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US Regulatory Research

US Regulatory Updates

US Regulatory Research



On 2 April, President Trump announced his intent to nominate Allison Herren Lee to be a Commissioner of the Securities and Exchange Commission (“SEC”) and Michelle Bowman to be reappointed as a member of the Board of Governors of the Federal Reserve (“Fed”) for an additional fourteen year term.     

On 1 April, the U.S. Senate Committee on Agriculture, Nutrition, and Forestry voted to report to the full Senate the nomination of Heath Tarbert to be Chairman of the Commodity Futures Trading Commission (“CFTC”).  

U.S. Congress

Senate Banking Committee Holds Hearing on Environmental, Social, and Governance Principles

On 2 April, the U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) held a hearing entitled “The Application of Environmental, Social, and Governance Principles in Investing and the Role of Asset Managers, Proxy Advisors, and Other Intermediaries.” Testifying at the hearing were: Phil Gramm, former United States Senator; James Copland; Senior Fellow and Director of Legal Policy at the Manhattan Institute; and John Streur, President and CEO of Calvert Research and Management. A common theme addressed by Chairman Crapo and some of the witnesses was the increasing power of institutional investors—in particular, index funds. Some Republican Senators inquired about changing the SEC’s threshold allowing a shareholder holding $2,000 in stock for one year to place a shareholder proposal on the ballot, with Mr. Copland advocating for a change to a “loser-pays” model. Mr. Streur concluded that, “the linkage between financially material ESG performance, profitability, and stock prices is strong, it’s been documented by thousands of studies…” 

House Financial Services Subcommittee Hearing on Putting Investors First, Holding Execs Accountable

On 3 April, the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets held a hearing entitled, “Putting Investors First: Reviewing Proposals to Hold Executives Accountable.” Testifying at the hearing were: John Coffee Jr., Adolf A. Berle Professor of Law, Director of the Center on Corporate Governance at Columbia Law School; Melanie Lubin, Maryland Securities Commissioner, on behalf of the North American Securities Administrators Association, Inc. (“NASAA”); Remington A. Gregg, Counsel for Civil Justice and Consumer Rights, Public Citizen; and Thomas Quaadman, Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness, Chamber of Commerce of the United States of America. The following draft bills were considered:

  • The Insider Trading Prohibition Act, which would codify existing federal prohibitions on insider trading and overturn a requirement from the Second Circuit decision in United States v. Newman, which requires a tippee to know about the "personal benefit" of a tip received by a tipper to be convicted.

  • The Investor Choice Act of 2019, which would (i) prohibit broker-dealers and investment advisers from including mandatory arbitration clauses in customer agreements and (ii) prohibit public companies from incorporating mandatory arbitration clauses in the companies’ by-laws or other corporate governance documents.

  • The 8-K Trading Gap Act of 2019, which would instruct the SEC to promulgate a rule requiring a public company to institute policies designed to bar officers and directors from trading company stock following a determination by the company that a significant corporate event had occurred and before the company files a Form 8-K disclosing the event.

  • A bill to require the SEC to complete rulemaking required by section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”), which directs the SEC to promulgate a rule requiring exchange-traded companies to have policies in place allowing them to recover incentive compensation previously paid to executives if the compensation paid was due to material noncompliance with financial reporting or accounting rules.

  • A bill to require the SEC to complete rulemaking required by section 14(i) of the Exchange Act, which directs the SEC to promulgate a rule requiring public companies to disclose executive compensation in annual proxy statements.

  • A bill to amend the definition of "whistleblower" in the Exchange Act to clarify that whistleblowers who only report misconduct to their employers are protected by the "anti-retaliation provisions" under Section 922 of the Dodd-Frank Act.

Lubin expressed support for all six bills, focusing on the “Investor Choice Act of 2019.” Gregg also expressed support for the “Investor Choice Act of 2019.”  Quaadman generally opposed all of the bills.

Banking Committee Members Send Letter to Fed and FDIC Regarding CBLR for Certain Community Banks

On 5 April, Senate Banking Committee Chairman Mike Crapo (R-ID) and Senator Jerry Moran (R-KS) sent a letter to the Fed, Federal Deposit Insurance Corporation (“FDIC”), and Office of the Comptroller of the Currency (“OCC”) regarding the agencies’ joint proposal to allow certain community banks with less than $10 billion in total assets to elect to use “a simpler [Community Bank Leverage Ratio (“CBLR”)] framework, instead of the current complex capital regime, if [such bank’s] CBLR is above 9 percent.”  In their letter, Chairman Crapo and Sen. Moran explain why the agencies should use their discretion to set the CLBR at 8 percent, “which would result in banks receiving relief under the CBLR while maintaining significant capital.”         

SEC & Securities

SEC Chairman Jay Clayton Addresses Concerns for CAT Regarding Personal Information

On 26 March, it was reported that SEC Chairman Jay Clayton addressed industry concerns regarding the collection of investors’ personally identifiable information (“PII”) under the consolidated audit trail (“CAT”) at a Securities Industry and Financial Markets Association conference in Phoenix.  As reported, Chairman Clayton remarked that, with respect to the CAT, the SEC is working on “get[ting] to a responsible place on customer data as long as everybody remains constructive.”  On 1 April, it was reported that an SEC spokesperson elaborated on Clayton’s statement, stating that “the SEC is supportive of an approach that no longer requires Social Security numbers to be maintained in the CAT repository.”

SEC Adopts Final Rule regarding Appointment and Removal of PCAOB Hearing Officers

On 28 March, the SEC adopted a final rule amending its administrative procedure for appointing and removing Public Company Accounting Oversight Board ("PCAOB") hearing officers.  The amendment expressly requires that the appointment or removal of a PCAOB hearing officer be subject to Commission approval.

SEC’s Division of Corporation Finance Issues No-Action Letter Regarding Contingent Convertible Capital Securities

On 1 April, the SEC’s Division of Corporation Finance published a no-action letter (dated 28 March) regarding the eligibility of contingent convertible capital securities issued by non-U.S. financial institutions for offerings under Rule 144A of the Securities Act of 1933 (the “Securities Act”).  The division represented that it would not recommend an enforcement action for the offering of securities “issued solely for the purpose of satisfying regulatory capital requirements under relevant national standards” under Rule 144A, notwithstanding the fact that the conversion premium for such securities may be less than 10 percent and thus otherwise would be ineligible for the exemption from Securities Act registration provided by Rule 144A.

SEC Releases Resources for Main Street Investors

On 1 April, the SEC’s Office of Investor Education and Advocacy announced the publication of its investor preparedness checklist and the first of several videos in a new series titled “Notes from the Chairman,” which feature SEC Chairman Clayton’s “personal notes on investing.”  The SEC’s investor education staff also announced its intention to participate in investor education programs covering a variety of themes as part of the “National Financial Capability Month.”

SEC Chairman Clayton Delivers Remarks at International Institute for Securities Market Growth and Development

On 1 April, SEC Chairman Clayton delivered remarks at the SEC’s 29th Annual International Institute for Securities Market Growth and Development, which will host 189 delegates from 69 countries over the course of two weeks.  Clayton’s remarks highlighted the SEC initiatives to: (i) facilitate capital formation by modernizing disclosure rules and launching the Strategic Hub for Innovation and Financial Technology (“FinHub”); (ii) address fraud and abuse in financial markets through the SEC’s “robust civil investigative powers” and its creation of a Cyber Unit within the Division of Enforcement; and (iii) cooperate with international authorities through the SEC’s Office of International Affairs and the International Organisation of Securities Commissions’ Multilateral Memorandum of Understanding.

SEC Issues Statement on “Investment Contract” Analysis of Digital Assets

On 3 April, the SEC published a statement co-signed by Bill Hinman, Director of Division of Corporation Finance, and Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation, on the SEC’s Framework for “Investment Contract” Analysis of Digital Assets. The statement announced the publication of a framework, developed by the SEC’s FinHub, for “analyzing whether a digital asset is offered and sold as an investment contract, and, therefore, is a security.”  The framework largely relies on the U.S. Supreme Court’s Howey decision to clarify the SEC staff’s view regarding when digital assets may not be deemed a regulated security.  The framework also identifies several factors affecting the application of Howey to digital assets, particularly concerning “whether a purchaser has a reasonable expectation of profits (or other financial returns) derived from the efforts of others.”  The framework concludes that such factors “are not intended to be exhaustive” and “no single factor is determinative.”

CFTC & Derivatives

CFTC’s Agricultural Advisory Committee Announces Agenda and New Committee Members

On 3 April, the CFTC’s Agricultural Advisory Committee (“AAC”) announced the full agenda for its upcoming public meeting on 11 April 2019.  The agenda includes presentations from: (i) the Division of Swap Dealer and Intermediary Oversight (“DSIO”) and Futures Commission Merchants (“FCMs”) regarding “the operational and regulatory environment for FCMs”; (ii) “[c]ash market innovators about technological, transparency and operational innovations in agricultural cash markets”; and (iii) the CME Group regarding “the evolution of electronic trading in its agricultural markets and an overview of its matching algorithms.”  CFTC Chairman J. Christopher Giancarlo, who sponsors the AAC, also announced the updated membership of the Committee, which includes representatives from the Futures Industry Association, the International Swaps and Derivatives Association (“ISDA”), and agricultural trade associations such as the National Farmers Organization.

CFTC Chairman Giancarlo Delivers Remarks on Cross-Border Regulatory and Supervisory Cooperation 

On 4 April, CFTC Chairman Giancarlo delivered remarks at the Eurofi Financial Forum in Bucharest, Romania, in a speech entitled, A New Vision For EU-US Regulatory and Supervisory Cooperation for Derivatives Markets.” Chairman Giancarlo emphasized his efforts to improve the CFTC’s approach to cross-border swaps regulation, an approach that respects comparable non-US regulation.  He explained that the CFTC’s revised approach has enabled it to solicit input from global partners and has helped to build trust and transparency between the CFTC and international counterparts.  Giancarlo commended the EU and U.S. authorities’ approach to supervisory cooperation, while recognizing that they “should share a commitment to market-based solutions.”  He noted, for example, that the CFTC has “favored close monitoring of market developments” in the context of crypto-assets, “while not hindering the introduction of new products like bitcoin futures.” Chairman Giancarlo also addressed challenges that the CFTC and its EU counterparts have met with respect to regulatory and supervisory cooperation, including: (i) the European Commission’s “unwillingness” to “acknowledge any commitment to the 2016 agreement between the CFTC and [European Commission] on [central counterparties]”; (ii) challenges concerning the insulation of market regulation from politics in the context of “investor protection, the safety and soundness of market utilities, and the efficiency of trading markets”; and (iii) challenges with communication.

CFTC and KSU Announce Agenda for AgCon2019

On 4 April, the CFTC and the Center for Risk Management Education and Research at Kansas State University (“KSU”) announced the full agenda for the second annual Agricultural Commodity Futures Conference (“AgCon”), which will take place on 11-12 April 2019.  The agenda includes: (i) a roundtable with CFTC commissioners; (ii) a panel on futures trading matching algorithms; (iii) a panel on grain and oilseed futures convergence; (iv) panels on futures markets’ responses to known market events; and (v) a panel on risk management across the dairy, pork, and energy sectors.

CFTC Grants No-Action Relief in Event of No-Deal Brexit

On 5 April, the CFTC granted no-action relief in the event of the United Kingdom’s (“UK”) withdrawal from the European Union (“EU”) without a negotiated withdrawal agreement (“no-deal Brexit”).  The relief consisted of two no-action letters: (i) a letter ensuring that existing regulatory relief provided by DSIO, the Division of Market Oversight (“DMO”), and the Division of Clearing and Risk (“DCR”) pursuant to certain staff letters affecting EU entities continues to be available for UK entities following Brexit; and (ii) a letter granting time-limited no-action relief for UK entities to ensure the continued availability of substituted compliance and regulatory relief under certain existing CFTC comparability determinations and exemption orders originally issued by the CFTC for EU entities.  According to the accompanying press release, the time-limited relief in the second letter was granted as “CFTC staff undertakes an analysis of UK law in order to make appropriate recommendations of comparability or exemption to the CFTC.”  As of the date of the no-action letters, the UK is expected to withdrawal from the EU on April 12, 2019.

Bank Regulators

Fed Announces Open Board Meeting

On 1 April, the Fed announced that it will hold an open board meeting on 8 April 2019 to consider “[p]roposed rules on prudential standards for foreign banking organizations and resolution plan requirements for foreign and domestic organizations.       

Agencies Jointly Issue Proposed Rule Regarding Regulatory Capital Treatment of Investments in Unsecured Debt Instruments for the Purposes of Meeting TLAC

On 2 April, the Fed, OCC, and FDIC approved a proposed rule aimed at limiting the interconnectedness of large banking organizations and reducing the impact from their failure. The proposed rule would require “advanced approaches” banking organizations—generally, banking organizations that have total assets of at least $250 billion or those having consolidated on-balance sheet foreign exposures of at least $10 billion—to deduct from their own regulatory capital certain investments.  The targeted investments are (i) unsecured debt instruments issued by foreign or U.S. global systemically important banking organizations (“GSIBs”) for the purposes of meeting minimum total loss absorbing capacity (“TLAC”) and, where applicable, long-term debt (“LTD”) requirements, or (ii) unsecured debt instruments issued by GSIBs. This required deduction aims to create an incentive for “advanced approaches” banking organizations to limit their exposure to unsecured debt issued by foreign and U.S. GSIBs. In addition, the proposal would amend certain regulatory reporting requirements to ensure that such requirements are consistent with the new deduction framework, as well as require “advanced approaches” banking organizations subject to minimum TLAC and LTD requirements to publicly disclose their TLAC and LTD issuance. Comments on the proposed amendments are due 60 days after publication in the Federal Register

Federal Reserve Vice Chair for Supervision and Chair of the FSB Delivers Remarks on Core Principles for the FSB

On 2 April, Federal Reserve Vice Chair for Supervision and Chair of the FSB Randal Quarles delivered a speech at the 2019 European Bank Executive Committee Forum reiterating the Financial Stability Board’s (“FSB”) core principles of engagement, rigorous vigilance, and analysis. In a speech entitled “The Financial Stability Board: Beyond the Fog of Battle,” Quarles: (i) emphasized the need for cooperation not only between regulators, but also with a “wide range of stakeholders” such as “businesses, public institutions, market participants, and scholars”; (ii) highlighted the FSB's primary role of “look[ing] forward—to see past the issues and practices of the day, and identify new vulnerabilities, long before they lead to widespread economic distress”; and (iii) stated that most post-crisis polices have been “in place long enough to allow for evaluation,” while noting that the FSB is launching a global study of the effects of post-crisis reforms.

FDIC Issues Financial Institution Letter Regarding Technology Service Provider Contracts

On 2 April, the FDIC issued a financial institution letter regarding observations made by FDIC examiners on gaps in financial institutions’ contracts with technology service providers that may require financial institutions to take additional steps to manage their own business continuity and incident response frameworks. The letter highlights that “some financial institution contracts with technology service providers may not adequately define rights and responsibilities regarding business continuity and incident response, or provide sufficient detail to allow financial institutions to manage those processes and risks,” such as “not requir[ing] the service provider to maintain a business continuity plan, establish recovery standards, or define contractual remedies if the technology service provider misses a recovery standard” or “not clearly defin[ing] key terms used in contractual provisions relating to business continuity and incident response.” The FDIC reminded financial institutions that their boards of directors and senior management are responsible for managing risk related to technology providers.

Agencies Jointly Issue FAQs on Implementation of CECL Methodology

On 3 April, the OCC, Fed, FDIC, and National Credit Union Administration jointly issued additional and updated FAQs to assist financial institutions and examiners in implementing the current expected losses methodology (“CECL”).  That methodology is used to estimate allowances for credit losses and was put in place by the Financial Accounting Standards Board in 2016.  The nine additional questions in the new FAQs address, among other topics: (i) “consideration of stress testing models, scenarios, and forecast periods when forecasting future economic conditions for CECL”; (ii) “internal control considerations for CECL implementation”; and (iii) “clarification of the agencies’ use of the term ‘smaller and less complex’ related to the scalability of CECL.”  


On 1 April, the OCC announced that it had named Maryann Kennedy as its next Senior Deputy Comptroller for Large Bank Supervision.


CFPB Director Kraninger Begins Terms as Chairman of FFIEC

On 1 April, Consumer Financial Protection Bureau (“CFPB”) Director Kathleen Kraninger began a two-year term as Chairman of the Federal Financial Institutions Examination Council (“FFIEC”). 


o    April 8-9: The Practising Law Institute hosts its annual SEC Speaks Conference. 

o    April 9: The House Financial Service Committee’s Consumer Protection and Financial Institutions Subcommittee will hold a hearing entitled “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining.”   

o    April 9:  Deadline for comment of Fed, OCC, and FDIC proposal entitled “Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations.”

o    April 9: The House Appropriations Committee’s Subcommittee on Financial Services and General Government will hold a hearing at which Treasury Department (“Treasury”) Secretary Steven Mnuchin will testify about Treasury’s FY 2020 budget request. 

o    April 9: The House Financial Services Committee will hold a hearing at which Treasury Secretary Mnuchin will testify about the “State of the International Finance System.”

o    April 10: The House Financial Services Committee will hold a hearing entitled “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years after the Financial Crisis.”

o    April 10: The Fed will release minutes from the March 19-20 meeting of its Federal Open Market Committee.

o    April 11-12: The CFTC and the Center for Risk Management Education and Research at Kansas State University will host the 2nd Annual Agricultural Commodity Futures Conference.

o    April 15: The CFTC will hold a public meeting of the its Global Markets Advisory Committee.

o    April 15: The SEC will hold a meeting of its Fixed Income Market Structure Advisory Committee.

o    April 16: Comments are due on the SEC’s proposed rule regarding risk mitigation techniques for uncleared security-based swaps.

Ianthe Zabel
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