US Regulatory Research
FSOC Holds Executive Meeting
On 30 May, Department of Treasury (“Treasury”) Secretary Mnuchin presided over an executive session of the Financial Stability Oversight Council (“FSOC”), in which FSOC: (i) “heard a presentation from Treasury staff on the public comments submitted on the [FSOC’s] proposed interpretive guidance on nonbank financial company designations”; (ii) “heard an update . . . regarding U.S. nonfinancial corporate credit and leveraged lending”; and (iii) “heard a presentation from Securities and Exchange Commission (“SEC”) staff on several topics related to equity market structure,” including market volatility, securities exchanges’ “maker-taker” pricing model, and market data and access. In addition, the FSOC voted to approve the minutes of its 6 March 2019 meeting, in which the participants had an in-depth discussion regarding the FSOC’s proposal to “adopt an activities-based approach that would rely on the expertise of existing regulators to address potential risks” and voted to approve a proposed interpretive guidance regarding nonbank financial company designations.
SEC & Securities
SEC Names Director of San Francisco Regional Office
On 28 May, the SEC announced that Erin Schneider has been named Director of the SEC’s San Francisco Regional Office. Schneider joined the SEC in 2005 as a staff attorney in the San Francisco office. She was promoted to Associate Regional Director of the San Francisco office in 2015.
SEC Commissioner Peirce Delivers Remarks at the ETFs Global Markets Roundtable
On 29 May, the SEC published 21 May remarks delivered by SEC Commissioner Hester Peirce at the Exchange Traded Funds (“ETFs”) Global Markets Roundtable in New York City. During her remarks, Peirce described the SEC’s slow progress toward finalizing an ETF rule, which “would not only standardize the conditions on [exemptive] relief, but would make it easier for fund sponsors to get their ETFs to market.” Peirce highlighted the SEC’s reluctance to approve new types of ETFs, noting that the SEC “only just yesterday authorized its first non-fully transparent actively managed ETF.” She provided further examples of the SEC’s indecision in the ETF space, recalling that the SEC got “cold feet” after issuing orders granting two sponsors permission to operate as leveraged and inverse ETFs. On the subject of the SEC’s continued moratorium regarding new exemptive relief for these ETFs, Peirce stated: “the use of derivatives by leveraged ETFs within the limits of section 18 of the [Investment Company Act of 1940] does not warrant a moratorium . . . . Denying new fund sponsors the ability to offer leveraged and inverse ETFs has created an oligopoly for the ETF sponsors that obtained a leveraged or inverse ETF order before the moratorium took effect.” Overall, Peirce commended the SEC’s proposed ETF rule, while noting its omission of geared funds and failure to adopt a cross-divisional approach with respect to the approval of listing standards by the SEC’s Division of Trading and Markets. Finally, she encouraged the Division of Investment Management to explore “the marketplace’s interest in gaining exposure to bitcoin and other cryptocurrencies through a registered investment company.” However, she also stated that “if the SEC were to permit a cryptocurrency ETP to trade in our markets, it would not be a seal of approval.”
SEC Announces Departure of Chief Accountant and Appointment of Acting Chief Accountant
On 30 May, the SEC announced that Chief Accountant, Wes Bricker, plans to leave the agency in June 2019. In a separate press release, the SEC announced the appointment of the current Deputy Chief Accountant, Sagar Teotia, as Acting Chief Accountant. Teotia has served as Deputy Chief Accountant since 2017. Prior to joining the SEC in 2017, he was a Partner in Deloitte's National Office and served as a professional accounting fellow in the SEC’s Office of the Chief Accountant.
CFTC & Derivatives
CFTC Market Risk Advisory Committee Announces Meeting to Discuss Climate-Related Financial Risk
On 30 May, the Commodity Futures Trading Commission (“CFTC”) announced that it will hold a public meeting of the Market Risk Advisory Committee (“MRAC”) on 12 June at the CFTC’s headquarters in Washington D.C. During the meeting, which will focus on climate-related financial risks, MRAC members and guests will discuss: (i) “the impact of climate change on the future stability of the global financial system”; (ii) “current domestic and international initiatives addressing financial risks related to climate change”; (iii) “financial industry approaches to the management and mitigation of such risks, including key risk management, governance, and disclosure considerations”; and (iv) “the challenges ahead for regulators and market participants in the derivatives industry.” MRAC will also receive a status report from its Interest Rate Benchmark Reform Subcommittee and a presentation from European Securities and Markets Authority Chair, Steven Maijoor, regarding European Market Infrastructure Regulation 2.2, central counterparty stress testing, and Brexit.
CFTC Names New Chief Privacy Officer
On 31 May, the CFTC announced a new Chief Privacy Officer, Charles Cutshall. Cutshall, who joined the CFTC from the Office of Management and Budget, will replace Melissa Jurgens, Chief of the Executive Secretariat Branch. Jurgens has been acting as Chief Privacy Officer since 2017. According to the CFTC’s press release, Cutshall will be “responsible for providing policy and programmatic oversight of the CFTC’s privacy compliance activities and for managing privacy risks associated with the collection, maintenance, and use of personally identifiable information.”
New York Fed Publishes Study on Increasing Level of Corporate Debt
On 29 May, the Federal Reserve Bank of New York (“New York Fed”) published on its Liberty Street Economics blog a study entitled “Is There Too Much Business Debt?” The study concluded that “[a]lthough corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.” Specifically, the study found that “corporate debt to GDP has increased to its highest level in fifty years,” but that “corporate profits have also been higher as a share of GNP since 2008.”
Bank Regulatory Agencies Adopt Rule Regarding Treatment of Certain Municipal Obligations as High-Quality Assets
On 30 May, the Federal Reserve (“Fed”), Federal Deposit Insurance Corporation (“FDIC”), and Office of the Comptroller of the Currency (“OCC”) jointly adopted as a final rule, without any amendments, an interim final rule, adopted on 31 August 2018, that amended the agencies’ liquidity coverage ratio (“LCR”) rule to treat liquid and readily-marketable, investment grade municipal obligations as high-quality liquid assets. The rule was mandated by section 403 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”). In adopting the interim final rule without any amendments, the agencies noted that most commenters on the interim final rule supported the implementation of section 403 of the EGRRCPA and that while some commenters proposed additional changes to the LCR rule, such proposals were outside of the scope of the interim final rule.
Fed Vice Chair for Supervision Quarles Delivers Speech Regarding Monetary Policy and Financial Stability
On 30 May, Fed Vice Chair for Supervision Randal Quarles delivered a speech regarding the interactions of monetary policy and financial stability at the “Developments in Empirical Macroeconomics” research conference sponsored by the Fed and New York Fed. Quarles discussed how an accommodative monetary policy can lead to the buildup of financial vulnerabilities and questioned “whether and how financial vulnerabilities should affect the setting of monetary policy.” He noted that “[o]ne simple framework for evaluating the tradeoffs associated with actively setting monetary policy to lean against the buildup of financial vulnerabilities is to examine the costs and benefits of such a policy in terms of unemployment and inflation.” He noted that there are currently a number of different views regarding the answer to this question and stated that “we do not fully understand the cost–benefit tradeoff and whether monetary policy adjustments for financial stability reasons may be appropriate at some times.” He then pointed to another factor to consider in setting monetary policy: the “availability and efficacy of other instruments to promote financial stability.” He emphasized that “effective supervisory, regulatory, and macroprudential policy tools appear to be well placed to address financial vulnerabilities.” He added that in light of “[f]inancial system resilience, supported by strong through-the-cycle regulatory and supervisory policies… a general consensus has emerged that monetary policy should be guided primarily by the outlook for unemployment and inflation and not by the state of financial vulnerabilities.”
Fed Vice Chair Clarida Delivers Speech Regarding Sustaining Maximum Employment and Price Stability
On 30 May, Fed Vice Chair Richard Clarida delivered a speech regarding sustaining maximum employment and price stability at the Economic Club of New York. Clarida noted that the “current U.S. economic expansion will become the longest on record” and that now is a good time to: (i) “take stock of where the U.S. economy is today”; (ii) “to assess its future trajectory”; (iii) “review some important structural changes in the economy that have occurred over the past decade”; and (iv) “explore what all of this might mean for U.S. monetary policy.” With regards to monetary policy, he emphasized that the determination of the “federal funds rate should be data dependent in two distinct ways.” First, “[m]onetary policy should be data dependent in the sense that incoming data reveal at any point in time where the economy is relative to the ultimate objectives of price stability and maximum employment.” Second, “[p]olicymakers should and do study incoming data and use models to extract signals that enable them to update and improve estimates” of the “[the neutral rate]” and the “[structural rate] of unemployment consistent with ’maximum’ employment.”
Fed Announces Schedule for Releasing Results from Latest Stress Tests and CCAR
On 31 May, the Fed announced that it will release the results from the latest supervisory stress tests conducted as part of the Dodd-Frank Act on 21 June 2019 and the results from the related Comprehensive Capital Analysis and Review (“CCAR”) 27 June 2019.
o June 3: SEC Chairman Jay Clayton will moderate a panel at a roundtable and dinner for the SEC Historical Society’s 20th anniversary.
o June 4: The U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee” will hold a hearing entitled “Confronting Threats from China: Assessing Controls on Technology and Investment, and Measures to Combat Opioid Trafficking.
o June 4: The U.S. House Committee on Financial Services (“House Financial Services Committee”) will hold a hearing entitled “Promoting American Jobs: Reauthorization of the U.S. Export-Import Bank.”
o June 4: The House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions will hold a hearing entitled “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending.”
o June 5: CFTC Commissioner Berkovitz will speak at the 15th Annual S&C Energy & Derivatives Trading Seminar.
o June 5: The SEC will hold an open meeting of the Commission to consider whether to: (i) “adopt a new rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities” (Regulation Best Interest)”; (ii) “adopt new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors”; (iii) “publish a Commission interpretation of the standard of conduct for investment advisers”; and (iv) “publish a Commission interpretation of the solely incidental prong of section 202(a)(11)(C) of the Investment Advisers Act of 1940.”
o June 5: The Senate Banking Committee will hold a hearing to consider the nominations of Allison Lee to be an SEC Commissioner and Michelle Bowman to be a Fed Governor, as well as nominations made by Treasury, the Department of Commerce, and the Export-Import Bank.
o June 5-6: The Consumer Financial Protection Bureau will hold Advisory Committee meetings to “discuss broad policy matters related to the Bureau’s Unified Regulatory Agenda and general scope of authority.”
o June 7: Comments are due on the Fed, FDIC, and OCC’s proposed rule regarding the regulatory treatment for investments in certain unsecured debt instruments of certain banking organizations.
o June 10: Comments are due on the SEC’s proposed rule regarding the registration, communications, and offering processes for business development companies and other closed-end investment companies.
o June 12: OCC will host a public meeting of the Minority Depository Institutions Advisory Committee Meeting to discuss the continued health and viability of minority depository institutions and other issues of concern to these institutions.
o June 21: Fed to release results from latest supervisory stress tests conducted under the Dodd-Frank Act.
o June 27: Fed to release results from latest CCAR.