THE BIG PICTURE
After months of name calling and escalating threats, President Trump has agreed to meet with North Korean leader Kim Jung Un this May, in what will be the first ever meeting of a sitting U.S. president with a North Korean leader. The surprise announcement was made on Thursday in an unusual fashion, with South Korea’s National Security Advisor delivering a televised statement in front of the White House. North Korea has indicated they are willing to suspend nuclear and missile tests during negotiations. The announcement caught even senior administration officials unaware, with Secretary of State Rex Tillerson saying in an interview just hours prior that, “we're a long way from negotiations.”
Surrounded by steelworkers, President Trump on Thursday signed two proclamations setting in motion his plan to enact tariffs on steel and aluminum imports by using a national security pretext. The tariffs are set to go into effect in 15 days, and will, at least initially, exempt Canada and Mexico. The President ignored bipartisan opposition to the tariffs, which was prompted by fears of blowback and a possible trade war. Later that same day, eleven countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the latest iteration of the TPP agreement, which will eliminate trade barriers. President Trump withdrew the U.S. from the TPP agreement on his first day in office.
The White House has found itself drawn into the controversy surrounding President Trump, his attorney Michael Cohen, and adult film star Stormy Daniels (real name Stephanie Clifford). It was revealed in January that Mr. Cohen had arranged a payment of US$130,000 to Ms. Clifford during the 2016 campaign, prompting speculation about the nature of her relationship with the President. Mr. Cohen obtained a temporary restraining order to prevent Ms. Daniels from publicly discussing the alleged affair. During a briefing, White House Press Secretary Sarah Huckabee Sanders said that arbitration was “won in the President’s favor” seeming to confirm the President’s involvement.
Gary Cohn announced his resignation Tuesday, becoming the latest high-profile departure from the White House in recent days. Mr. Cohn, a former Goldman Sachs executive, served for the past 14 months as the head of the National Economic Council. Mr. Cohn was reported to have nearly quit in August following President Trump’s comments on the white nationalist march in Charlottesville, Virginia, but remained in his post to help shepherd tax cuts through Congress.
The Office of Special Counsel released a report Tuesday finding that Kellyanne Conway, despite extensive training, violated the Hatch Act on two separate occasions during the Alabama Senate special election. During the campaign she gave interviews in front of the White House, using her official title, in which she attacked Democratic candidate Doug Jones. The Hatch Act prohibits federal employees from using their position for partisan politics. The OSC found that, “Ms. Conway’s statements during the ‘Fox & Friends’ and ‘New Day’ interviews impermissibly mixed official government business with political views about candidates.” It is up to President Trump to decide what, if any, punishment Ms. Conway receives.
Citing health concerns, on Monday Mississippi Senator Thad Cochran announced his retirement effective April 1. Sen. Cochran has served in the Senate since 1978, and currently chairs the powerful Senate Appropriations Committee. Sen. Richard Shelby is expected to succeed Sen. Cochran as chairman. Mississippi Governor Phil Bryant will select an interim Senator until a special election is held in November, meaning both of the state’s Senate seats will be on the ballot.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Committee Holds Hearing on “Legislative Review of H.R. 5059, the State Insurance Regulation Preservation Act”: The Subcommittee on Housing and Insurance held a hearing March 7 to examine H.R. 5059, the “State Insurance Regulation Preservation Act” which was introduced February 15 by Rep. Keith Rothfus (R-PA) and Rep. Joyce Beatty (D-OH). The bill would create a definition of an Insurance Savings and Loan Holding Companies (ISLHC) and create a regulatory framework that would limit the Federal Reserve’s oversight of ISLHCs.
- Mr. Michael Mahaffey, Chief Strategist and Risk Officer, Nationwide Mutual Insurance Company
- Mr. Kurt Bock, Chief Executive Officer, COUNTRY Financial, on behalf of the Property Casualty Insurers Association of America
- Professor Daniel Schwarcz, Professor of Law, University of Minnesota Law School
Committee Holds Hearing on “Legislative Proposals to Reform the Current Data Security and Breach Notification Regulatory Regime”: The Subcommittee on Financial Institutions and Consumer Credit held a hearing on March 7 to examine two legislative proposals. The first proposal was H.R. 4028, the “Promoting Responsible Oversight of Transaction and Examinations of Credit Technology Act of 2017” sponsored by Rep. Patrick McHenry (R-NC). The bill would amend the Federal Financial Institutions Examination Council Act of 1978 to require supervision and examination of large consumer reporting agencies regarding cybersecurity measures. It would also amend the Fair Credit Reporting Act (FCRA) to allow consumers to request that a consumer reporting agency place a security freeze on their reports, and includes provisions for fees and exceptions from such fees. The second proposal under consideration was a draft of H.R. __, the “Data Acquisition and Technology Accountability and Security Act”, sponsored by Rep. Blaine Luetkemeyer (R-MO) and Rep. Carolyn Maloney (D-NY). The proposed legislation would establish a national data security standard and a national data breach notification standard with a federal enforcement mechanism overseen by the Federal Trade Commission. It would also replace the current patchwork of state and federal regulations regarding data breaches with a national law that provides uniform protections.
- Ms. Sara Cable, Director, Data Privacy and Security, and Assistant Attorney General, Office of the Attorney General, Commonwealth of Massachusetts
- Mr. Francis Creighton, President and Chief Executive Officer, Consumer Data Industry Association
- Mr. John S. Miller, Vice President, Global Policy and Law, Information Technology Industry Council
- Mr. Jason Kratovil, Vice President, Financial Services Roundtable
HOUSE COMMITTEE ON APPROPRIATIONS
Committee Holds Hearing on “FY19 Budget Hearing - Commodity Futures Trading Commission”: The Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies held a hearing on the CFTC’s budget for fiscal year 2019. In his testimony, Chairman Giancarlo spoke on the importance of cybersecurity, describing it as “the most important single issue facing our markets today in terms of market integrity and financial stability.” He also quoted Winston Churchill, saying “We shall not fail or falter; we shall not weaken or tire… Give us the tools, and we will finish the job” to underscore his request that “We need the tools to do our job of protecting the markets that Americans rely on each day. With the proper balance of sound policy, regulatory oversight, and private sector innovation, new technologies and global trading will allow American markets to evolve in responsible ways, and continue to grow our economy and increase prosperity.”
- Mr. Christopher Giancarlo, Chairman, Commodity Futures Trading Commission
ON THE FLOOR
The House Passed Four Bipartisan Financial Services Bills:
- H.R. 4607, the Comprehensive Regulatory Review Act, sponsored by Rep. Barry Loudermilk (R-GA), amends the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) to now include the Consumer Financial Protection Bureau (CFPB) and the National Credit Union Administration (NCUA). The legislation also requires these reviews to be held every seven years, instead of every ten years as is current policy. Rep. Maxine Waters (D-CA) denounced the bill as “intended to dismantle rules considered inconvenient by the financial services industry.” The bill passed 264-143.
- H.R. 2226, the Portfolio Lending and Mortgage Access Act, sponsored by Rep. Andy Barr (R-KY), amends the Truth in Lending Act to allow certain mortgage loans that are originated and retained in portfolio by an insured depository institution or an insured credit union with less than US$10B in total consolidated assets be considered as qualified mortgages. This bill is based on Section 516 of H.R. 10, the Financial CHOICE Act of 2017. The bill passed by voice.
- H.R. 4725, the Community Bank Reporting Relief Act, sponsored by Rep. Randy Hultgren (R-IL), amends the Federal Deposit Insurance Act to direct federal banking agencies to issue regulations that allow a reduced reporting requirement for depository institutions with US$5B in consolidated assets or less, and that meet certain other criteria when making the first and third report of condition for a year. This bill is based on Section 566 of H.R. 10, the Financial CHOICE Act of 2017. The bill passed by voice.
- H.R 4768, the Strategy for Combating the Financing of Transnational Criminal Organizations Act, sponsored by Rep. David Kustoff (R-TN), requires the President, through the Secretary of the Treasury, to develop a national strategy to combat the financial networks of transnational criminal organizations (TCOs) not later than one year after the enactment of this Act and every two years thereafter. In particular, the strategy will assess the most significant TCO threats, and the individuals, entities, and networks that provide financial support or facilitation to those TCOs. It also reviews current goals, priorities, and actions against TCOs’ financial support networks and will recommend new ways to deter and prosecute those who financially enable TCOs. The bill passed by voice.
Debate on the Senate Bank Relief Bill: On Tuesday the Senate voted 67-32 to formally begin consideration of S. 2155, a bill that would rollback of some Dodd-Frank’s regulatory reforms for small to medium size banks. As debate kicked off in the Senate, House Republicans were already beginning to discuss potential additions and amendments to the bill, causing some wary Senate Democrats to sound the alarm that those changes could go too far, endangering the bill’s bipartisan support. Sen. Tim Kaine (D-VA), one of the bill’s co-sponsors, voiced concern, saying “I think if the House were to adjust it to the right, I think it would probably not end up getting enough support.” Sen. Heidi Heitkamp (D-ND) concurred, noting that “the next obstacle is making sure the House doesn't mess this up.”
LEGISLATION INTRODUCED AND PROPOSED
Sen. Tim Scott (R-SC) Introduced Two Bills:
- S.2490: would amend the Real Estate Settlement Procedures Act of 1974 to modify requirements related to mortgage disclosures.
- S.2499: would require the Financial Industry Regulatory Authority to establish a relief fund to provide investors with the full value of unpaid arbitration awards issued against brokerage firms or brokers regulated by the Authority
THIS WEEK ON THE HILL
House Committee on Rules, Business Meeting on H.R.1116, the “Taking Account of Institutions with Low Operation Risk (TAILOR) Act of 2017”; H.R.4263, the “Regulation A+ Improvement Act of 2017”; and H.R.4545, the “Financial Institutions Examination Fairness and Reform Act” 5:00 PM in H-313 US Capitol.
House Committee on Rules, Business Meeting on H.R.4061, the “Financial Stability Oversight Council Improvement Act of 2017”; and H.R.4293, the “Stress Test Improvement Act of 2017” 3:00 PM in H-313 US Capitol.
House Financial Services Subcommittee on Capital Markets, Securities, and Investment, hearing entitled “Examining the Cryptocurrencies and ICO Markets” 10:00 AM in 2128 Rayburn House Office Building.
House Financial Services Subcommittee on Monetary Policy and Trade, hearing entitled “Evaluating CFIUS: Administration Perspectives” 10:00 AM in 2128 Rayburn House Office Building.
House Financial Services Subcommittee on Terrorism and Illicit Finance, hearing entitled “After the Breach: the Monetization and Illicit Use of Stolen Data” 2:00 PM in 2128 Rayburn House Office Building.
House Votes Expected: H.R. 4545 “Financial Institutions Examination Fairness and Reform Act” and H.R. 4263 – “Regulation A+ Improvement Act of 2017”.
The Federal Reserve Board Requests Comments on Amendments to Simplify Regulation J: On Tuesday, the Federal Reserve Board published for comment proposed amendments to Regulation J. The proposed amendments are intended to clarify and simplify certain provisions of Subpart A of Regulation J, remove obsolete provisions, and align the rights and obligations of sending banks, paying banks, and Federal Reserve Banks with the Board’s recent amendments to Regulation CC, Availability of Funds and Collection of Checks (12 CFR part 229), to reflect the virtually all-electronic check collection and return environment. The proposed rule would also amend subpart B of Regulation J to clarify that terms used in financial messaging standards—such as ISO 20022, do not confer legal status or responsibilities.
Federal Reserve Vice Chairman Discusses Volcker Rule: In remarks on Monday at the Institute of International Bankers Conference, Federal Vice Chairman Randal Quarles said that regulators are working to make “material changes” to the Volcker Rule, adding “The Volcker Rule is an example of a complex regulation that is not working well.”
CFPB Updates Mortgage Servicing Rule: On Thursday, the Consumer Financial Protection Bureau issued a final rule to help mortgage servicers communicate with certain borrowers facing bankruptcy. The final rule gives mortgage servicers more latitude in providing periodic statements to consumers entering or exiting bankruptcy, as required by the Bureau’s 2016 mortgage servicing rule. The final rule provides a clear single-statement exemption for servicers to make the transition, superseding the single-billing-cycle exemption included in the 2016 rule.
CFPB Issues Request for Information Regarding Bureau Rulemaking Processes: The Consumer Financial Protection Bureau issued its seventh Request for Information on Tuesday. This go-around, the Bureau is seeking comments and information from interested parties to assist the Bureau in assessing the overall efficiency and effectiveness of its rulemaking processes and, consistent with law, considering whether any changes to its rulemaking processes would be appropriate.
CFTC Commissioner Brian Quintenz Gives Keynote Address to DC Blockchain Summit: In remarks delivered to the DC Blockchain Summit, CFTC Commissioner Quintenz spoke on a variety of topics related to cryptocurrencies, including his belief that a self-regulation organization should be established , saying “I think an independent SRO-like entity for spot platforms could significantly contribute to the ongoing efforts to rationalize and formalize cryptocurrency regulations,” adding, “I believe that a private cryptocurrency oversight body could bridge the gap between the status quo and future government regulatory action.” He also addressed the coordination of efforts between the CFTC and SEC in cases where jurisdiction is unclear, saying “Is that fake token that never got issued a commodity or security? Is it an investment pool? Is it a commodity pool? Someone's got to take down that bad actor. And we try to coordinate to make sure we know who's best equipped to do it.”
CFTC Approves the Transfer of Open Interest in Credit Default Swaps from CME to ICC: At the request of Chicago Mercantile Exchange, Inc. (CME) and ICE Clear Credit, LLC (ICC), the Commodity Futures Trading Commission (CFTC) issued an order Friday approving the transfer of all open interest in credit default swaps (CDS) at CME to ICC.
CFTC Announces AgCon2018 Agenda: On Wednesday, the agenda for AgCon2018 (Protecting America's Agricultural Markets: An Agricultural Commodity Futures Conference), the joint conference of the Commodity Futures Trading Commission, and the Center for Risk Management Education and Research at Kansas State University was announced. CFTC Chairman Giancarlo said of the conference, “I am looking forward to getting back to this region to listen and contribute to important discussions about current macro-economic trends and issues affecting American agricultural futures markets and the importance of these markets for managing risk and protecting participants from manipulation, fraud, and other unlawful activities.”
SEC Issues Warning on Cryptocurrency Exchanges: On Wednesday, the Securities and Exchange Commission’s Division of Enforcement and Division of Trading and Markets issued a joint public statement warning the public on illegal exchanges, saying “The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as ‘exchanges,’ which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange. Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.”
NYSE to Pay US$14M Penalty for Multiple Violations to SEC: The Securities and Exchange Commission announced Tuesday that it charged the New York Stock Exchange and two affiliated exchanges with regulatory failures in connection with multiple episodes, including several disruptive market events. The charges arose from five separate investigations and include the first-ever charged violation of Regulation SCI. The Commission adopted Reg SCI to strengthen the technology infrastructure and integrity of the U.S. securities markets, and Tuesday charged two NYSE exchanges with violating Reg SCI’s business continuity and disaster recovery requirement. In settlement, the exchanges agreed to pay a US$14M penalty. The violations include erroneously implementing a market-wide regulatory halt, negligently misrepresenting stock prices as “automated” despite extensive system issues ahead of a total shutdown of two of the exchanges, and applying price collars during unusual market volatility on Aug. 24, 2015, without a rule in effect to permit them—a move that resulted in order imbalances being resolved more slowly.
Court Rules CFTC Can Regulate Cryptocurrencies as Commodities: Late Tuesday Judge Jack Weinstein of the U.S. District Court for the Eastern District of New York entered a preliminary injunction order against CabbageTech Corp. d/b/a Coin Drop Markets. The order stated that, “Until Congress clarifies the matter, the CFTC has concurrent authority, along with other state and federal administrative agencies, and civil and criminal courts, over dealings in virtual currency.”
OTHER NOTEWORTHY ITEMS
Steve Bannon Advocates for Cryptocurrency: Steven Bannon, former chief strategist to President Trump, spoke at an event in Zurich on Tuesday as part of his European speaking tour. Mr. Bannon explained his view that cryptocurrencies are a tool to escape from the tyranny of financial elites, saying “We take control of the central banks away. That will give us the power again. . .Once you take control of your currency, once you take control of your data, once you take control of your citizenship, that's when you're going to have true freedom.”
Senate Democrats Demand Answers on Secretary Ben Carson’s Furniture: On Monday a group of Democratic Senators sent a letter to the Department of Housing and Urban Development demanding an explanation on how a US$31,000 custom dining set was ever considered an appropriate expenditure. Sen. Gary Peters (D-MI) noted a “troubling pattern” of administration officials “wasting taxpayer money on extravagant goods and services.” According the Secretary Carson’s spokesman, the order for the dining set has since been canceled.