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PH Money Matters: This Week in Washington

This Week in Washington for July 23, 2018

THE BIG PICTURE

On Monday, President Donald Trump and Russian President Vladimir Putin met in Finland for a one-on-one meeting, during which Putin denied that his country interfered in the 2016 U.S. elections. The president has drawn some criticism for his reluctance to criticize Russia over election interference. Days before the meeting, special counsel Robert Mueller's team indicted 12 Russian intelligence officers for hacking Democratic officials during the 2016 contest.

On Tuesday, President Donald Trump said he accepts the U.S. intelligence community's assessment that Russia was behind a campaign of cyberattacks during the 2016 election and that he has "full faith and support for America's intelligence agencies." Some critics view this as a reversal of the president's position in a Monday news conference with Russian President Vladimir Putin, where he did not counter Putin's denial of Russia's involvement in the attacks.

Republican leaders are in talks to introduce a four-bill package that would include the Transportation-HUD S. 3023 (115), Agriculture S. 2976 (115), Financial Services and Interior-Environment bills, with debate to begin Monday. The bills total about $154.1 billion and represent an ambitious move towards clearing the 12 funding bills needed by September to fund the government. Congressional leaders, however, remain concerned that a stopgap funding bill will be needed for at least some agencies.

On Wednesday, the House adopted a resolution expressing support for U.S. Immigration and Customs Enforcement officials and rejecting calls to abolish the agency, with most Democrats voted "present." Republican leaders had planned to introduce a bill by Progressive Caucus members to terminate the ICE after enacting a more humane enforcement system, but authors of the bill said Democrats would unanimously oppose in protest to the party's political ploy.

On Thursday, President Trump said he wants to have a second meeting with Russian President Vladimir Putin to discuss a number of topics. "I look forward to our second meeting so that we can start implementing some of the many things discussed, including stopping terrorism, security for Israel, nuclear proliferation, cyber-attacks, trade, Ukraine, Middle East peace, North Korea and more. There are many answers, some easy and some hard, to these problems...but they can ALL be solved!" he tweeted.

On Thursday, the House passed a package of two 2019 appropriations bills, reaching a halfway point in an endeavor to pass 12 spending bills needed to fund the government. The bills, totaling $58.7 billion, will go towards funding agencies including the IRS and various financial regulators, as well as the Environmental Protection Agency, the Interior Department, and some popular arts programs.

On Thursday, President Donald Trump disagreed with a proposal from Russian President Vladimir Putin that would allow the Kremlin to interrogate a former U.S. ambassador to Russia and others. "It is a proposal that was made in sincerity by President Putin, but President Trump disagrees with it," said White House press secretary Sarah Huckabee Sanders, "Hopefully President Putin will have the 12 identified Russians come to the United States to prove their innocence or guilt."

On Friday, lawmakers reconciled House and Senate versions of a defense bill to go with the House approach of excluding ZTE from U.S. government contracts, but leaving it free to do business with U.S. private companies. The Senate-passed version of the bill proposed a full U.S. ban on ZTE that the Trump administration imposed but was lifted following discussions with Chinese President Xi Jinping.

The FBI is in possession of a recording between President Donald Trump and his former personal attorney, Michael Cohen, in which the two men discuss a payment to a former Playboy model who has alleged an affair with Trump and earlier this week, a Treasury Department inspector general memo concluded that certain reports containing confidential financial information related to Cohen are subject to restricted access, although not deleted.

Other highlights of last week include:

The U.S. government is introducing new procedures to protect agricultural markets from high-frequency traders by changing how it releases crop and livestock reports.

In his congressional testimony this week, Fed Chairman Jerome Powell affirmed the Fed's plan to raise interest rates gradually and expressed concern over tariffs.

On Thursday, President Donald Trump publicly questioned the Fed's rationale for raising interest rates, saying he was "not happy" by the Fed raising rates as the economy strengthened.

On Thursday, the CFTC unanimously approved an order allowing derivatives clearing organizations to invest their customers' euros in French and German sovereign debt.

Atlanta Fed President Raphael Bostic said Friday he still favors raising the central bank's benchmark interest rate one more time this year.

On Friday, the Republican Party announced that the 2020 Republican National Convention will be held in Charlotte, N.C. Charlotte.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing Entitled "Examining Capital Regimes for Financial Institutions": On Tuesday, the House Financial Services Committee held a hearing entitled "Examining Capital Regimes for Financial Institutions."

  • The Honorable Kevin Fromer, President and Chief Executive Officer, Financial Services Forum
  • The Honorable Greg Baer, President, Bank Policy Institute
  • Dr. Douglas Holtz-Eakin, President, American Action Forum
  • Dr. Marcus Stanley, Policy Director, Americans for Financial Reform
  • Mr. Keith A. Noreika, Partner, Simpson Thacher & Bartlett

Hearing Entitled "Monetary Policy and the State of the Economy": On Wednesday, the House Financial Services Committee held a hearing entitled "Monetary Policy and the State of the Economy."

  • The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System

Hearing Entitled "The Future of Money: Digital Currency": On Wednesday, the House Financial Services Committee held a hearing entitled "The Future of Money: Digital Currency."

  • Dr. Rodney J. Garratt, Maxwell C. and Mary Pellish Chair, Professor of Economics, University of California Santa Barbara
  • Dr. Norbert J. Michel, Director, Center for Data Analysis, The Heritage Foundation
  • Dr. Eswar S. Prasad, Nandlal P. Tolani Senior Professor of Trade Policy, Cornell University
  • Mr. Alex J. Pollock, Distinguished Senior Fellow, R Street Institute

SENATE BANKING COMMITTEE

Hearing on "The Semiannual Monetary Policy Report to Congress": On Tuesday, the Senate Banking Committee held a hearing entitled "The Semiannual Monetary Policy Report to Congress."

  • The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System

Hearing on "Nominations of Kathleen Kraninger and Kimberly Reed": On Thursday, the Senate Banking Committee held a hearing entitled "Nominations of Kathleen Kraninger and Kimberly Reed."

  • Ms. Kathleen Laura Kraninger, Director-Designate, Bureau of Consumer Financial Protection, Ohio
  • Ms. Kimberly A. Reed, President-Designate, Export-Import Bank of the United States, West Virginia

OTHER HOUSE COMMITTEES

Hearing Entitled "Oversight of the Federal Trade Commission": On Wednesday, the House Energy Committee (Digital Commerce and Consumer Protection Subcommittee) held a hearing entitled "Oversight of the Federal Trade Commission."

  • The Honorable Joseph Simons, Chairman, Federal Trade Commission
  • The Honorable Maureen Ohlhausen, Commissioner, Federal Trade Commission
  • The Honorable Noah Phillips, Commissioner, Federal Trade Commission
  • The Honorable Rohit Chopra, Commissioner, Federal Trade Commission
  • The Honorable Rebecca Slaughter, Commissioner, Federal Trade Commission

LEGISLATION INTRODUCED AND PROPOSED

House Passes 'Jobs Act 3.0' to Encourage Capital Formation: On Tuesday, the House of Representatives passed the JOBS and Investor Confidence Act of 2018, dubbed the "Jobs Act 3.0," which combines 32 bills into one package and contains various components that have either passed the full House or passed the House Financial Services Committee since 2017. The repackaged bill, co-sponsored by Rep. Jeb Hensarling, R-Texas, and Maxine Waters, D-Calif., comes six years after Congress passed the initial Jumpstart Our Business Startups Act and contains further provisions intended to stimulate both private and public offerings. The bill is viewed some capital markets professionals say as modest moves toward improving capital formation

House Plans Vote to Extend Flood Insurance Program: The House is planning to vote next week to extend the National Flood Insurance Program, which is set to expire at the end of this month. In a letter to Congress leadership, Congresswoman Maxine Waters (D-CA) and 61 Members of Congress called for a commitment to ensure protection against flooding. "Following an historic 2017 hurricane season, which for the first time on record resulted in three Category 4 hurricanes making landfall in the United States, and facing the beginning of the 2018 hurricane season, which is expected to cause similarly catastrophic losses, Congress has yet to provide American families with certainty that the National Flood Insurance Program (NFIP) will be available to them when the inevitable floods arrive," the lawmakers wrote. The Senate has yet to reach agreement on its own bill amid disputes over how to retool the program.

Bipartisan Senators Introduce Bill to Create Affordable Housing Task Force: On Wednesday, U.S. Senator Dean Heller (R-NV) joined Senators Todd Young (R-IN), Maria Cantwell (D-WA), Angus King (I-ME), Tim Kaine (D-VA), Doug Jones (D-AL), Cory Gardner (R-CO), Marco Rubio (R-FL), and Chris Coons (D-DE) introduced the Task Force on the Impact of the Affordable Housing Crisis Act, which seeks to better understand and respond to America's affordable housing crisis by creating a bipartisan affordable housing task force.

THIS WEEK ON THE HILL

Tuesday, July 24

House Financial Services Committee will meet in open session at 10:00 A.M. in Room 2128 of the Rayburn House Office Building to consider the following measures:

  • H.R. 1511, the "Homeless Children and Youth Act of 2017"
  • H.R. 2069, the "Fostering Stable Housing Opportunities Act of 2017"
  • H.R. 2570, the "Mortgage Fairness Act of 2017"
  • H.R. 3626, the "Bank Service Company Examination Coordination Act of 2017"
  • H.R. 5036, the "Financial Technology Protection Act"
  • H.R. 5059, the "State Insurance Regulation Preservation Act"
  • H.R. 6332, the "Improving Strategies to Counter Weapons Proliferation Act"

Senate Banking Committee will conduct a hearing on the following nominations — Mr. Elad L. Roisman, of Maine, to be a Member of the Securities and Exchange Commission; Mr. Michael R. Bright, of the District of Columbia, to be President of the Government National Mortgage Association; Ms. Rae Oliver, of Virginia, to be Inspector General, U.S. Department of Housing and Urban Development; and Dr. Dino Falaschetti, of Montana, to be Director, Office of Financial Research, U.S. Department of the Treasury — at10:00AM in the Dirksen Senate Office Building 538

House Energy and Commerce Committee will conduct a hearing entitled "Examining Advertising and Marketing Practices within the Substance Use Treatment Industry" at 10:00AM in 2322 Rayburn House Office Building

House Energy and Commerce Committee will conduct a hearing entitled "DOE Modernization: Legislation to Authorize a Pilot Project to Commercialize the Strategic Petroleum Reserve" at 10:15AM in 2322 Rayburn House Office Building

Wednesday, July 25

House Agriculture Committee will conduct a hearing entitled "Examining the Upcoming Agenda for the Commodity Futures Trading Commission" at 10:00 AM in 1300 Longworth Building

Senate Joint Economic Committee will conduct a hearing entitled "The Innovation Economy, Entrepreneurship, and Barriers to Capital Access" at 10:00 AM in 1100 Longworth Building

House Energy and Commerce Committee will conduct a hearing entitled "Background on Renewable Identification Numbers under the Renewable Fuel Standard" at 9:15AM in 2322 Rayburn House Office Building

Thursday, July 26

House Energy and Commerce Committee will conduct a hearing entitled "MACRA and MIPS: An Update on the Merit-based Incentive Payment System" at 10:00AM in 2123 Rayburn House Office Building

THE REGULATORS

CFTC Announces First Whistleblower Award to Foreign Whistleblower: On Monday, The Commodity Futures Trading Commission announced an award of over $70,000 to a whistleblower who significantly contributed to an ongoing CFTC investigation and led the CFTC to a successful settlement. The award is the first made by the CFTC's Whistleblower Program to a whistleblower living in a foreign country and the sixth award to a whistleblower who provided valuable information about violations of the Commodity Exchange Act.

NYDFS Grants New Virtual Currency License: On Monday the New York Department of Financial Services approved a virtual currency license to BitPay, a payments firm, making it the first license issued to a wholesale payments process. Under the terms of the license, BitPay can offer clearing and settlement services for Bitcoin to merchants in New York.

Quarles Promises Quick Action on Banks Above $100B in Assets: On Wednesday, Federal Reserve regulatory chief Randal Quarles promised quick action by the central bank on setting updated regulatory requirements for banks with between $100 billion and $250 billion in assets. He also suggested those banks might no longer be required to file living wills. "Most firms with total assets between $100 billion and $250 billion do not pose a high degree of resolvability risk, especially if they are less complex and less interconnected," Quarles said. "Therefore, we should consider scaling back or removing entirely resolution planning requirements for most of the firms in that asset range." But Quarles did not specify how often those banks might face the stress tests in the future.

New York Adopts "Best Interest" Rule for Insurance Sales: The New York State Department of Financial Services said on Wednesday that salespeople offering life insurance and annuities in New York next year will need to ensure the products are in the "best interest" of customers and that insurers will need to supervise recommendations by salespeople, so the transactions address the needs and financial objectives of consumers. "As the federal government continues to roll back essential financial services regulations, New York once again is leading the way so that consumers who purchase life insurance and annuity products are assured that their financial services providers are acting in their best interest when providing advice," said Financial Services Superintendent Maria Vullo in a statement.

SEC Approves Disclosure Rules on "Dark Pools": On Wednesday, the Securities and Exchange Commission members unanimously approved rules that force trading venues known as dark pools to disclose more data and reveal potential conflicts of interest. Mutual funds and other institutional investors often use such venues to place big trades without tipping off the rest of the market. The regulation requires brokerages that operate dark pools to issue public filings that highlight conflicts, specify how the venues might prioritize certain clients' trades and disclose trading charges. "With today's rule, the [SEC] will shine light into that darkness," SEC Democratic Commissioner Kara Stein said.

SEC Adopts Rules to Enhance Transparency and Oversight of Alternative Trading Systems: On Wednesday, the Securities and Exchange Commission announced it has voted to adopt amendments to Regulation ATS to enhance operational transparency and regulatory oversight of alternative trading systems (ATSs) that trade stocks listed on a national securities exchange. "I applaud the staff's retrospective review of our regulation of ATSs. I agree that promoting greater transparency in order interaction, matching, and execution will help empower investors and their intermediaries to find those trading venues that best meet their trading and investing objectives," said SEC Chairman Jay Clayton. Under the amendment, certain ATSs will be required to file detailed public disclosures on new Form ATS-N, which are designed to allow market participants to assess potential conflicts of interest and risks of information leakage arising from the ATS-related activities of the ATS's broker-dealer operator and its affiliates.

SEC Adopts Final Rules to Modernize Offerings under Compensatory Arrangements: On Wednesday, the Securities and Exchange Commission today issued final rules to amend Securities Act Rule 701, which provides an exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements. The amendment increases from $5 million to $10 million the threshold in excess of which the issuer is required to deliver additional disclosures to investors. "The rule as amended, and the concept release, are responsive to the fact that the American economy is rapidly evolving, including through the development of both new compensatory instruments and novel worker relationships — often referred to as the 'gig economy.' We must do all we can to ensure our regulatory framework reflects changes in our marketplace, including our labor markets," said SEC Chairman Jay Clayton.

Treasury Department to Release Long-Anticipated Report on Nonbank Innovation: The Comptroller of the Currency is likely to revise a special purpose national bank charter for fintech startups, which would allow them to sidestep state-by-state regulations. And the Consumer Financial Protection Bureau could become the first federal agency to embrace a so-called regulatory sandbox for companies, calling for light regulation to give them room to grow. "All of those actions demonstrate that regulators have a solid understanding of the fintech space, enough to lay out the shape of the table," said Scott Talbott, senior vice president of government affairs for the Electronic Transactions Association, borrowing a negotiating term.

COMINGS AND GOINGS AT THE AGENCIES

CFPB Names New Innovation Office Director: On Wednesday, the Consumer Financial Protection Bureau has named Paul Watkins to be the head of the bureau 's Office of Innovation. Watkins is former head of fintech initiatives in the Arizona Attorney General's office, whwere he managed Arizona's fintech regulatory sandbox. CFPB Acting Director Mick Mulvaney has expressed interest in creating a federal regulatory sandbox for consumer financial companies as an expansion of the bureau's previous no-action letter policy. The Office of Innovation will replace Project Catalyst, the CFPB's section for fintech policy, including its no-action letters to companies on new products.

THE COURTS

Appeals Court Dismisses Claim Against Fannie Mae/Freddie Mac Net Profit Sweep: On Tuesday, a federal appeals court in Texas upheld the agreement sweeping net profits from Fannie Mae and Freddie Mac to the federal government but rejected the single-director structure of the Federal Housing Finance Agency as unconstitutional. The Court of Appeals for the 5th Circuit upheld a lower court's dismissal of claims that Treasury and FHFA violated the Administrative Procedure Act in their 2012 decision to sweep all profits from the government-sponsored enterprises instead of requiring a quarterly 10-percent dividend payment. "Because we find that the FHFA acted within its statutory authority by adopting the net worth sweep, we hold that the Shareholders' APA claims are barred," the court said in its opinion on Monday.

OTHER NOTEWORTHY ITEMS

Roby Wins Alabama Primary Runoff: On Tuesday, Rep. Martha Roby won her Republican primary runoff in Alabama after defeating a former Democratic congressman who gained traction attacking Roby as insufficiently supportive of President Donald Trump.

Senate Banking Members Clash over CFPB Nominee Disclosures: Senate Banking Chairman Mike Crapo on Thursday criticized Democrats for trying to delay a hearing for President Donald Trump's pick to head the Consumer Financial Protection Bureau by requesting documents detailing nominee Kathy Kraninger's role in developing the administration's "zero-tolerance" border policy and managing disaster aid in Puerto Rico as an official at the Office of Management and Budget. "The request goes far beyond the precedent of this committee and what it needs," said Crapo.

Russia Sanctions Bill Gains Traction: Sens. Marco Rubio (R-Fla.) and Chris Van Hollen
(D-Md.) have asked bipartisan leaders of the banking and foreign relations committees to hold a hearing and mark up their Russia sanctions bill, which would impose new penalties on Moscow within 10 days of the director of national intelligence determining that further meddling has occurred.