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US Regulatory Research


President Trump Issues Presidential Memorandum Regarding Reforming Housing Finance System

On 27 March, President Trump issued a Presidential Memorandum “directing relevant agencies to develop a reform plan for the housing finance system” that will, among other things (i) “[e]nd the conservatorship of Fannie Mae and Freddie Mac and improve regulatory oversight over them,” and (ii) “[p]romote competition in the housing finance market and create a system that encourages sustainable homeownership and protects taxpayers against bailout.”    

U.S. Congress

Senate Banking Committee Chairman Crapo Sends Letter to Large Banks Regarding Cutting Off Access for Certain Industries

On 26 March, U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) Chairman Mike Crapo (R-ID) sent letters to eight of the nation’s largest banks.  The letters warned the banks against cutting off access for certain “politically disfavored industries,” such as gun manufacturers.  Crapo penned, “I write to express my concern with recent news reports suggesting that large banks may withhold access to credit and services to customers and companies that are operating businesses that comply with federal and state law (and, in some cases, as engaged in Constitutionally-protected activities), but are politically disfavored.”  

House Financial Services Committee Advances Five Bills

On 26 and 27 March, the U.S. House Committee on Financial Services (“House Financial Services Committee”) advanced five bills:

·        the Kleptocracy Asset Recover Rewards Act (by voice vote), which would “authorize the Secretary of the Treasury to pay rewards under an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption and the proceeds of such corruption hidden behind complex financial structures in the United States and abroad”;

·        the Consumers First Act (by a vote of 34 ayes and 26 nays), which would, among other things, “require the Consumer Financial Protection Bureau to meet its statutory purpose”;

·        the Secure and Fair Enforcement Banking Act of 2019 (by a vote of 45 ayes and 15 nays), which would, among other things, “create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses”;

·        the SEC Disclosure Effectiveness Testing Act (by a vote of 33 ayes and 26 nays), which would, among other things, “require the Securities and Exchange Commission [(“SEC”)], when developing rules and regulations about disclosures to retail investors, to conduct investor testing, including a survey and interviews of retail investors; and

·        the Ending Homelessness Act of 2019 (by a vote of 32 ayes and 26 nays), which would provide “a surge of new funding to address homelessness in this country by targeting strategies and 2 models that have been the most effective in helping people experiencing homelessness become and remain stably housed.”

Senate Banking Committee Holds Two-Part Hearing on Housing Reform

On 26 and 27 March, the Senate Banking Committee held a two-part hearing on Chairman Crapo’s Housing Reform Outline.  Testifying at Part One of the hearing were: Sue Ansel, on behalf of The National Multifamily Housing Council and the National Apartment Association; Edward DeMarco, President of the Housing Policy Council; Greg Ugalde, Chairman of the Board, National Association of Home Builders; Mark Zandi, Chief Economist at Moody’s Analytics; Hilary Shelton, Washington Bureau Director and Senior Vice Preside for Advocacy and Policy at the NAACP; and Adam Levitin, Professor of Law at the Georgetown University Law Center.   Originally released in February, Chairman Crapo’s framework for housing reform would, among other things: (i) protect taxpayers by reducing the too-big-too-fail risk posed by the current “duopoly of mortgage guarantors”; (ii) create new layers of protection between mortgage credit risk and taxpayers; (iii) foster broad accessibility to mortgage credit, including in underserved markets; and (iv) keep existing infrastructure in the housing finance system that works well, while increasing the role of private risk-bearing capital.  Senator Mike Rounds (R-SD) stressed the importance of reforming the housing finance system while both the economy and housing market are healthy.  He asked the panel what the consequences of recapitalizing the government-sponsored enterprises (“GSEs”) (Fannie Mae and Freddie Mac) and releasing them from conservatorship would be, to which Mr. Zandi replied that this would be a “serious error” because it would return the housing system to the state it was in prior to the 2008 financial crisis.  Senator John Kennedy (R-LA) asked the panel if the GSEs have improved their financial condition since the financial crisis, to which Mr. DeMarco said they have not done so.  Kennedy asked DeMarco if he believes that the GSEs could survive another deep recession.  DeMarco replied that a deep recession with housing price drops would lead to losses which “would go to the taxpayer.” 

Testifying at Part Two of the hearing were: Michael Bright, President and CEO of The Structured Finance Industry Group; Robert Broeksmit, President and CEO of the Mortgage Bankers Association; Lindsey Johnson, President of U.S. Mortgage Insurers; Vince Malta, President-elect of the National Association of Realtors; Carrie Hunt, Executive Vice President of Government Affairs and General Counsel of the National Association of Federally-Insured Credit Unions; and Michael Calhoun, President of the Center for Responsible Lending. In his opening remarks, Chairman Crapo noted the supportive remarks from the panelists regarding his outline for housing reform during Part One, and he said his goal for Part Two is to “flush out” comprehensive details for reform.  Several Senators asked the panel about providing equal and fair access to small lenders and reforms to down payment systems.  Mr. Malta said that “proper regulation” is needed to provide an equal playing field for small lenders.  He also expressed concern over “arbitrary limits” for down payments and recommended the use of existing vehicles to assist with creating more lower down payment loans.  Regarding equal access, Committee Ranking Member Sherrod Brown (D-OH) said that large institutions have suggested that smaller lenders would be better off in a multiple guarantor system.  He asked Ms. Hunt about her concerns over a multiple guarantor system, to which she said she is concerned with whether credit unions would be able to sell loans to the various guarantors in such a system.  She said (i) that it would be easier to work with one or two large guarantors and (ii) that multiple guarantors would be good for investors only during “good times,” but during “bad times” there could be problems with guarantors not seeking out small lenders. 

SEC & Securities

SEC Commissioner Jackson Issues Public Statement Regarding Final Rules Implementing the FAST Act

On 26 March, SEC Commissioner Robert Jackson issued a public statement regarding the SEC’s 20 March adoption of 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”).  Commissioner Jackson was critical of the amendments because (i) they do not include a single legal entity identifier requirement, which he views a benefit for investors, and (ii) they remove the “both the requirement that firms seek Staff review before redacting their filings and the requirement that companies give our Staff the materials they intend to redact.” which he believes will lead to more investor uncertainty. 

U.S. Supreme Court Finds Banker Liable for Forwarding False Statements

On 27 March, the U.S. Supreme Court, in Lorenzo v. SEC, found that an investment banker may be held legally responsible for disseminating statements that he knew to be false, even though he was not the “maker” of the false statements.  The SEC said that Francis Lorenzo violated Section 10(b) of the Exchange Act when he sent investment pitches, drafted by his boss, to prospective investors, despite knowing that the statements contained in those pitches were materially false.  The Supreme Court ruled that by “sending email he understood to contain material untruths, Lorenzo employed a device, scheme, and artifice to defraud” within the meaning of the federal securities laws. 

SEC Holds IAC Meeting

On 28 March, the SEC’s Investor Advisory Committee (“IAC”) held a meeting to discuss (i) investor protection under the modern exchange regulatory structure, (ii) disclosures of human capital, and (iii) trends in the investment research industry.  In his opening statement, SEC Chairman Jay Clayton noted his remarks earlier this month regarding equity market structure and repeated that we “need to make sure our regulatory framework reflects the markets of today and is achieving its goals.”  Regarding disclosure generally, Clayton reiterated that the SEC’s disclosure requirements and guidance “must be rooted in the principles of: (1) materiality; (2) comparability; (3) flexibility; (4) efficiency; and (5) responsibility.”  For human capital disclosures, Clayton stated that “we should not attempt to impose rigid standards or metrics for human capital on all public companies”; rather, “investors would be better served by understanding the lens through which each company looks at its human capital.”  Finally, Clayton expressed concern that MiFID II’s unbundling requirement may reduce the “broad availability of research” and said that he is interested to hear “how MiFID II has changed the dynamics of the provisions of research.” 

In his opening statement, SEC Commissioner Elad Roisman said that U.S. equity markets “work extremely well today” and that they are “liquid and mature”; however, he is interested in identifying areas for improvement, particularly around the market data context.  Next, Commissioner Roisman said that he agreed with Chairman Clayton’s 6 February 2019 comments on human capital disclosures, specifically Clayton’s statement “that ‘each industry, and even each company within a specific industry, has its own human capital circumstances.’”  Roisman said that he would be “hesitant to support” rules or guidance that “mandate rigid standards or metrics on human capital disclosures for all U.S. public companies.”  Finally, Roisman said that he is particularly interested in learning how smaller registrants deal with the often “high costs in adjusting to regulatory changes.” 

SEC Orders a Stay Regarding Limitations to Stock Exchange Rebates

On 28 March, the SEC issued a partial stay regarding its Transaction Fee Pilot program, which is a one-year program that is part of the Commission’s review of the “maker-taker” trading system.  In mid-February, Nasdaq Inc., Cboe Global Markets Inc., and the New York Stock Exchange sued the SEC to stop the Commission from carrying out the Transaction Fee Pilot program.  The SEC said it was not addressing the merits of the exchanges’ legal challenge, but it is delaying implementation of the program pending review by the U.S. Court of Appeals for the District of Columbia Circuit. 

CFTC & Derivatives

CFTC Holds Open Meeting to Discuss Rules Regarding No-Deal Brexit and the De Minimis Exception to the Swap Dealer Definition

On 25 March, the Commodity Futures Trading Commission (“CFTC”) held an open Commission meeting regarding the interim final rule regarding a potential no-deal Brexit and the final rule regarding the de minimis exception for swaps entered into by Insured Depository Institutions (“IDIs”) in connection with loans to customers.

o   Interim Final Rule Regarding a Potential No-Deal Brexit: the CFTC unanimously adopted and requested public comments on an interim final rule on margin requirements for uncleared swaps for swap dealers and major swap participants in the event of the United Kingdom’s withdrawal from the European Union without a negotiated withdrawal agreement (“no-deal Brexit”).  The interim final rule was adopted to preserve the legacy status of uncleared swaps that were entered into before the relevant compliance dates under the CFTC Margin Rule or Prudential Margin Rule for legal transfers made following a no-deal Brexit.  CFTC Chairman J. Christopher Giancarlo noted in the press release that the CFTC’s action represents “another important step to bring certainty to the global derivatives markets” in the context of a potential no-deal Brexit.

o   De Minimis Exception to the Swap Dealer Definition for IDIs: the CFTC adopted by a vote of 3-2, with Commissioners Dan Berkovitz and Rostin Behnam dissenting, a final rule regarding the de minimis exception for swaps entered into by IDIs in connection with loans to customers.  The final rule establishes whether a swap has specified characteristics of swaps entered into by IDIs in connection with loans to customers as a factor in the de minimis threshold determination.  Chairman J. Christopher Giancarlo, in his statement regarding the final rule for the de minimis exception, emphasized that the final rule will reduce the regulatory burden for small and midsize banks to enter into swaps and noted that the rule directs the CFTC’s Office of Chief Economist to conduct a study after three years of implementation.  Commissioners Berkovitz and Behnam indicated that they would not vote in support of the final rule because the Dodd-Frank act specifies that the term “swap dealer” must be defined jointly by the CFTC and SEC.

CFTC Issues Amended Margin Comparability Determination for Japan

On 26 March, the CFTC unanimously approved an amended comparability determination extending the substituted compliance permitted for Japan’s margin requirements for uncleared swaps.  The action amends the CFTC’s existing 2016 comparability determination by: (i) making a positive determination of comparability regarding the scope of entities subject to CFTC margin requirements, and (ii) making a positive determination of comparability regarding the treatment of inter-affiliate transactions.  The decision was accompanied by statements of support from Chairman J. Christopher Giancarlo and Commissioners Brian Quintenz and Dan Berkovitz.

CFTC’s Technology Advisory Committee Holds Public Meeting

On 27 March, the CFTC held a public meeting of its Technology Advisory Committee (“TAC”), in which the TAC introduced its new chair, Richard Gorelick, and its 2019 agenda.  According to the agenda for the meeting, it involved: (i) a special presentation from the Division of Market Oversight (“DMO”) on the impact of automated orders on markets; (ii) a presentation from the TAC virtual currencies subcommittee regarding virtual currency consensus mechanisms and a comprehensive survey of the regulation of virtual currencies and other digital assets; (iii) a presentation from the TAC cybersecurity subcommittee regarding the existing cybersecurity regulatory landscape and how regulation can be effectively applied to technological developments; and (iv) a presentation from the TAC Distributed Ledger Technology (“DLT”) and Market Infrastructure subcommittee regarding the current and future of DLT and the application of DLT to swap markets.  In his opening remarks before the committee, Commissioner Brian Quintenz emphasized the work of each of the subcommittees and the International Swaps and Derivatives Association’s work to improve industry consensus regarding the digital representation for products and lifecycle events in the interest rate and credit derivatives markets.

CFTC Staff Issues Research Report on Impact of Automated Order in Futures Markets

On 27 March, staff of the Market Intelligence Branch of DMO issued a report analyzing automatic and manually-entered orders in U.S. commodity futures markets to determine the impact of technological change on futures trading.  The report, which relies on transaction data from January 2013 to December 2018, found that: (i) the percentage of automatically-placed orders has increased for all commodity futures markets; (ii) automated orders are smaller in size than manual orders and their resting times are shorter than those placed manually; (iii) automated orders are almost always limit orders; and (iv) the historical volatility of end-of-day prices did not increase steadily year-on-year, unlike the increase in the level of automation.

CFTC Approves Comparability Determination Regarding Australian Uncleared Swap Margin Rules

On 27 March, the CFTC announced its unanimous approval of a comparability determination regarding margin requirements for uncleared swaps under Australian law and regulations.  CFTC Chairman J. Christopher Giancarlo issued an accompanying statement noting that the determination is indicative of the CFTC’s approach to regulatory deference, which is “essential to ensuring strong and stable derivatives markets that support economic growth both within the United States and around the globe.”  CFTC Commissioners Brian Quintenz and Dan Berkovitz also issued statements in support of the determination.

CFTC Approves Rule Amendments to Simplify Regulatory Obligations

On 28 March, as part of the CFTC’s Project KISS initiative, the CFTC announced the unanimous approval of two final rule amendments to Regulations 23.700 through 23.704, which cover the segregation of assets held as collateral in uncleared swap transactions, and Regulation 1.52, which covers a self-regulatory organization’s financial surveillance program for futures commission merchants.  The final amendments to Regulation 23.700: (i) require that a swap dealer or major swap participant’s counterparty be notified of its right to require segregation of initial margin for uncleared swaps at the beginning of a swap relationship, rather than before each transaction or annually as prescribed by current rules; (ii) permit the notification of the appropriate individual at the counterparty; and (iii) eliminate the requirement to identify in advance the custodian of segregated margin.  The final amendments will become effective 30 days following their publication in the federal register and were accompanied by statements of support from CFTC Chairman J. Christopher Giancarlo and Commissioners Rostin Behnam and Dan Berkovitz (for amendments to Regulation 23.700), and Chairman Giancarlo and Commissioner Berkovitz (for amendments to Regulation 1.52).

CFTC Issues No-Action Relief to Facilitate Prime Brokerage Activities on SEFs

On 29 March, the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DISO”) published a no-action letter regarding swap transactions executed off swap execution facilities (“SEFs”) pursuant to a prime brokerage arrangement.  The letter clarifies DISO’s no-action position regarding pre-trade disclosure obligations for swap transactions that act as “mirror” transactions for swaps executed on-SEF in accordance with a prime brokerage arrangement.  DISO Director Matthew Kulkin noted that the relief is “intended to encourage more market participants, particularly prime brokers, to trade swaps on SEFs.”

Bank Regulators

Fed Publishes Document with Additional Information on Its Stress Testing Program

On 28 March, the Federal Reserve (“Fed”) released an 80-page document providing additional information on its stress testing program in an effort to increase transparency and understanding of its stress tests. The information consists of ranges of loan loss rates and portfolios of hypothetical loans with loss rates projected by the Federal Reserve’s models and enhanced descriptions of the Fed’s models. Similar information will be provided in 2020 for additional models.  

Fed Vice Chair for Supervision and Chair of the Financial Stability Board Discusses the FSB in 2019

On 28 March, Fed Vice Chair for Supervision and Chair of the Financial Stability Board (“FSB”), Randal Quarles, delivered remarks at the Joint Conference of the European Central Bank and the Journal of Money, Credit, and Banking in Frankfurt, Germany regarding “The Financial Stability Board in 2019.” First, Quarles discussed the FSB’s core principles of engagement, rigorous vigilance, and analysis. He highlighted the need for more engagement with the public, private sector, and academia, the need to improve FSB transparency, and the need for a critical eye in evaluating regulations that are already in place. Then, he highlighted the three pieces of the FSB’s agenda for 2019: nonbank financing, fintech, and evaluating the too-big-to-fail reforms. He also noted the need for FSB to monitor the entry of large tech companies into the financial sector.  

Fed Vice Chair Clarida Comments on Global Shocks and the U.S. Economy

On 28 March, Fed Vice Chair Richard Clarida delivered remarks at the Banque de France’s “The Euro Area: Staying the Course through Uncertainties” symposium, where he discussed the way foreign shocks increasingly impact the U.S. economy. He described the channels of transmission of global shocks to the U.S. economy, how historical shocks have impacted the U.S. economy, and how the Fed’s responses have helped ward off contractions. He concluded by discussing recent developments (including Brexit) creating global downside risks, a slowdown in global growth prospects, and trade tensions, noting that the Fed can’t ignore these risks and can afford to be patient in adjustments to rates.

Fed Governor Bowman Discusses Agriculture and Community Banking

On 28 March, Fed Governor Michelle Bowman delivered remarks on the role agriculture plays in the economy at the Ag Lenders Conference. She discussed the current state of the farm economy, why the community banking model is well suited to supporting agricultural businesses, and the Fed’s approach to supervising agricultural banks. She noted that although farm incomes are expected to remain relatively low and U.S. farm Chapter 12 bankruptcy filings have increased, there are important differences between the current situation and the 1980s farm crisis. While there are unique challenges for highly concentrated agricultural banks, they generally remain in sound financial condition.

FDIC Board Holds Open Meeting

On 29 March, the FDIC’s Board of Directors held an open meeting at which it unanimously approved: (i) a proposed rule to “amend the supplementary leverage ratio to exclude certain funds of banking organizations deposited with central banks if the banking organization is predominately engaged in custody, safekeeping, and asset servicing activities,” and (ii) a proposed rule that “would provide an alternative method to satisfy the ‘signature care requirement’ for a joint account,” with the alternative method allowing the requirement to be “satisfied by information contained in the deposit account records of the insured depositary institution establishing co-ownership of the deposit account.”

Fed and FDIC Issue Joint Press Release on 2017 and 2019 Resolution Plans of 14 Banks

On 29 March, the Fed and FDIC announced that they “completed their evaluation of of the 2017 resolution plans for 14 domestic banking organizations and issued their expectations for the firms’ next resolution plan submissions, which are due on or before December 31, 2019.”  The agencies did not identify any deficiencies or shortcoming in the 2017 resolutions plans (commonly referred to as “living wills”).  In addition, the Fed released the feedback letter for each firm.   

Fed Vice Chair for Supervision Comments on Frameworks for the CCyB   

On 29 March, Fed Vice Chair for Supervision Randal Quarles delivered remarks at the Spring 2019 Meeting of the Manhattan Institute’s Shadow Open Market Committee in a speech entitled “Frameworks for the Countercyclical Capital Buffer [“CCyB”].”  Quarles said, among things, that (i) he supports the Federal Open Market Committee’s decision last week to leave the target range for the federal funds rate rate unchanged, and (ii) he concurs with “a setting of 0 percent, as recently affirmed by the [Fed], as the appropriate setting for the CCyB.”        


·        April 2: The House Financial Services Committee will hold a hearing entitled “The Fair Housing Act: Reviewing Efforts to Eliminate Discrimination and Promote Opportunity in Housing.”

·        April 2: The House Financial Services Committee’s Subcommittee on Housing, Community Development and Insurance will hold a hearing entitled “The Affordable Housing Crisis in Rural America: Assessing the Federal Response.”

·        April 2: The Senate Banking Committee will hold a hearing on the application of environmental, social, and governance (commonly referred to as “ESG”) principles in investing and the role of asset managers, proxy advisors, and other intermediaries.

·        April 3: The House Financial Services Committee will hold a member day hearing.

·        April 3: The House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled “Putting Investors First: Reviewing Proposals to Hold Executives Accountable.”

·        April 8-9: The Practising Law Institute will host its annual SEC Speaks Conference

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

·        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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