bill would, among other things, “amen[d] Section 619 of the Dodd-Frank Act to streamline the regulatory authority over the Volcker Rule by granting the Federal Reserve the exclusive rulemaking authority and identifying the primary federal agency for the sole examination and enforcement authority over an entity.”

o    H.R. 5051, the Public Company Registration Act, which passed by a vote of 34-26. According to the release, the bill would: (i) “raise the threshold for companies to register as a public reporting company with the [SEC] from 500 non-accredited investors to 2,000, with the $10 million threshold indexed for inflation”; (ii) raise “the threshold . . . for issuers to terminate a class of securities from 300 to 1,200 investors”; and (iii) “raise the exemption from filing supplemental and periodic information with the SEC from 300 to 1,200 investors.” 

o    H.R. 5323, the Derivatives Fairness Act, which passed by a vote of 34-26. According to the release, the bill would “amend Title I of the Dodd-Frank Act to add a new section 177 [to] exempt from the Credit Valuation Adjustment capital charge non-cleared derivatives with certain counterparties commonly described as ‘end-users.’”


U.S.-EU Joint Committee

On 27 March, Treasury announced that the EU and U.S. had held on 6 March the first meeting of the Joint Committee established under the U.S.-EU Agreement on prudential insurance and reinsurance measures. According to the statement, the Joint Committee discussed “procedural aspects of the Joint Committee and followed up on the progress achieved on both sides regarding the implementation of the Agreement on reinsurance, group supervision and exchange of information.” The U.S. and EU representatives also confirmed their commitment “to full and timely implementation” of the Agreement and “continuous review of the progress on the Agreement and close coordination between each side.”  


NAFA Withdraws its Lawsuit Against the DOL

On 24 March, the National Association for Fixed Annuities (“NAFA”) announced that it has voluntarily withdrawn its lawsuit challenging the Department of Labor’s (“DOL”) Fiduciary Duty Rule, which had been sitting on appeal with the D.C. Circuit Court of Appeals. According to its press release, NAFA stated that the “March 15th ruling by the Fifth Circuit Court of Appeals, which vacated the Fiduciary Rule in its entirety . . . vindicates both NAFA’s and the Fifth Circuit plaintiffs’ chief concerns, and, as a result, we see no reason to continue to pursue our litigation in another federal circuit court.”

SEC Moving Forward with Fiduciary Duty Rulemaking

On 19 March, ThinkAdvisor reported that SEC Chairman Jay Clayton, speaking at the SIFMA C&L Annual Seminar, stated that the U.S. Fifth Circuit Court of Appeals’ decision on 15 March 2018 to vacate the DOL Fiduciary Duty Rule had not affected the SEC’s approach to adopting its own Fiduciary Duty Rule. According to ThinkAdvisor, when questioned by SIFMA CEO Ken Bentsen as to whether the 5th Circuit decision will affect the SEC’s “timing” on releasing its own fiduciary rule, Chairman Clayton stated that it would be released “soon,” although he said he hasn’t “had any discussions with the Department of Labor on what [the ruling] means from a broader perspective of administrative law and the approach to administrative law.”


Confirmation of Thomas Workman as the FSOC Independent Member with Insurance Expertise

On 21 March, the Senate confirmed by a voice vote Thomas Workman to be the independent Member of the Financial Stability Oversight Council (“FSOC”) with insurance expertise.


Keynote Address of SEC’s Division of Investment Director Dalia Blass on ETF Rulemaking

On 19 March, the SEC’s Division of Investment Director Dalia Blass delivered the keynote address before the Investment Company Institute’s 2018 Mutual Funds and Investment Management Conference, during which she discussed exchange-traded fund (“ETF”) rulemaking. She noted that the “regulatory approach [for ETFs] has not always been as dynamic as the market” and that “[i]t is not ideal for such an important segment of the asset management market to operate under so many individual exemptive orders.” Director Blass stated that “delivering a recommendation to the Commission for a rule is a high priority for the Division,” and that the Division’s ETF team is working on this objective. In addition, noting that the term ETF “is used to describe investment companies with a wide range of strategies as well as a number of products that are not investment companies or even funds,” Director Blass explained that she “would welcome thoughts from investors, funds and advisers on whether addressing [exchange-traded product] nomenclature would be helpful to investors and the markets.”

SEC Announces Largest-Ever Whistleblower Award

On 19 March, the SEC announced its largest whistleblower awards given under the Dodd-Frank Act. The awards include: (i) “two whistleblowers sharing a nearly $50 million award”; and (ii) “a third whistleblower receiving more than $33 million.” As explained in the accompanying press release, the previous highest award was given in 2014 in the amount of $30 million.

FINRA Considers Streamlining Broker-Dealer Exams

On 20 March, InvestmentNews reported that FINRA CEO Robert Cook, speaking at SIFMA’s C&L Annual Seminar, stated that FINRA is “reviewing the structure of its exam function, which involves three teams: sales practice, risk oversight, and operational regulation and market regulation,” and that "[w]e're going to be looking at whether it makes sense ultimately to consolidate — if so, how — or to coordinate [and] [t]hat's a decision I expect we'll be making this year."


GAO Publishes Report Entitled “Additional Steps by Regulators Could Better Protect Consumers and Aid Regulatory Oversight” on Fintech Products and Developments

On 22 March, the Government Accountability Office published a report setting out additional steps that regulators could take to improve federal regulatory oversight over fintech products, particularly with regards to consumer protection rules. The report concludes that “while existing consumer protection and other laws apply to some fintech products and services, in some cases fintech transactions may not be covered by such protections,” noting that “efforts by regulators to monitor developments and risks posed by these firms and their financial innovations remains a sound approach.” The report sets out sixteen recommendations for executive action by U.S. regulators, including a call for the Federal Reserve, CFTC, and SEC to “formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation.”


o    5 April: CFTC Agricultural Advisory Committee Meeting.

o    18 May: comments are due on the SEC’s proposed amendments to liquidity-related public disclosure requirements for certain open-end investment management companies.

o    25 May: comments are due on the SEC’s proposal for a transaction fee pilot for NMS stocks.

Ianthe Zabel
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