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US Regulatory Updates

US Regulatory Update


Treasury Releases Report on Nonbank Financials, Fintech, and Innovation

On 31 July, the U.S. Department of the Treasury (“Treasury”) released a report, as mandated by Executive Order 13772 on Core principles for Regulating the United State Financial System, entitled “A Financial System That Creates Economic Opportunities: Nonbank Financial, Fintech, and Innovation.”  Treasury Secretary Steven Mnuchin in a release stated, “Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector.” The report identifies “improvements to the regulatory landscape that will better support nonbank financial institutions, embrace financial technology, and foster innovation.”  In the report, the Treasury, among other things, (i) endorses the use of regulatory “sandboxes” that act as a “testing ground for innovation and allow companies to experiment with new services,” (ii) calls for the end of the CFPB’s small-dollar lending rule, (iii) supports the increased control for consumers over their data, and (iv) recommends the creation of a national data breach notification standard. 

President Trump Signs National Flood Insurance Program Extension Act

On 30 July, President Trump signed into law S.1182, the National Flood Insurance Program Extension Act of 2018, which reauthorizes the National Flood Insurance Program (“NFIP”) through 30 November 2018.

U.S. Congress

U.S Senate Adopts Conference Report on Legislation Reforming CFIUS Review Process

On 1 August, the U.S. Senate passed, by a vote of 87-10, the conference report on H.R. 5515, the John S. McCain National Defense Authorization Act for Fiscal Year 2019.  That legislation is designed to, among other things, reform and modernize the review process of the Committee on Foreign Investment in the United States (“CFIUS”).  The legislation would broaden the types of transactions subject to CFIUS review and extend CFIUS review timeframes.

U.S. Senate Passes Bill Funding SEC and CFTC for FY 2019

On August 1, the U.S. Senate passed, by a vote of 92-6, H.R. 6147, the Interior, Environment, Financial Services and General Government, Agriculture, Rural Development, Food and Drug Administration, and Transportation, Housing and Urban Development Appropriations Act, 2019.  The bill provides, among other funding for fiscal year (“FY”) 2019, the Securities and Exchange Commission (“SEC”) with $1.66 billion and the Commodity Futures Trading Commission (“CFTC”) with $281.5 million. 


On 31 July, the U.S. Senate Committee on Agriculture, Nutrition, and Forestry voted to favorably report the nomination of Dan Berkowitz to be a Commissioner of the CFTC.

On 1 August, the U.S. Senate Committee on Finance advanced the nominations of Justin Muzinich to be Deputy Secretary of the Treasury and Michael Desmond to be Chief Counsel for the Internal Revenue Service and Assistant General Counsel in the Treasury.  The votes were 14-13 for Muzinich and 25-2 for Desmond.   

On 2 August, the U.S. Senate Committee on Banking, Housing, and Urban Affairs postponed votes on the nominations of Kathy Kraninger to head the Consumer Financial Protection Bureau, Kimberly Reed to head the Export-Import Bank, and Elad Roisman to sever as a Commissioner at the SEC.  A new date for the votes has not been announced.

SEC & Securities

SEC Announces Staff Roundtable on the Proxy Process

On 30 July, SEC Chairman Jay Clayton announced that the SEC will host a Staff Roundtable this fall to “hear from investors, issuers, and other market participants about whether the SEC’s proxy rules should be refined.”   The roundtable’s date, agenda items, panelists, moderators, and logistical information will be announced once they are finalized.  Public comments may be submitted to the SEC using File Number 4-725.  The potential topics of consideration include:

·         Voting Process: The potential for over and under voting, difficulties in confirming shares have been voted in accordance with the investor’s instructions, and costs associated with distributing proxy and other materials;

·         Retail Shareholder Participation: The reasons for the relatively low retail participation rate, the impact of existing rules or market practices on participation, and the weight to be given the relatively low participation rate when analyzing existing regulations;

·         Shareholder Proposals: The current thresholds for minimum ownership to submit a proposal, factors that may demonstrate meaningful ownership other than the amount invested and time of ownership, and ithe extent to which the voices of long-term retail investors (those who invest in mutual funds and ETFs) are properly represented in the shareholder proposal process; and

·         Proxy Advisory Firms: The extent to which the reliance of investment advisers on proxy advisory firms is in the best interest of shareholders, the adequacy of the opportunity of issuers to raise their concerns about the recommendations of proxy advisory firms, the sufficiency of the transparency in a proxy firm’s voting policies and procedures, the disclosure and mitigation of conflicts of interest, the appropriate regulatory regime for proxy advisory firms, and current staff guidance relating to investment advisers’ responsibilities in voting client proxies and retaining proxy advisor firms.,

FINRA Seeks Broker-Dealer Comments on Fintech

On 30 July, the Financial Industry Regulatory Authority (“FINRA”) issued a Special Notice entitled “FINRA Requests Comment on Financial Technology Innovation in the Broker-Dealer Industry.”  FINRA seeks comments from broker-dealers on fintech in areas such as: (i) “data aggregation services,” (ii) “supervisory processes around the use of artificial intelligence,” and (iii) “the development of a taxonomy-based machine-readable rulebook.”  Comments are due by 12 October. 

SEC Commissioner Pierce Delivers Remarks Regarding Regulation Best Interest

On 24 July, SEC Commissioner Hester Pierce spoke at the 2018 National Association of Plan Advisors Fly-In Forum.  Commissioner Pierce focused on criticism of the SEC’s proposed Regulation Best Interest, which imposes standards for broker-dealers and investment advisors providing investment assistance to investors.  In defense of the proposed regulation’s failure to use the term “fiduciary,” Commissioner Pierce said, “[s]uggesting that a single word assures you that the person with whom you are dealing will serve you well dissuades investors from asking the questions they should ask before choosing a financial professional.”  She also argued that the SEC’s “best interest” standard is substantively similar to “the hallowed ‘fiduciary duty.’”  

CFTC & Derivatives

CFTC Chairman Delivers Remarks at the West Texas Legislative Summit

On 2 August, CFTC Chairman Christopher Giancarlo delivered remarks before the West Texas Legislative Summit.  Chairman Giancarlo addressed the importance of technology in the 21st century capital markets and urged lawmakers and regulators to “be proactive with a regulatory and statutory framework that is ahead of the curve.”  Further, Giancarlo discussed the need for smart regulation and stated that “it is essential that government regulators . . . keep industry rules and regulations simple and straightforward.  That includes making sure that regulations actually solve problems – real problems, not invented ones.”  Chairman Giancarlo concluded his speech challenging state and federal regulators to “reduce regulatory barriers to economic growth” while still helping “foster open, transparent, competitive and financially sound markets.”


·            7 Aug: Comments due on the SEC’s proposed Regulation Best Interest.

·            7 Aug: Comments due for the SEC’s proposed rules regarding Form CRS Relationship Summary, amendments to Form ADV, etc.

·            7 Aug: Comments due on the SEC’s proposed interpretation regarding standard of conduct for investment advisers and request for comment on enhancing investment adviser regulation.

·            13 Aug: Comments due on the CFTC’s De Minimis Exception to the Swap Dealer Definition

Ianthe Zabel
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