US Regulatory Research
Four Senate Banking Committee Members Introduce Draft Bipartisan Legislation Regarding Corporate Transparency and Other Matters
On 10 June, U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) members Tom Cotton (R-AR), Mark Warner (D-VA), Mike Rounds (R-SD), and Doug Jones (D-AL) introduced draft legislation “to improve corporate transparency, strengthen national security, and help law enforcement combat illicit financial activity being carried out by terrorists, drug and human traffickers, and other criminals.” The legislation would, among other things, “for the first time, require shell companies – often used as fronts for criminal activity to disclose their true owners to the U.S. Department of the Treasury.”
House Financial Services Subcommittee Holds Hearing on Student Loan Servicing Market
On 11 June, the U.S. House Committee on Financial Services’ (“House Financial Services Committee”) Subcommittee on Oversight and Investigations held a hearing entitled “An Examination of State Efforts to Oversee the $1.5 Trillion Student Loan Servicing Market.” Testifying at the hearing were: Joe Sanders, Student Loan Ombudsman and Supervising Attorney, Consumer Fraud Bureau, Illinois Attorney General's Office; Nicholas Smyth, Assistant Director for Consumer Financial Protection, Senior Deputy Attorney General, Pennsylvania Office of Attorney General; Arwen Thoman, Director, Student Loan Assistance Unit, and Investigations Supervisor, Massachusetts Attorney General's Office; Joanna Darcus, Massachusetts Legal Assistance Corporation Racial Justice Fellow, National Consumer Law Center; and Scott Buchanan, Executive Director, Student Loan Servicing Alliance. Sanders discussed his office’s investigation and lawsuit against Navient, a large student loan servicer; the protections provided by the recent Student Loan Servicing Rights Act passed in Illinois; and issues with student loan servicers not providing proper repayment information to student borrowers. Smyth also discussed claims brought against Navient, and Smyth and Darcus criticized the practice of steering borrowers into forbearance while claiming other options like income-driven repayment plans are better options. Thoman discussed servicing problems frequently encountered and called for more federal oversight and action to protect borrowers. Representing student loan servicers, Buchanan clarified that “[f]ederal servicers do not set the parameters for student loan eligibility, . . . the interest rate, . . . the repayment option requirements” and “do not do debt collection and . . . do not own the loans.” He suggested the following to improve the system: education for borrowers, simplification of paperwork, and a standardized servicing manual.
House Financial Services Committee Holds Markup
On 11 June, the House Financial Services Committee held a markup in which it advanced the following eight bills:
Eighty-Four House and Senate Democrats Send Letters to CFPB Director Kraninger Regarding Proposed Reporting Rollback Under HMDA
On 11 June, 65 U.S. House Democrats sent a letter to Consumer Financial Protection Bureau (“CFPB”) Director Kathy Kraninger “demanding that she immediately rescind proposals that would limit critical lending information collected [from lenders] under the Home Mortgage Disclosure Act (HMDA).” According to the lawmakers, the proposals would, among other things, “prevent the public from learning about predatory and discriminatory lending activity in local communities, particularly rural communities.”
On 13 June, 19 U.S. Senate Democrats also sent a letter (dated 12 June 2019) to Director Kraninger demanding that the CFPB rescind its proposal to further reduce reporting under the HDMA. After discussing numerous issues regarding the proposal, the senators concluded: “We are extremely concerned that the Consumer Financial Protection Bureau has once again put the interests [sic] the financial industry above those of the consumers it is charged to protect. We urge you to immediately rescind all proposed changes in reporting thresholds for closed-end and open-end mortgage loans.”
House Appropriations Committee Approves FY 2020 Financial Services and General Government Funding Bill
On 11 June, the U.S. House Committee on Appropriations (“House Appropriations Committee”) approved the FY 2020 Financial Services and General Government funding bill. The legislation would provide, among other funding: (i) $13.56 billion for the Department of the Treasury (“Treasury”), an increase of $793.9 million above the FY 2019 enacted level; and (ii) $1.85 billion for the Securities and Exchange Commission (“SEC”), an increase of $175 million above FY 2019.
SEC & Securities
SEC Commissioner Peirce Delivers Remarks About Exchange-Traded Funds
On 10 June, SEC Commissioner Hester Peirce delivered remarks entitled “Exchanging Views on Exchange-Traded Funds” at a workshop jointly hosted by the Financial Stability Board and the International Organization of Securities Commissions to discuss exchange-traded funds (“ETFs”) and market liquidity. Peirce noted the popularity of ETFs among American investors and highlighted the need for the SEC to “gather and analyze data before develop[ing] policy conclusions, let alone put[ing] those policies into law.” With respect to risks associated with ETFs, she urged workshop participants “to be as precise as possible about the exact mechanism by which problems in ETFs could spill over and disrupt the larger financial system or the real economy and how plausible such a scenario is.”
SEC Chairman Clayton Issues Statement on Staff Guidance Regarding Market Data Fees
On 12 June, SEC Chairman Jay Clayton issued a statement regarding the nature of the SEC Division of Trading and Market’s (“DTM”) 21 May 2019 staff guidance (“TM Staff Guidance”) concerning market data fees imposed by self-regulatory organizations (“SROs”). Clayton noted that he had issued a statement on 13 September 2018 explaining the difference between staff guidance and the SEC’s rules, and he reiterated that: (i) the TM Staff Guidance “is a staff document that reflects the views of the staff of the Division of Trading and Markets” and “is not a rule or regulation, or statement of the Commission”; (ii) TM staff guidance has “no legal force or effect,” “does not alter or amend applicable law,” and “does not create new or additional obligations for SROs or the Commission”; and (iii) the guidance provides the “staff’s views about various steps that SROs may take in an effort to satisfy requirements,” but it “does not preclude SROs from taking other approaches to satisfy the legal requirements for fee filings for market data and other fees.”
SEC Announces 2019 Government Business Forum
On 12 June, the SEC announced that it will host the 38th annual Government-Business Forum on 14 August 2019, in Omaha, Nebraska. According to the press release, the Forum aims to provide “a platform to highlight perceived impediments to capital formation, culminating in recommendations for government and private action to improve the environment for small businesses.”
CFTC & Derivatives
CFTC Commissioner Berkovitz Delivers Keynote Address at the FIA Commodities Symposium
On 11 June, Commodity Futures Trading Commission (“CFTC”) Commissioner Dan Berkovitz delivered a speech at the Futures Industry Association’s Inaugural (“FIA”) Commodities Symposium regarding the Dodd-Frank Act. Berkovitz noted the CFTC’s focus on two main initiatives: (i) “foster[ing] greater competition in the derivative markets” and (ii) “establishing speculative position limits with appropriate exemptions for bona fide hedging activities,” To increase competition, he encouraged the CFTC to: (i) maintain the swap dealer de minimis threshold at $8 billion, (ii) expand the floor trader provision in the swap dealer definition, (iii) abolish the practice of “name give-up” for anonymously traded and cleared swaps, and (iv) continue to work with prudential regulators. In that regard, he stated that he does “not support the use of asymmetric speed bumps, which purposely disadvantage particular trading entities, strategies, or technologies” and that “picking winners and losers is inconsistent with the objective of the CEA ‘to promote responsible innovation and fair competition.’” Berkovitz also highlighted the importance of position limits in “prevent[ing] a single market participant from moving markets away from fundamentals of supply and demand” and recalled historical examples that showed large speculative positions can “distort market prices, widen spreads, and increase price volatility.”
CFTC Commissioner Stump Delivers Keynote Address at the ISDA Annual Legal Forum
On 11 June, CFTC Commissioner Dawn Stump delivered a speech before the International Swaps and Derivatives Association (“ISDA”) Forum regarding position limits, swap execution facilities (“SEFs”), non-U.S. CCPs, cross-border swap dealers, swap data reporting, and the implementation of phase V initial margin for uncleared swaps. With respect to position limits, Stump highlighted: (i) “the need [for] current deliverable supply information to inform the methodology for updated position limits,” (ii) the importance of the role of exchanges in the administration of the position limits regime, and (iii) her belief that the CFTC “cannot impose position limits on energy and metals transactions solely on the basis of how the Commission has imposed limits in agricultural commodities.” With respect to the promotion of SEF execution, she urged the SEC “to encourage new types of market participants to transact on-platform without major structural, organizational, or regulatory obstacles that impose substantial costs and barriers to entry.” With respect to the regulation of non-U.S. CCPs, she urged the CFTC to allow “a fair bit of deference” to non-U.S. regulators and shared her hopes that non-U.S. CCP rule amendments will: (i) “give [market participants] a choice regarding how and where to conduct clearing business rather than having limited clearing services at their disposal” and (ii) allow sophisticated institutional investors to make business-driven decisions with flexibility and an understanding of the risks involved.
CFTC Commissioners Quintenz and Behnam Deliver Remarks at MRAC Meeting to Discuss Climate-Related Financial Risk
On 12 June, CFTC Commissioner Brian Quintenz delivered remarks before the CFTC’s Market Risk Advisory Committee (“MRAC”) regarding climate-related financial market risks and European Market Infrastructure Regulation (“EMIR”) 2.2. In his remarks, Quintenz reiterated his concern regarding the “profoundly negative” impact that the proposed standardized approach for the counterparty credit risk methodology could have on the derivatives markets, specifically for energy end-users. With respect to EMIR 2.2, he also expressed concern that the European Securities and Markets Authority’s failure to identify a “single quantitative metric” to assess whether a central counterparty (“CCP”) is systematically significant “will cause significant confusion in the financial markets and will grant practically unlimited discretion with very little public accountability.” Quintenz explained that the CFTC uses two objective metrics to evaluate whether a CCP poses a substantial risk to the U.S. financial system: (i) if the CCP holds 20 percent or more of the required initial margin of the U.S. clearing members across all CCPs; or (ii) if 20 percent or more of the initial margin at the CCP is attributable to U.S. clearing members.
On 12 June, CFTC Commissioner Rostin Behnam delivered remarks before MRAC regarding its agenda for the 12 June meeting to discuss climate-related financial risk. During his remarks, Behnam emphasized the importance of assessing climate-related market risk and announced his intent to form an MRAC subcommittee focused on examining climate-related market risk.
FDIC Chairman McWilliams Delivers Speech at CATO Summit on Financial Regulation
On 12 June, Federal Deposit Insurance Corporation (“FDIC”) Chairman Jelena McWilliams delivered a speech at the CATO Summit on Financial Regulation (the “CATO Summit”) regarding technological innovation and economic inclusion within the banking sector. McWilliams stated that the FDIC needs to “understand how [banks] are innovating” in order to “introduce reliable products and services that will bring more Americans into the banking system.” McWilliams also pointed out several measures the FDIC has already taken to address unnecessary regulatory burdens to banking: (i) tailoring the risk-based capital rules for banks that do not qualify for the community bank leverage ratio, (ii) issuing proposals to tailor capital, liquidity, and resolution planning requirements for regional banks, and (iii) announcing the intent to finalize later this month a rule making community banks exempt from the Volcker Rule. McWilliams also stated that (i) encouraging “the formation of new banks is another top FDIC priority” and (ii) those banks must “offer new business models, banking services, and products, as well as fill gaps in overlooked markets.”
Fed Publishes Summary of Feedback from Roundtable Discussions on the Community Reinvestment Act
On 13 June, the Federal Reserve (“Fed”) published a summary of feedback from bankers and community groups regarding the current state of, and potential revisions to, the Community Reinvestment Act (“CRA”). The Fed indicated that they will use the views of the participants in the Fed’s consideration of modernizing the CRA.
CFPB Deputy Director Johnson Delivers Speech at CATO Summit on Financial Regulation
On 12 June, CFPB Deputy Director Brian Johnson also delivered remarks at the CATO Summit. Johnson’s remarks focused on the relationship between (i) “financial inclusion” (which Johnson defined as “the availability and equality of opportunities to access financial services”) and (ii) “consumer protection.” Johnson identified three approaches to “consumer protection”: disclosure rules for products and services, “combating unlawful acts and practices by market participants,” and “product restriction or design” (i.e., “restrict[ing] the prices, terms, and products that consumers can choose”). Johnson proceeded to discuss the CFPB’s recent actions (such as the Bureau’s CFPB Product Sandbox) focused on striking the proper balance between expanding financial inclusion while protecting consumers.
o June 18: The Senate Banking Committee will hold an executive session concerning the nominations of Allison Lee to be an SEC Commissioner and Michelle Bowman to be a Fed Governor, as well as nominations for the Treasury, Department of Commerce, and Export-Import Bank.
o June 18: The Senate Banking Committee will hold a hearing entitled “The Reauthorization of the Terrorism Risk Insurance Program.”
o June 19: The House Financial Services Committee’s Subcommittee on National Security, International Development and Monetary Policy will hold a hearing entitled “Slowing Economic Growth: The Impact of Recent Trade and Tax Policies on the U.S. Economy
o June 19: The House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled “Putting Investors First: Examining Proposals to Strengthen Enforcement Against Securities Law Violators.”
o June 19: The Senate Committee on the Judiciary will hold a hearing entitled “Combating Kleptocracy: Beneficial Ownership, Money Laundering, and Other Reforms.”
o June 20: The House Financial Services Committee will hold a hearing entitled “Diversity in the Boardroom: Examining Proposals to Increase the Diversity of America’s Boards.”
o June 20: The House Financial Services Committee’s Subcommittee on Housing, Community Development and Insurance will hold a hearing entitled “What’s Your Home Worth/ A Review of the Appraisal Industry.”
o June 20: The Senate Banking Committee will hold a hearing entitled “Outside Perspectives on the Collection of Beneficial Ownership Information.”
o June 21: The Fed will release results from the latest supervisory stress tests conducted under the Dodd-Frank Act.
o June 21: Comments due on the Fed and FDIC’s notice of proposed rulemaking “to amend and restate the jointly issued regulation…implementing the resolution planning requirements of section 165(d) of the [Dodd-Frank Act].”
o June 21: Comments due on the Fed’s notice of proposed rulemaking on “Prudential Standards for Large Foreign Banking Organizations; Revisions to Proposed Prudential Standards for Large Domestic Bank Holding Companies and Savings and Loan Holding Companies.”
o June 21: Comments due on the FDIC’s notice of proposed rulemaking regarding “Resolution Plans Required for Insured Depository Institutions With $50 billion of More in Total Assets.”
o June 21: Comments due on the Fed, FDIC, and Office of the Comptroller of the Currency’s notice of proposed rulemaking on “Changes to Applicability Thresholds for Regulatory Capital Requirements for Certain U.S. Subsidiaries of Foreign Banking Organizations and Application of Liquidity Requirements to Foreign Banking Organizations, Certain U.S. Depository Institution Holding Companies, and Certain Depositary Institution Subsidiaries.”
o June 27: The Fed will release result from the latest Comprehensive Capital Analysis and Review