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US Regulatory Updates

US Regulatory Update


 Joint Statement From the U.S.-UK Financial Regulatory Working Group

On 18 September, the U.S.-UK Financial Regulatory Working Group (“Working Group”) issued a joint statement about its inaugural meeting on 12 September.  Participants in the Working Group include officials and senior staff from various U.S. and UK regulatory agencies, including the U.S. Department of Treasury (“Treasury”) and HM Treasury.  At the meeting, the participants discussed, among other things, “the outlook for financial regulatory reforms and future priorities, including areas for deeper regulatory cooperation to facilitate further financial services activity between the U.S. and UK markets.”  The next meeting will be in the first half of 2019. 

 Agencies Issue Joint Release Announcing the Approval of Amendment to Swap Margin Rule

On 21 September, the Office of the Comptroller of the Currency (“OCC”), Fed Reserve (“Fed”), Federal Deposit Insurance Corporation (“FDIC”), Farm Credit Administration, and Federal Housing Finance Agency issued a joint release announcing they had approved final amendments to swap margin requirements “to conform with recent rule changes that impose new restrictions on certain qualified financial contracts of systemically important banking organizations (QFC Rules).”  The amendments exclude from the margin requirements certain legacy swaps entered into before the requirements’ compliance date if the swaps are amended solely to comply with the QFC Rules.  The final amendments will take effect 30 days after their publication in the Federal Register.


On 18 September, state insurance regulators appointed Eric Cioppa, Superintendent of the Maine Bureau of Insurance, to a two-year term as the state insurance commissioner representative on the Financial Stability Oversight Council. 

 On 19 September, President Trump announced his intent to nominate Jean Nellie Liang, Senior Fellow in Economic Studies at the Brookings Institute, to be a Member of the Fed’s Board of Governors. 

 U.S. Congress

 Senate Banking Hearing Examining FinTech

On 18 September, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “FinTech: Examining Digitization, Data, and Technology.”  Testifying at the hearing were: Steven Boms, President of Allon Advocacy on behalf of the Consumer Financial Data Rights Group; Stuart Rubinstein, President of Fidelity Wealth Technologies; Brian Knight, Director of the Innovation and Governance Program at the Mercatus Center at George Mason University; and Saule Omarova, Professor of Law at Cornell University.  In his opening statement, Committee Chairman Mike Crapo (R-ID) expressed concerns over the lack of transparency in the financial technology (“FinTech”)  sector as it relates to the collection, storage, and use of consumer data.  Ranking Committee Member Sherrod Brown (D-OH) argued that FinTech “innovation” actually harmed consumers during the financial crisis and that the Treasury’s FinTech Report “embraces the shortsightedness of pre-crisis regulators” and puts innovation over consumer protection.  During the hearing, data aggregation received a significant amount of attention from multiple senators.  Senator Catherine Cortez Masto (D-NV) asked the panel if there should be a uniform standard regarding data security requirements for both the financial services industry and data aggregators, like Google and Facebook.  Mr. Rubinstein said that all firms holding consumer data should be held to the same regulatory standards.  Mr. Knight argued that the regulatory requirements should be based on risk and that different institutions should face different regulatory requirements.  Several senators asked the panel about H.R. 6743, the Consumer Information Notification Requirement Act, which would create a national standard for data breach notification.  Mr. Boms said both consumers and the industry would benefit from a consistent national standard.  Ms. Omarova agreed that a national standard could be helpful, but she pointed out that the metrics of that standard are important. 


On 18 September, the U.S. Senate Committee on Finance approved the nomination of Michael Faulkender to become Treasury Assistant Secretary for Economic Policy. 

 SEC & Securities

 SEC Chief Accountant Bricker Speaks on Emerging Technologies and Financial Reporting

On 17 September, the Securities and Exchange Commission’s (“SEC”) Chief Accountant Wesley Bricker delivered remarks before the AICPA National Conference on Banks & Saving Institutions.  Mr. Bricker focused most of his speech on emerging technologies and how “it is essential to keep in mind that innovations in technology can be the ally of a company's business and financial reporting activities, not their opponent."  Bricker said that it is “critical that we keep ourselves informed about emerging technologies so that the accounting profession can continue to perform the essential gatekeeper function for issuer compliance related to financial reporting.”  However, he cautioned that “companies must continue to maintain appropriate books and records—regardless of whether distributed ledger technology (such as blockchain), smart contracts, and other technology-driven applications are (or are not) used.”  Finally, Bricker reminded the audience that “[d]istributed ledger technology and digital assets, despite their exciting possibilities, do not alter this fundamental responsibility.”

 NYAG Report Faults Cryptocurrency Exchanges for Market Manipulation Risks

On 18 September, New York State Attorney General (“NYAG”) Barbara Underwood issued the Virtual Markets Integrity Report, which is the result of New York’s Virtual Markets Integrity Initiative and “details how virtual asset trading platforms vary significantly in the comprehensiveness of their response to the risks facing the virtual markets and fulfilling their responsibilities to customers.”  The report identified deficiencies in a number of practices put in place by cryptocurrency exchanges, particularly their programs for monitoring and preventing market manipulation.  Specifically, the report states, “The industry has yet to implement serious market surveillance capacities, akin to those of traditional trading venues, to detect and punish suspicious trading activity.  A platform cannot take action to protect customers from market manipulation and other abuses if it is not aware of those practices in the first place."  The report also said the NYAG has referred the cryptocurrency exchanges Binance, Kraken, and to the New York State Department of Financial Service (“DFS”) for potential violations of New York digital-currency regulations.  Some exchanges were also found to have engaged in proprietary trading by trading on their own platforms on behalf of themselves.  For example, according to the report, on Coinbase Inc.’s exchange, nearly twenty percent of the executed volume came from the exchange’s own trading. 

 Commissioner Jackson Speaks on Market Oversight

On 19 September, SEC Commissioner Robert Jackson delivered remarks at George Mason University entitled “Unfair Exchange: The State of America’s Stock Market.”  In his speech, Commissioner Jackson alleges that the SEC has “stood on the sidelines while enormous market power has become concentrated in just a few players.”  He argued that this market power concentration has resulted in increased investor costs while those exchanges significantly boost their profits by controlling both the “lower-quality public [stock data] feed and generally higher-quality private ones.”  He argued that as a result of this two-tiered system, the private exchanges have “underinvested” in the public feed because it is a competitor to their private feeds.  As a solution, Jackson said that the SEC should bar exchanges from controlling the public feed while they sell access to their own private data feeds. He also stated that transparency in how exchanges make their money would greatly benefit our stock markets.  Specifically, he said that “a clear and uniform approach to disclosing revenues across exchanges and over time would go a long way in giving investors a clearer view regarding the costs they pay to invest in America’s public companies.”  Jackson concluded by urging that that stock exchanges should be “held accountable when they cause harm to the investing public.”

 SEC Proposes Amendment to Single Issuer Exemption for Broker-Dealers

On 20 September, the SEC proposed an amendment to the exemption provisions in the broker-dealer annual reporting Rule 17a-5.  The amendment clarifies that a broker-dealer acting as an agent for a single issuer does not need an independent public accountant to certify such broker-dealers annual reports.  Comments are due 30 days after the proposed amendment is published in the Federal Register.

 SEC Holds Investor Roundtable

On 20 September, the SEC held an investor roundtable to discuss the Commission’s recently proposed Regulation Best Interest.  Financial Advisor reported that around 30 investors told SEC Chairman Jay Clayton that the proposed best-interest customer disclosure document “just doesn’t work.”  According to the Financial Advisor, investors do not believe the form provides tools to help educate investors about the differences between brokers and advisors.  Investment News reported that one participant asked the SEC to launch a “plain-English campaign” to help investors.  Investment News also reported that Chairman Clayton declined to give a deadline on when the SEC will complete its work on Regulation Best Interest.  Clayton said, “We’re going to keep working on it until we get it right.”

 SEC Co-Director of Enforcement Remarks on the SEC’s Enforcement Program

On 20 September, SEC Co-Director of Enforcement Stephanie Avakian delivered remarks before the University of Texas School of Law’s Government Enforcement Institute entitled “Measuring the Impact of the SEC’s Enforcement Program.”  Addressing recent criticism over the number of enforcement cases the SEC has brought, Ms. Avakian said, “Any assessment that suggests our effectiveness should be measured solely based on the number of cases we bring over any particular period of time is misguided.”  Avakian pointed to the Supreme Court’s recent decisions in Kokesh, which said the SEC has only five years to sue bad actors for fraud, and Lucia, which said administrative law judges are subject to the Appointments Clause, as limitations on the SEC’s ability to go after bad actors and obstacles preventing the SEC from receiving more than $800 million in disgorgements.  Despite these decisions, Ms. Avakian said the SEC has been vigilant in pursuing fraud by “recommend[ing] more substantial remedies against issuers [of initial coin offerings] that fail to comply” with investor protection regulations.

 SEC Staff Comments on Suspension of Trading of Virtual Currency Tracking Certificates

On 20 September, the SEC’s Division of Trading and Markets and Division of Corporate Finance commented on the SEC’s 9 September Order temporarily suspending trading of certain Bitcoin and Ether tracking certificates. The Divisions said that the “lack of current, consistent and accurate information” regarding Bitcoin Tracker One and Ether Tracker One led to confusion amongst market participants.  The Divisions advised market participants that seek to quote, trade, or facilitate transaction in Bitcoin Tracker One and Ether Tracker One to use caution and to examine the legal and regulatory implications.  The Divisions also stated that they are working with the Commodity Futures Trading Commission (“CFTC”) staff regarding the regulatory implications relevant to Bitcoin Tracker One and Ether Tracker One under the Commodity Exchange Act. 

Commissioner Peirce Speaks on Stakeholders and ESG

On 21 September, Commissioner Hester Peirce delivered remarks entitled “My Beef with Stakeholders: Remarks at the 17th Annual SEC Conference, Center for Corporate Reporting and Governance.” Commissioner Peirce expressed concern over the popularity of the “stakeholder-centric view of the world,” which says “a corporation and its directors owe a duty not just to shareholders, but to a broader group of ‘stakeholders.’”  She argued that such a view has “troubling implications” because corporate directors have a fiduciary duty to their shareholders to maximize the value of the corporation not to a broad, “elastic” group of stakeholders who might be tangentially affected by the corporation’s decisions.  In criticizing the recently passed California Senate Bill 826, which would set parameters on the gender composition of corporate boards, Peirce argued that “[i]f the law allows directors and managers to elevate certain stakeholders over shareholders, the law is complicit in a breach of fiduciary duty.”  Further, Peirce asserts that forcing companies to “cater” to the interests of stakeholders over the interests of its collective shareholders “complicates boardroom decision-making and muddles the effectiveness of price as a signal of the company’s value.”  Peirce also addressed the larger “environmental, social, governance,” (“ESG”) movement and raised concerns with fund managers who are making ESG decisions “on behalf of others who do not share their ESG objectives.”  When a manager puts their personal beliefs ahead of long-term shareholder value, in Peirce’s opinion, “it becomes less clear that the manager has fulfilled [its] fiduciary responsibility.” 


On 21 September, the SEC announced that the SEC staff will host a 15 November roundtable on the proxy process.  The proxy roundtable “will focus on key aspects of the U.S. proxy system, including proxy voting mechanics and technology, the shareholder proposal process, and the role and regulation of proxy advisory firms.”

CFTC & Derivatives

Commissioner Quintenz Remarks on Post-Crisis Reforms

On 18 September, CFTC Commissioner Brian Quintenz delivered remarks before the International Commodities and Derivatives 39th Annual European Summit.  In his speech, Commissioner Quintenz argued that the lack of sufficient transparency to determine the weaknesses of different market participants is the major lesson of the financial crisis.  While the CFTC has passed various regulations to remedy those issues, Quintenz noted that the CFTC is still in the process of ensuring that the agency is capable of analyzing swap data, for example, to identify and measure risk exposure.  He also pointed out that in order for the necessary reforms to work, regulators must share access to data.  Further, Quintenz was concerned with how regulators have determined various capital requirements, cautioning that such requirements “should not be established in a vacuum” and that regulators should take into account how margin collection mitigates counterparty credit risk.


·        25-26 Sept: Federal Open Market Committee meeting.

·        26 Sept: SEC Retail Investor Fraud Roundtable.

·        26 Sept: House Financial Services Committee hearing entitled “Oversight of the SEC’s Division of Investment Management.”

·        26 Sept: House Financial Services Committee hearing entitled “Administration Goals for Major Sanctions Programs.”

·        27 Sept: House Financial Services Committee hearing entitled “Oversight of the Federal Housing Finance Agency’s role as conservator and regulator of the Government Sponsored Enterprises.”

·        27 Sept: CFTC Open Meeting to consider: (i) proposed rule amending registration and compliance obligations for commodity pool operators and commodity trading advisors; (ii) FinTech cooperation arrangement(s); and (iii) the Paperwork Reduction Act delegation to the Secretary of the Commission.

·        27 Sept: BCFP Fall 2018 advisory committee meeting to discuss policy issues related to FinTech.

·        28 Sept: House Financial Services Committee hearing entitled “Examining Opportunities for Financial Markets in the Digital Era.”

·        28 Sept: Comments due for CFTC proposed rule on the segregation of assets held as collateral in uncleared swaps transaction.

·        1 Oct: Comments due for CFTC proposed rule on position limits and position accountability for security futures products.

·        2 Oct: Senate Banking Committee hearing entitled “Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act.”

·        3-4 Oct: CFTC to host first FinTech Conference.

Ianthe Zabel
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