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US Regulatory Research

U.S. Congress

Five House Financial Services Committee Democrats Send Letter to Facebook Regarding Proposed Cryptocurrency Libra and Proposed Digital Wallet Calibra

On 2 July, five Democratic members of the U.S. House Committee on Financial Services (“House Financial Services Committee”) sent a letter to Facebook calling on it to “immediately agree to a moratorium on any movement forward on Libra – its proposed cryptocurrency and Calibra – its proposed digital wallet.” The lawmakers wrote, “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook's over 2 billion users, but also for investors, consumers, and the broader global economy.” The lawmakers added that “it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action.”     

SEC & Securities 

SEC Division of Corporation Finance Updates Financial Reporting Manual

On 1 July, the Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance (“Corp Fin”) updated its financial reporting manual (“FRM”). The FRM provides definitions and guidance to institutions regarding financial reporting responsibilities but does not “necessarily contain a discussion of all material considerations necessary to reach an accounting or disclosure conclusion.” The updates include, among others: (i) removing guidance related to the impact of adopting new accounting standards on selected financial data; (ii) clarifying the application of Rule 3-13 and Note 5 to Rule 8-01 of Regulation S-X; and (iii) removing sections 2030.1 and 2030.3 of the FRM (relating to omission of financial statements) and moving the omission of financial statements process under the Rule 3-13 waiver process. 

SEC to Host Roundtable on Short-Term / Long-Term Management of Public Companies, Periodic Reporting System and Regulatory Requirements

On 2 July, the SEC announced that Corp Fin will host a roundtable on 18 July 2019 regarding the impact of short-termism on our capital markets and whether the SEC’s reporting system or other aspects of the SEC’s regulations should be modified to address these concerns. 

SEC Chairman Clayton Issues Statement Regarding Offers of Settlement

On 3 July, SEC Chairman Jay Clayton issued a public statement (i) discussing his views on the factors that affect settlement negotiations and (ii) addressing the SEC’s “approach to settlement offers that are accompanied by contemporaneous requests for Commission waivers from automatic statutory disqualifications and other collateral consequences.” Clayton noted four factors that affect settlement negotiations: (i) the cost of litigation; (ii) the “demonstrated willingness of the Commission to litigate zealously if a timely and reasonable offer of settlement is not made”; (iii) the “importance of promptly remedying harm to investors”; and (iv) a “desire for certainty.” Based on these factors, he highlighted the complexity of pursuing a settlement agreement, including that “the imposition of certain types of relief by the Commission and other authorities can have significant collateral consequences.” He noted that “[i]n many cases, the Commission has the authority to grant a waiver from these collateral consequences, either in full or subject to conditions” but that the SEC’s current practice for waiving such collateral consequences is to consider the matters “almost exclusively on a segregated basis.” He then argued that the “complexity added by such a separation can substantially complicate and lengthen the negotiating process” and expressed his belief that “a settling entity can request that the Commission consider an offer of settlement that simultaneously addresses both the underlying enforcement action and any related collateral disqualifications.” He stated that such an approach “will honor substance over form and enable the Commission to consider the proposed settlement and waiver request contemporaneously.” 

SEC Proposed Changes to Margin Requirements for Security Futures

On 3 July, the SEC announced that is “has proposed to align the minimum margin required on security futures with other similar financial products.” “The proposal – which, if the CFTC votes in favor – would be a joint CFTC-SEC proposal --  would set the minimum margin requirement for security futures at 15 percent of the current market value of each security.” Currently, that requirement is 20 percent. Comments on the proposal will be due 30 days after its publication in the Federal Register. 

SEC Staff Announcements

On 3 July, the SEC announced that Sagar Teotia has been named the SEC’s Chief Accountant.   

CFTC & Derivatives

CFTC Announces Award to Joint Whistleblowers

On 1 July, the Commodity Futures Trading Association (“CFTC”) announced it was awarding a $2 million award to two whistleblowers.  The information provided by the whistleblowers allowed the CFTC to find numerous violations of the Commodity Exchange Act (“CEA”).

CFTC Grants DCO Registration Eris Clearing, LLC

On 1 July, the CFTC announced it was granting Eris Clearing, LLC (“Eris”) registration as a derivatives clearing organization under the CEA.  Pursuant to the order, Eris will be “authorized to provide clearing services for fully-collateralized virtual currency futures.” 

CFTC to Hold Open Meeting

On 2 July, CFTC Chairman J. Christopher Giancarlo announced that the CFTC would be holding an open meeting on 11 July in Washington D.C.  The meeting will consider: (i) a supplemental proposal on exemption from derivatives clearing organization registration, (ii) a proposed rule on registration with alternative compliance for non-U.S. derivatives clearing organizations, and (iii) a proposed rule on customer margin rules relating to security futures.

CFTC Issues Social Media Customer Protection Advisory

On 3 July, the CFTC issued a Customer Protection Advisory entitled “There’s Nothing to Like About Scammers on Social Media,” which “warns customers to beware of and avoid unregistered brokers and advisers, as well as fake testimonials and so-called trading experts on social media platforms.” 

Bank Regulators 

Fed Releases Annual Determination of the Aggregate Consolidated Liabilities of Financial Companies

On 1 July, the Federal Reserve (“Fed”) released its annual determination of the aggregate consolidated liabilities of financial companies. The determination is published under Section 622 of the Dodd-Frank Act, which prohibits a merger or acquisition that would result in a financial company that controls more than 10 percent of the aggregate consolidated liabilities of all financial companies. Effective 1 July 2019, the aggregate consolidated liabilities amount to roughly $20 trillion ($20,664,262,842,000), which will remain effective until 30 June 2020. Financial companies subject to the limit include: (i) insured depository institutions; (ii) bank holding companies; (iii) savings and loan holding companies; (iv) foreign banking organizations; and (v) other companies that control insured depository institutions. 

FDIC Chairman McWilliams Delivers Remarks on Resolution Planning

On 1 July, Federal Deposit Insurance Corporation (“FDIC”) Chairman Jelena McWilliams delivered remarks to the Institute of International Finance-Bank Policy Institute Cross Border Resolution & Regulation Colloquium in London. McWilliams’ remarks centered on “resolution planning for large institutions in a cross-border context.” McWilliams discussed the measures the FDIC has taken following the global financial crisis and the work that lies ahead. She said, “[w]hen we think of resolution, our goal for [the largest, most complex banking institutions] is that they are able to fail; therefore, our first priority is preparing to facilitate orderly resolution of these firms in bankruptcy.” She then noted that “[t]hrough the resolution planning process, U.S. G-SIBs [(global systemically important banks)] have made strides and implemented significant structural and operational improvements that have enhanced their resolvability in bankruptcy.”       

Fed Issues Final Rule Revising Delegation Rules

On 3 July, the Fed issued a final rule revising its Rules Regarding Delegation of Authority (“Delegation Rules”). The rule “expand[s] the types of applications, notices, and requests for which the Federal Reserve Banks have delegated authority to act.” The Fed noted that ‘[t]he Reserve Banks will be required to apply the same legal standards and factors required to be taken into consideration by the Board in acting on any of the applications, notices, or requests that are covered by the expanded delegations.” The expanded delegations include approving: (i) “certain requests not to file applications that would be required under the Bank Holding Company Act of 1956 and the Home Owners’ Loan Act” and (ii) “certain applications relating to mergers and acquisitions involving banks that are within competitive criteria described in the Delegations Rules.”  

FDIC Publishes List of Institutions Examined for CRA Compliance

On 3 July, the FDIC published its July 2019 list of institutions recently examined for compliance with the Community Reinvestment Act (“CRA”). The list follows the publication of the CRA examination schedule for third and fourth quarter of 2019 published on 30 May.   

Fed Seeking Members for Insurance Policy Advisory Committee

On 3 July, the Fed announced that it is seeking members for its Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues (“IPAC”). The IPAC was recently established by the Economic Growth, Regulatory Relief, and Consumer Protection Act and will advise the Fed on international capital standards and other insurance matters. The Fed anticipates holding the augural IPAC meeting on 4 November 2019 and expects to hold meetings twice a year starting in 2020. 

Fed Releases Semiannual Monetary Policy Report

On 5 July, the Fed released its semiannual Monetary Policy Report (the “Report”) to the U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) and House Financial Services Committee. The Report’s most important points include:

o    “Economic activity increased at a solid pace in the early part of 2019, and the labor market has continued to strengthen”; “[h]owever, inflation has been running below the Federal Open Market Committee’s (FOMC) longer-run objective of 2 percent.”

o    “The U.S. financial system continues to be substantially more resilient than in the period leading up to the financial crisis,”  

o    “In its meetings over the first half of 2019, the FOMC judged that the stance of monetary policy was appropriate to achieve the Committee’s objectives of maximum employment and 2 percent inflation, and it decided to maintain the target range for the federal funds rate at 2¼ to 2½ percent.”

o    “After slowing in 2018, foreign economic growth appears to have stabilized in the first half of the year, but at a restrained pace.”

o    “Growth in global trade and manufacturing has weakened significantly since 2017 even as growth in services has held up.”    


o    July 8: The SEC will hold a Main Street Investors RoundTable, and Chairman Clayton will discuss the standards of conduct for financial professionals in Boston.

o   July 10: The House Financial Services Committee will hold a hearing entitled “Monetary Policy and the State of the Economy,” at which Fed Chairman Jerome Powell will testify.

o   July 10: The House Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social, and Governance Disclosures.”

o   July 11: The Senate Banking Committee will hold a hearing entitled “The Semiannual Monetary Policy Report to the Congress,” at which Fed Chairman Jerome Powell will testify.

o   July 11: The CFTC will hold an open hearing to consider a supplemental proposal and two proposed rules (discussed above).

o   July 11: The House Financial Services Committee will hold a markup.

o   July 16: The Senate Banking Committee will hold a hearing entitled “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.”

o    July 17: The House Financial Services Committee will hold a hearing entitled “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System.”

o    July 18: The SEC will host a roundtable on short-term / long-term management of public companies, the SEC’s periodic reporting system, and regulatory requirements.

o    July 25: The FDIC and Consumer Financial Protection Bureau will co-host a webinar on elder financial abuse prevention.

Ianthe Zabel
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