Money Matters: This Week in Washington

This Week in Washington for October 19, 2020

October 19, 2020

Dina Ellis

THE BIG PICTURE

For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus

With just over two weeks to go until Election Day, the President has ramped up his campaign schedule, holding a series of rallies in swing states in an attempt to close the gap in the polls, which show former Vice President Joe Biden leading by several points nationally. As of Saturday, over 26 million Americans had cast their ballots through early and mail-in voting, an unprecedented turnout that showcases voters’ enthusiasm in a particularly polarized year. On Thursday the President and Biden participated in dueling televised town halls that were held in lieu of the second presidential debate, which was canceled after the President’s COVID-19 diagnosis. During the President’s event, he sparred with host Savannah Guthrie on his views on mask wearing, and drew criticism for declining to denounce the QAnon conspiracy theory. The candidates are set to face off for the final time this Thursday evening during a debate in Nashville.

Coronavirus cases in the United States continue to surge, with over 8.1 million infections and nearly 220,000 deaths reported to date as the public grows weary of mitigation efforts. One of the vaccine candidates was forced to pause its trial after a participant reported an unexplained illness. Public health officials continue to stress the importance of social distancing and mask adherence as the best weapons in our fight against the pandemic until a vaccine and effective therapeutics are readily available. First Lady Melania Trump published an essay describing her personal experience with COVID-19, and revealed for the first time that her son Barron had also tested positive, but remained asymptomatic and has since tested negative.

Judge Amy Coney Barrett appeared before the Senate Judiciary Committee for four days of hearings on her nomination to the Supreme Court. The Democrats on the panel grilled Barrett on her views on the Affordable Care Act, a woman’s right to choose, and climate change, particularly honing in on healthcare, given the Court is set to hear oral arguments on a challenge to the ACA the week following the election. Despite continued insistence from Democrats that the vacant seat should not be filled until the American people have spoken, the Committee is expected to vote to advance her nomination on Thursday, after which a full Senate vote will be held.

Negotiations over an additional stimulus package continued throughout last week and over the weekend, although the chances for an agreement prior to the election continue to dim. The parties disagree over the scale of the proposal, and while the President has indicated he would support a larger package, Senate Republicans are not on board with the multi-trillion dollar price tag. On the Democratic side, House Speaker Nancy Pelosi decried the insistence on inclusion of “poison pills,” such as liability protections for businesses. Senate Majority Leader Mitch McConnell plans a vote on a slimmed down US$500B measure this Tuesday, which Democrats have criticized as being insufficient and will likely block. Federal Reserve Bank of Minneapolis President Neel Kashkari warned of the economic fallout of delays in enacting relief, predicting that “we’re going to continue to see a grinding, very slow recovery, with thousands of small businesses around the country going bankrupt.”

Other highlights of last week include:

• On Tuesday the Supreme Court granted the Trump administration’s request to halt the census count pending the outcome of an appeal, effectively blocking a lower court’s order that the enumeration be extended through October 31.

• The Treasury Department reported on Friday that the federal deficit has tripled, ballooning to US$3.1T in fiscal year 2020.

LAST WEEK ON THE HILL

Senator Sherrod Brown Urges Regulators Do More to Protect the American Economy from Further Devastation: On Thursday, Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, sent a letter to the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) urging the agencies to take action now to protect workers and families from even more economic hardship, instead of helping Wall Street. Brown in his letter made clear that the American economy is vulnerable and will remain at risk of another financial crisis as long as the Administration pursues a deregulatory agenda, and stalls much-needed relief for workers and small businesses.

Warren Calls for SEC, CFTC Insider Trading Investigation of Pandemic Profiteering: On Thursday, Sen. Elizabeth Warren (D-MA) formally requested that the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) conduct an insider trading investigation after reports that in February, Trump administration officials privately gave dire warnings to conservative allies and Republican donors about the risks to the economy from the COVID-19 pandemic while President Donald Trump was publicly optimistic about the impact of the virus.

THE REGULATORS

CFTC Staff Provides Reporting Relief for Swaps Related to Upcoming DCO Auctions as Part of the Industry-Wide Initiative to Transition Away from LIBOR: On Tuesday, the CFTC’s Division of Market Oversight announced it has provided swap transaction and pricing data reporting relief to specific derivatives clearing organizations (DCOs) and market participants participating in upcoming DCO auctions that will help transition certain cleared swaps from discounting using the Effective Federal Funds Rate (EFFR) to the Secured Overnight Financing Rate (SOFR). This discounting transition is an essential part of the industry-wide initiative to transition from swaps that reference the London Interbank Offered Rate (LIBOR), and other interbank offered rates, to swaps that reference alternative benchmarks. The relief provides for a delay in the reporting of swap transaction and pricing data under CFTC Regulation 43.3 for specific swaps that may be executed as part of the upcoming discounting transition auctions that will be held by LCH Limited or CME Inc. The relief allows the reporting of swap transaction and pricing data for the relevant swaps to be delayed until November 19, 2020.

CFTC Finalizes Position Limits Rule at October 15 Open Meeting: On Thursday, the CFTC approved three final rules, including one regarding position limits for derivatives, completing the Commission’s major rulemakings related to implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rules include: (1) by a 3-2 vote, the Commission approved a final rule amending regulations of speculative position limits to conform with certain Dodd-Frank amendments to the Commodity Exchange Act; (2) the Commission unanimously approved a final rule that amends the margin requirements for uncleared swaps for swap dealers and major swap participants for which there is no banking regulator; and (3) the Commission unanimously approved a final rule that amends CFTC Regulation 3.10(c), which provides exemptions from intermediary registration under certain conditions to foreign-located persons, in connection with their U.S. commodity interest transactions conducted on behalf of persons located outside the United States (the 3.10 Exemption).

SEC Updates Auditor Independence Rules: On Friday, the SEC announced that it adopted final amendments to certain auditor independence requirements in Rule 2-01 of Regulation S-X. The SEC touted the final amendments as an effort to modernize the rules and more effectively focus the analysis on relationships and services that may pose threats to an auditor’s objectivity and impartiality. Chairman Jay Clayton celebrated the move, saying “These modernized auditor independence requirements will increase investor protection by focusing audit clients, audit committees, and auditors on areas that may threaten an auditor’s objectivity and impartiality.”

Federal Reserve Requests Public Comment on Technical, Clarifying Updates Regarding the FOMC’s Rules Regarding Availability of Information: On Wednesday, the Federal Reserve requested public comment on technical, clarifying updates regarding the Federal Open Market Committee’s Rules Regarding Availability of Information, which describe its Freedom of Information Act (FOIA) procedures. The proposal would implement non-substantive updates to the Committee’s FOIA procedures to make them consistent with the Committee’s current practices and to incorporate recent changes in law and guidance. The proposal also incorporates formatting and language from the Federal Reserve Board’s revisions to its own FOIA procedures, which are effective October 15, 2020.

CFPB Director’s Announced Reorganizations of the CFPB’s Division of Supervision, Enforcement, and Fair Lending Faces Criticism: On Wednesday, the CFPB announced a major reorganization of its Division of Supervision, Enforcement, and Fair Lending (SEFL). Sen. Sherrod Brown (D-OH) criticized the announcement, saying, “It is critical that the public and this Committee understand why Director Kraninger would undertake such a major reorganization, which amounts to a demotion for the Office of Enforcement—a critical part of the CFPB’s mission to protect consumers—just weeks before the election. Organizational structure shapes policy, and this reorganization appears to be an effort to weaken the Office of Enforcement and hinder the Bureau’s ability to protect consumers against companies’ abusive business practices and enforce federal consumer financial laws now and in the future.”

CFPB Partners with Pro Linebacker Brandon Copeland to Host a Virtual Town Hall on Managing Money during the COVID-19 Pandemic: On Thursday, the CFPB announced that Bureau Director Kathy Kraninger and Brandon Copeland, pro linebacker and University of Pennsylvania Professor, will host a virtual town hall to discuss how people can better manage their money during tough times. The event, titled “Pressure Creates Diamonds: Money Management During Coronavirus,” will take place on Tuesday, Oct. 27 and will feature discussions on managing and protecting one’s finances during difficult times, financial planning, and building savings. Director Kraninger and Mr. Copeland will also discuss free resources available to help people facing financial difficulties due to the pandemic, including information on mortgage forbearance, economic impact payments, and student loans.

FDIC Advisory Committee to Discuss Results of 2019 Survey of Household Use of Banking and Financial Services: On Friday, the FDIC announced that its Advisory Committee on Economic Inclusion (ComE-IN) will meet on Thursday, October 22, to discuss the results of How America Banks: 2019 FDIC Survey of Household Use of Banking and Financial Services, the FDIC’s biennial survey of thousands of U.S. households administered in partnership with the U.S. Census Bureau. During the meeting, the committee also will discuss the financial status and health of American households during the COVID crisis, the economic conditions in members’ local communities, and other topics.

FDIC Publishes Resource Guide to Promote Investment Partnerships with FDIC-Insured Minority Banks and Community Development Financial Institutions: On Friday, the FDIC published a new resource guide to promote private and philanthropic investment partnerships with FDIC-insured Minority Depository Institutions (MDIs) and Community Development Financial Institution banks (CDFI banks). “Investing in the Future of Mission-Driven Banks” is FDIC’s latest effort to build supportive partnerships between these banks and other financial institutions, private companies, and philanthropic organizations.

NCUA Urges Consumers and Credit Unions to Remain Vigilant against Cyber Threats: On Wednesday, the National Credit Union Administration issued a reminder to credit union industry stakeholders to remain vigilant and take steps to protect their systems and critical infrastructure. “In this day and age, cybersecurity is everyone’s business,” NCUA Chairman Rodney Hood said. “Even during COVID-19, hackers and thieves do not rest. We expect credit unions to take appropriate measures to protect themselves and their members, and we have information and resources to help them do that.”

DOJ Unseals Superseding Indictment Charging Nationwide Money Laundering Network: On Thursday, the Justice Department announced the unsealing of a superseding indictment charging six individuals with participating in a conspiracy to launder millions of dollars of drug proceeds on behalf of foreign cartels. This superseding indictment is the result of a nearly four-year investigation into the relationship between foreign drug trafficking organizations and Asian money laundering networks in the United States, China, and elsewhere.

NASAA Announces Agenda for Fintech and Cybersecurity Symposium: On Wednesday, the North American Securities Administrators Association (NASAA) announced the agenda and speakers for its October 27, 2020 Fintech and Cybersecurity Symposium. The program will include four discussions: (1) Algorithms Make the World Go ’Round: From financial inclusion to money distribution during the pandemic, this panel will explore the ways fintech innovation can solve real-world problems; (2) From Sentiment Investing to Roboadvising: How AI is Transforming the Financial Services Industry: This panel will focus on how financial institutions are using AI, machine learning, data analytics, and predictive behavior to better serve investors; (3) Technology as Sword and Shield: This panel will focus on how technology can be used both to perpetrate and defend against cyberattacks, especially in a teleworking environment, and the consequences of failing to fortify the workspace; and (4) Regulating Remotely: Cyber Challenges During a Challenging Time: This panel will feature three speakers who will each provide a different perspective on regulatory and cybersecurity challenges in the wake of the COVID-19 pandemic.

COMINGS AND GOINGS AT THE AGENCIES

SEC Names Jessica Kane Director of Division of Corporation Finance’s Disclosure Review Program: On Tuesday, the SEC announced that Jessica Kane has been named Director of the Division of Corporation Finance’s Disclosure Review Program. Ms. Kane has served as Director of the Office of Credit Ratings since 2017, leading its work to oversee credit rating agencies registered with the Commission as NRSROs.

SEC Names Tamara Brightwell Deputy Director of Division of Corporation Finance’s Disclosure Review Program: On Tuesday, the SEC announced that Tamara Brightwell has been named Deputy Director of the Division of Corporation Finance’s Disclosure Review Program. Ms. Brightwell has served as Deputy Chief Counsel in the Division of Corporation Finance’s Office of Chief Counsel since 2018.

SEC Appoints PCAOB Chief Auditor Megan Zietsman to PCAOB Board: On Thursday, the SEC announced the appointment of Megan Zietsman as a Board member of the Public Company Accounting Oversight Board (PCAOB) for a term ending in October 2025. Ms. Zietsman has been the Chief Auditor and Director of Professional Standards of the PCAOB since February 2019.

Charles Phillips Steps Down from New York Fed Board of Directors: On Friday, the Federal Reserve Bank of New York announced that Charles Phillips had stepped down from its Board of Directors effective immediately. Mr. Phillips joined the Board in 2017 as a Class B director, and his three-year term was set to expire on December 31, 2020.

OTHER NOTEWORTHY NEWS

New York Department of Financial Services Calls for Regulation of Social Media Giants After Hack Investigation: On Wednesday, the New York State Department of Financial Services released a report on the Department’s investigation into the July 15, 2020 hack into the social media accounts of cryptocurrency firms and well-known public figures, following Governor Andrew Cuomo’s request to investigate the matter. Among DFS’ findings: the global social media platform lacked adequate cybersecurity protections and, at the time of the attack, did not have a chief information security officer. The report recommends a new cybersecurity regulatory framework for giant social media companies. “Social media platforms have quickly become the leading source of news and information, yet no regulator has adequate oversight of their cybersecurity. The fact that the platform was vulnerable to an unsophisticated attack shows that self-regulation is not the answer,” said Superintendent of Financial Services Linda Lacewell.

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