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SEC & Securities

SEC Submits FY2020 Budget Request to Congress

On 18 March, the Securities and Exchange Commission (“SEC”) submitted its budget request to Congress for the fiscal year 2020 (“FY2020”).  The SEC requested $1.746 billion to carry out its statutory mission “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”  The SEC said its request would permit the agency to, among other things, (i) “pursue initiatives in the SEC’s 2018-2022 Strategic Plan”; (ii) “modernize key information technology (IT) systems and enhance the security of [its] systems and data”; and (iii) “fill 34 new positions that will enhance [its] ability to carry out [its] mission and execute on [its] strategic goals.”  For FY2020, the SEC said its priorities include (i) focusing on the long-term interests of main street investors, (ii) recognizing trends in the evolving capital markets, and (iii) improving its human capital management program. 


SEC Commissioner Roisman Speaks on Proxy Process

On 18 March, SEC Commissioner Elad Roisman delivered remarks before the ICI Mutual Fund and Investment Management Conference regarding the proxy process.  Roisman noted that SEC Chairman Jay Clayton asked him to take the lead on the SEC’s efforts to consider improvements to the proxy process.  Also he outlined several asset management practices regarding the proxy process that he has been studying, including: (i) the “default position” of many advisers, which is to vote every proxy in every fund’s portfolio; (ii) uniformity of voting across all funds; (iii) how advisers handle conflicts of interest, such as potential conflicts between funds with different investment goals; (iv) the use of proxy advisory firms for voting guidance; (v) how asset managers are “diligencing proxy advisory firms’ conflicts and becoming comfortable with their methodologies before utilizing their proxy recommendations and products”; and (vi) whether industry demand could lead to better results from proxy advisory firms. 

SEC IM Director Blass Describes Trends in Asset Management Industry

On 18 March, SEC Division of Investment Management (“IM”) Director Dalia Blass delivered remarks before the ICI Mutual Fund and Investment Management Conference regarding long-term trends in the asset management industry.  Blass described trends such as the consolidation of small and mid-sized firms and its effects on investors.  She noted that it is important for regulators and market participants to “scan ahead for emerging and future risks”  and said that it is important to approach “any such exercise with transparency, engagement and rigor, and weigh any policy response with caution.”  She said that regulators should refrain from “rewriting policy” as a first step in addressing the risks posed by emerging long-term trends and instead should focus on gathering evidence first.  Blass also said that she has asked the IM staff (i) to “start a new outreach initiative targeted at small and mid-sized fund sponsors” and (ii) to consider the creation of an asset management advisory committee.  Regarding proxy advisory firms, Blass said that in 2019, IM “will be exploring ways to update current guidance to clarify how investment advisers should fulfill their fiduciary duties in this area.”  Specifically, IM will focus on questions such as: (i) “how to promote voting practices that are in the best interests of advisory clients”; (ii) “whether advisers are expected to vote every proxy”; (iii) how advisers should evaluate recommendations of proxy advisers”; and (iv) “how advisers should address conflicts of interest that a proxy adviser may have.”  Finally, Blass highlighted the following items that are on IM’s agenda for 2019:

·        proposed Regulation Best Interest;

·        proposed Form CRS, which would require, among other things, firms to deliver to retail investors a four-page customer or client relationship summary;

·        disclosure improvements;

·        finalizing the proposed ETF rules, which “would permit exchange-traded funds (“ETFs”) that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order”;

·        finalizing the proposed “fund of funds” rules, which would “streamline and enhance the regulatory framework applicable to funds that invest in other funds”;

·        updating the SEC’s valuation guidance;

·        new rules regarding business development companies and closed-end funds;

·        modernizing the advertising and solicitation rules for investment advisers; and

·        new rules regarding the use of derivatives by investment companies.

SEC Small Business Advocate Miller Introduces Her New Position

On 20 March, the SEC’s new Director of the Office of the Advocate for Small Business Capital Formation (“Small Business Advocate”) Martha Miller delivered remarks before the 1 Million Cups of Coffee, PlexPod in a speech entitled “A Start-Up Within the Government: Introducing the SEC’s Office of the Advocate for Small Business Capital Formation.”  Miller stated that the SEC created the Small Business Advocate in order to help small businesses and their investors access capital.  She said that her office will focus, in part, on (i) assisting small businesses in resolving “issues with the SEC and self-regulatory organizations including by recommending policy changes” and (ii) working with small businesses “to understand their capital formation issues through education and outreach.”  Regarding who qualifies as a small business, Miller noted that Congress defined “small business” to include a variety of companies, including privately held startups and publicly traded companies with less than $250 million in market capitalization.  Finally, she asked small businesses to provide feedback on where they encounter “unnecessary regulatory obstacles” that are impeding the flow of capital to their businesses. 

SEC Adopts Rules to Implement FAST Act Mandate Regarding Disclosure

On 20 March, the SEC adopted amendments to “modernize and simplify disclosure requirements for public companies, investment advisors, and investment companies,” consistent with the SEC’s mandate under the Fixing America’s Surface Transportation Act (“FAST Act”).  The SEC said these amendments are “expected to benefit investors by eliminating outdated and unnecessary disclosure and making it easier for them to access and analyze material information.”  The amendments, among other things: (i) permit registrants to omit certain confidential information from material contracts and certain other exhibits without submitting a request to the SEC; (ii) amend the disclosure requirements for physical properties to stress the “materiality threshold”; (iii) modify and modernize rules and forms to streamline the SEC’s disclosure framework; and (iv) enhance access to information by obligating data tagging for certain items on the cover pages of particular filings.  The amendments will be effective 30 days after their publication in the Federal Register

SEC Proposes Revisions to Offering Process for BDCs and Closed-End Funds

On March 20, the SEC proposed amendments to “implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act.”  The proposed amendments would “improve access to capital and facilitate investor communications by business development companies [(“BDCs”)] and registered closed-end funds.”  Specifically, the proposal would: (i) streamline the registration process to allow eligible funds to use a “shelf registration statement”; (ii) permit eligible funds to qualify as “well-known season issuers”; (iii) allow eligible funds to meet prospectus delivery requirements by using the same processes as are available to operating companies; (iv) tailor the disclosure and regulatory framework for eligible funds “in light of the proposed amendments to the offering rules applicable to them”; and (v) allow eligible funds to use communication rules that are available to operating companies.  Comments on the proposed amendments are due 60 days after their publication in the Federal Register

SEC IM Deputy Director and Chief Counsel Cellupica Discusses Investment Management No-Action Relief

On 21 March, SEC IM Deputy Director and Chief Counsel Paul Cellupica delivered remarks before the PLI Investment Management Institute 2019 regarding investment managers and “tips for engagement on exemptive applications and requests for no-action relief.”  He noted that: (i) exemptive order and no-action letters fall into one of two broad categories: “routine relief that has recent precedent and novel relief that has little or no precedent”; (ii) IM encourages dialogue with applicants and that IM will be interested in learning the business rationale for requests; and (iii) IM generally discourages applicants from submitting draft applications for exemptive relief.  Cellupica also discussed IM’s Board Outreach Initiative, stating that the outreach has focused on “understanding the current role of fund boards and asking whether there are opportunities to recalibrate the responsibilities imposed on fund boards to better serve investors.” 

Bank Regulators

Agencies Issue Joint Release on Interim Final Rule Regarding Margin and Capital Requirements for Covered Swap Entities

On 19 March, the Federal Reserve (“Fed”), FDIC, Office of the Comptroller of the Currency (“OCC”), Farm Credit Administration, and Federal Housing Finance Agency issued an interim final rule “amending the Agencies’ regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margin Rule).” 

Fed Issues FOMC Statement

On 20 March, the Fed issued a statement on the Federal Open Market Committee’s (“FOMC”) 19-20 March meeting.  In the statement, the FOMC said it had determined “to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.”  Further, the FOMC said that “[i]n light of global economic and financial developments and muted inflation,” the FOMC “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”  In conjunction with its statement, the FOMC also released its economic projections and the target federal funds rate projections made by the FOMC participants.  Finally, the Fed unanimously voted to approve the establishment of the primary credit rate at the existing level of 3.00 percent.

FDIC Releases Winter 2018 Issue of Supervisory Insights

On 20 March, the FDIC released the winter 2018 issue of its Supervisory Insights journal.  The issue includes an article entitled “Transitions in Financial Instrument Reference Rates,” which “examines the future of, and alternatives to, the London Inter-Bank Offered Rate (LIBOR).”  

OCC Releases Fourth Quarter 2018 Report of Bank Trading Revenue

On 22 March, the OCC issued its Quarterly Report on Bank Trading and Derivatives Activities for the fourth quarter 2018.  Highlights of the report include: (i) trading revenue of U.S. commercial banks and federal savings associations was $4.2 billion in the fourth quarter 2018, which was $2.9 billion, or 41 percent, less than the previous quarter; and (ii) trading revenue in the fourth quarter 2018 decreased by 28.5 percent compared with the $5.8 billion reported in the fourth quarter 2017. 

OCC Releases Fourth Quarter 2018 Report on Mortgage Performance

On 22 March, the OCC issued its Mortgage Metrics Report, Fourth Quarter 2018, which showed, among other things, that 95.8 percent of mortgages included in the report were current and performing at the end of the quarter, compared to 94.5 percent a year earlier.  


CFPB Announces Enhancements to Advisory Committees

On 21 March, the Consumer Financial Protection Bureau (“CFPB”) announced “enhancements” to its advisory committee charters, including changing the membership terms from one-year terms to two-year terms and staggering the terms.  The CFPB also announced that it will begin accepting applications for members to serve on its advisory committees.    


·        March 26-27: The Senate Committee on Banking, Housing, and Urban Affairs will hold a two-part hearing on Committee Chairman Mike Crapo’s (R-ID) housing reform outline.

·        March 26: The House Committee on Financial Services’ (“House Financial Services Committee”) Subcommittee on Oversight and Investigations will hold a hearing entitled “The Administration of Disaster Recovery Funds in the Wake of Hurricanes Harvey, Irma, and Maria.”

·        March 26: The House Financial Services Committee will hold a markup hearing on several bills, including the SEC Disclosure Effectiveness Testing Act and the Secure and Fair Enforcement Banking Act of 2019. 

·        March 26: SEC Chairman Clayton and SEC Division of Trading and Markets Director Brett Redfearn will take part in SIFMA’s Compliance and Legal Society Annual Seminar.

·        March 26: CFTC Commissioner Rostin Behnam will participate in a chat at the AIMA Global Policy & Regulatory Forum 2019.

·        March 27: The CFTC’s Technology Advisory Committee will hold a meeting.

·        March 28: The SEC’s Investor Advisory Committee will hold a meeting.

·        March 28: The FDIC will hold a meeting of its Advisory Committee on Community Banking to discuss, among other subjects, efforts regarding “de novo institutions, community bank technical assistance efforts, the 2017 FDIC National Survey of Unbanked and Underbanked Households, and various supervisory policy issues.”

·        March 29: The FDIC will hold an open board meeting to discuss, among other topics, “Revisions to the Supplementary Leverage Ratio to Exclude Certain Central Bank Deposits of Banking Organizations Predominately engaged in Custody, Safekeeping and Asset Servicing Activities.”

Ianthe Zabel
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