THE BIG PICTURE
Tensions between the United States and Iran continued to ratchet up last week after Iran shot down an unmanned U.S. drone. In a dramatic decision, on Thursday the President called off a planned retaliatory strike at the last moment. In discussing his decision-making process, the President revealed that while the operation was “cocked & loaded” he felt the expected loss of life, estimated at 150, would not have been proportional and noted that he is “not a warmonger.”
A large-scale operation that would have targeted two thousand illegal immigrants with deportation orders was put on hold last week. The President announced he had approved the temporary two-week delay to allow Democrats and Republicans in Congress to “work out a solution to the Asylum and Loophole problems at the Southern Border.”
On Monday, the Supreme Court issued its ruling in Virginia’s racial gerrymandering case, handing a win to the state’s Democrats by finding the House of Delegates lacked standing to appeal the lower court’s ruling which necessitated redrawing the map. The Democrats hailed the decision as “a major win for voting rights and civil rights in our Commonwealth.”
Other highlights of last week include:
- Acting Defense Secretary Pat Shanahan resigned last week after domestic dispute incidents involving his family were publicized. On Friday, the President announced he would nominate Army Secretary Mike Esper for the role.
- The House Intelligence Committee plans to issue a subpoena to the President’s former business associate Felix Sater after he failed to appear for a scheduled interview on Friday.
- The President announced he planned to hold “an extended meeting” with Chinese President Xi Jinping at the G-20 summit in Japan.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “Promoting Economic Growth: Exploring the Impact of Recent Trade Policies on the U.S. Economy”: On Wednesday, the Subcommittee on National Security, International Development, and Monetary Policy held a hearing to consider the impact of trade policy on the economy, particularly the recent implementation of tariffs.
- Laura Baughman, President, The Trade Partnership
- C. Fred Bergsten, Ph.D. Senior Fellow and Director Emeritus, Peterson Institute for International Economics
- John Boyd, President, National Black Farmers Association
- Ronnie Russell, Missouri Farmer, At Large Member, American Soybean Association
- Gordon Gray, Director of Fiscal Policy, American Action Forum
Hearing on “Putting Investors First: Examining Proposals to Strengthen Enforcement Against Securities Law Violators”: On Wednesday, the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets held a hearing to examine eight legislative proposals that are designed to bolster regulators’ enforcement tools against securities law violators. The drafts included: (1) H.R. __, Holding Foreign Companies Accountable Act; (2) H.R. __, Stronger Enforcement of Civil Penalties Act of 2019; (3) H.R. __, To establish a whistleblower program at the Public Company Accounting Oversight Board; (4) H.R. __, PCAOB Enforcement Transparency Act of 2019; (5) H.R. __, To amend the Securities Exchange Act of 1934 to allow the Securities and Exchange Commission to seek and Federal courts to grant restitution to investors and disgorgement of unjust enrichment; (6) H.R. __, Corporate Management Accountability Act of 2019; (7) H.R. __, To establish a statute of limitations for certain actions of the Securities and Exchange Commission; (8) H.R. __, Bad Actor Disqualification Act of 2019.
- Jordan A. Thomas, Partner, Labaton Sucharow
- Urska Velikonja, Professor of Law, Georgetown University Law Center
- Andrew N. Vollmer, Professor of Law, University of Virginia School of Law
- Stephen Crimmins, Partner, Murphy & McGonigle PC
Hearing on “Diversity in the Boardroom: Examining Proposals to Increase the Diversity of America’s Boards”: On Thursday, the full Committee held a hearing to examine options for diversifying the gender, racial and ethnic composition of corporate and federal boards. In addition, two legislative proposals to address board diversity were presented for discussion, including: (1) H.R. 281, Ensuring Diverse Leadership Act of 2019 and (2) H.R. 1018, Improving Corporate Governance Through Diversity Act of 2019. Chairwoman Maxine Waters (D-CA) emphasized that “Diversity is one of the best investments a company can make. Diverse boards help intentionally guide companies and industry toward business solutions that maximize returns on that diversity investment.”
- Ms. Chelsa Gurkin, Acting Director, Education, Workforce and Income Security Team, U.S. Government Accountability Office (GAO)
- Mr. Luke Visconti, Founder and Chairman, DiversityInc
- Mr. Ron Lumbra, Managing Partner, Heidrick and Struggles
- Ms. Linda Akutagawa, Chair, Alliance for Board Diversity
- Ambassador Vilma Martinez (Ret.)
- Dr. Stephanie Creary, Assistant Professor of Management, Wharton School of Business, University of Pennsylvania
Hearing on “What’s Your Home Worth? A Review of the Appraisal Industry”: On Thursday, the Subcommittee on Housing, Community Development and Insurance held a hearing to review the home appraisal industry. The Subcommittee also considered two draft legislative proposals: (1) H.R. 2852, the “Homebuyer Assistance Act of 2019” and (2) H.R. ____, which would provide the ASC with increased flexibility to set fees assessed on AMCs and increased flexibility in allocating the proceeds of such fees. It would also allow trainee appraisers to be added to a national registry.
- David S. Bunton, President, The Appraisal Foundation
- Stephen S. Wagner, Senior Appraiser, Terzo & Bologna, Inc., on behalf of the Appraisal Institute
- Jeff Dickstein, Chief Compliance Office, Pro Teck Valuation Services, on behalf of the Real Estate Valuation Advocacy Association
- Andre Perry, David M. Rubenstein Fellow, Metropolitan Policy Program, the Brookings Institute
- Joan N. Trice, Founder, Collateral Risk Network
SENATE BANKING COMMITTEE
“Executive Session”: On Tuesday, the full Committee met in executive session to consider the below nominations:
- Thomas Feddo to be an Assistant Secretary of the Treasury for Investment Security
- Ian Steff to be Assistant Secretary of Commerce and Director General of the United States and Foreign Commercial Service
- Michelle Bowman to be a Member of the Board of Governors of the Federal Reserve System (Reappointment)
- Paul Shmotolokha to be First Vice President of the Export-Import Bank of the United States
- Allison Lee to be a Member of the Securities and Exchange Commission
Hearing on “The Reauthorization of the Terrorism Risk Insurance Program”: On Tuesday, the full Committee held a hearing on the reauthorization of the Terrorism Risk Insurance Program, which is set to expire on December 31, 2020. The session focused on specific considerations in evaluating the Program’s effectiveness; how the Program has evolved over time; how the marketplace has responded to changes to the Program made by Congress in previous reauthorizations; what additional room exists to further reduce taxpayer exposure; and how different market participants may react to changes in different Program levers.
- Mr. Tarique Nageer, Terrorism Placement Advisory And Leader, Property Practice, Marsh
- Dr. Howard Kunreuther, Co-Director, Wharton Risk Management and Decision Processes Center
- Mr. Baird Webel, Specialist In Financial Economics, Congressional Research Service
Hearing on “Outside Perspectives on the Collection of Beneficial Ownership Information”: On Thursday, the full Committee held another session in their series of hearings on beneficial ownership to continue its discussion of how better collection of beneficial ownership information can deter such problems as money laundering, terrorist financing and sanctions evasion through anonymous shell companies. The hearing focused on the perspective from the business world on the topic, building on previous hearings that focused on the perspectives from law enforcement and a banking regulator.
- Mr. Greg Baer, CEO, Bank Policy Institute (BPI)
- Ms. Karen Harned, Executive Director, Small Business Legal Center, National Federation of Independent Business (NFIB)
- Mr. Gary Kalman, Executive Director, Financial Accountability and Corporate Transparency Coalition (FACT)
ON THE FLOOR
House Passes Spending Package: On Wednesday, the House voted 226-203 to pass a nearly US$1T four-bill spending package, after the Democratic leadership was able to rally the support of progressives who had been on the fence.
Senate Votes to Block Arms Deals: In a rebuke of the President, the Senate voted to pass 22 resolutions of disapproval on Thursday to block arms sales to Saudi Arabia and the UAE. The President is expected to veto the opposition, and as neither chamber has the support of the required two-thirds threshold to override, the sales will continue.
- On Thursday, the Senate confirmed Allison Lee to be a member of the Securities and Exchange Commission, Bimal Patel to be an assistant secretary of the Treasury, and Dino Falaschetti to be director of the Office of Financial Research at Treasury.
- On Friday, the Senate voted unanimously to confirm Keith Krach as undersecretary of state for Economic Growth, Energy, and Environment. The role includes overseeing the U.S.-EU transatlantic data sharing agreement known as Privacy Shield.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 3355: Rep. Chuy Garcia (D-IL) introduced H.R. 3355, which would prohibit public companies from repurchasing their shares on the open market.
H.R. 3374: Rep. Harley Rouda (D-CA) introduced H.R. 3374, which would amend the Equal Credit Opportunity Act to require the collection of small business loan data related to LGBTQ-owned businesses.
S. 1883: A bipartisan group of Senate Judiciary Committee members led by Sen. Chuck Grassley (R-IA) introduced S. 1883, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, which would modernize and strengthen criminal laws against money laundering. The bill updates criminal money laundering and counterfeiting statutes, and promotes transparency in the U.S. financial system, and was co-sponsored by Ranking Member Dianne Feinstein (D-CA) and senators John Cornyn (R-TX), Sheldon Whitehouse (D-RI) and Amy Klobuchar (D-MN).
THIS WEEK ON THE HILL
Tuesday, June 25
Senate Agriculture Committee Hearing on “The State of the Derivatives Market and Perspectives for CFTC Reauthorization”: 9:45 AM in 328A Russell Senate Office Building.
House Financial Services Committee Hearing on “Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion”: 10:00 AM in 2128 Rayburn House Office Building.
Senate Banking Committee Hearing on “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?”: 10:00 AM in 538 Dirksen Senate Office Building.
House Financial Services Committee Hearing on “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation”: 2:00 PM in 2128 Rayburn House Office Building.
Wednesday, June 26
House Financial Services Committee Hearing on “Perspectives on Artificial Intelligence: Where We Are and the Next Frontier in Financial Services”: 10:00 AM in 2128 Rayburn House Office Building.
House Agriculture Committee Hearing on “Brexit and Other International Developments Affecting U.S. Derivatives Markets”: 10:00 AM in 1300 Longworth House Office Building.
House Financial Services Committee “Markup”: 12:30 PM in 2128 Rayburn House Office Building.
Thursday, June 27
Senate Banking Committee Hearing on “Oversight and Reauthorization of the Export-Import Bank of the United States”: 10:00 AM in 538 Dirksen Senate Office Building.
SEC Adopts Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Amends the Capital and Segregation Requirements for Broker-Dealers: On Friday, the SEC took a significant step toward establishing the regulatory regime for security-based swap dealers today by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act. These and other rules previously adopted by the Commission are designed to enhance the risk mitigation practices of firms that stand at the center of our security-based swap market, thereby protecting their counterparties and reducing risk to the market as a whole. Commissioner Jackson dissented from the decision, saying “I urge my colleagues to review such models keeping in mind the basic economics of risk-taking: dealers maximize their profits by flirting with failure, and their risk models can be expected to reflect those incentives.”
SEC Adopts Amendments to Improve the Application of the Auditor Independence Rules to Loan Provision: On Tuesday, the SEC adopted amendments to the auditor independence rules relating to the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client. The amendments are intended to focus the rules on those lending relationships that reasonably may bear on external auditors’ impartiality or objectivity and, in so doing, improve the application of the Loan Provision for the benefit of investors while reducing compliance burdens. These amendments will become effective 90 days after they are published in the Federal Register.
SEC Chairman Clayton Announces Events for Main Street Investors in Boston: On Wednesday, SEC Chairman Jay Clayton announced two events for Main Street investors to be held in Boston on Monday, July 8. First, Chairman Clayton will host a roundtable with Main Street investors as part of the SEC’s ongoing investor education efforts. The roundtable will focus on issues relevant to Main Street investors, such as understanding key differences between broker-dealers and investment advisers, and choosing whether to work with one of these types of financial professionals. Later that evening, Chairman Clayton will discuss the package of rules and interpretations adopted by the Commission on June 5, which were designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime.
SEC Seeks Public Comment on Ways to Harmonize Private Securities Offering Exemptions: On Tuesday, the SEC requested public comment on ways to simplify, harmonize, and improve the exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and to promote capital formation. The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the Commission’s exemptions for both companies and investors. The Commission also released a staff report on the impact of Regulation Crowdfunding on capital formation and investor protection, which was required to be provided to the Commission no later than three years following the effective date of the crowdfunding rules.
Agencies Issue Final Rule to Streamline Regulatory Reporting Requirements: On Monday, the Federal Reserve, FDIC, and OCC adopted a final rule to streamline regulatory reporting requirements for small institutions. The changes announced would permit insured depository institutions with total assets of less than US$5B that do not engage in certain complex or international activities to file the most streamlined version of the Call Report, the FFIEC 051 Call Report. The rule would reduce by approximately one-third the number of existing data items reportable for the first and third calendar quarters.
Federal Reserve Holds Interest Rate Steady: Following a meeting of the Federal Open Market Committee, the Fed announced that it would hold its benchmark rate steady in the 2.25% to 2.5% range but noted that it would “act as appropriate to sustain the expansion.”
Treasury Sanctions Members of Nicaraguan President Ortega’s Inner Circle: On Friday, Treasury’s Office of Foreign Assets Control designated Nicaraguan government officials who persecute Nicaraguan citizens exercising their fundamental freedoms, enact repressive laws, silence news media, and deny medical care to the Nicaraguan people pursuant to Executive Order 13851 and the Nicaragua Human Rights and Anticorruption Act of 2018. Under Secretary of the Treasury for Terrorism and Financial Intelligence, Sigal Mandelker, said in a statement “we will not hesitate to take action against those who perpetuate oppression or prop up the Ortega regime at the expense of the Nicaraguan people.”
Treasury Designates Russian Financial Institution Supporting North Korean Sanctions Evasion: On Wednesday, Treasury’s Office of Foreign Assets Control announced the designation of a Russian entity, the Russian Financial Society, that has assisted North Korea in evading sanctions to access the international financial system. “Treasury continues to enforce existing U.S. and UN sanctions against individuals and entities in Russia and elsewhere who facilitate illicit trade with North Korea. Those who attempt to circumvent our authorities to provide the DPRK with access to international financial markets expose themselves to significant sanctions risk,” said Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker.
COMINGS AND GOINGS AT THE AGENCIES
SEC Announces Adam Glazer as Senior Advisor to the Director of the Division of Investment Management: On Monday, the SEC announced that Adam Glazer had been named Senior Advisor to the Director of the Division of Investment Management. Mr. Glazer has been counsel to SEC Commissioner Hester Peirce since 2018. Prior to that, he served as counsel to SEC Commissioner Michael Piwowar from September 2013 until January 2018. He is a 19-year SEC veteran who joined the agency in 2000 as an attorney in the Division of Investment Management, where he focused on mutual fund rulemaking.
Brian Bussey, Director of the CFTC’s Division of Clearing and Risk, Takes Early Retirement: On Wednesday, the CFTC announced that after more than two decades of federal government service, Brian Bussey, the Director of the Division of Clearing and Risk at the CFTC, would be taking an early retirement from government service.
New York State Senate Confirms New Superintendent for the Department of Financial Services: Linda Lacewell, who previously served as chief of staff for NY Governor Cuomo and has been acting DFS superintendent since February, was confirmed by the state senate to serve in the role on a permanent basis.
OTHER NOTEWORTHY ITEMS
Financial Action Task Force Releases Guidance on Cryptocurrency Exchanges: On Friday, the Financial Action Task Force released new guidance intended to “help countries and virtual asset service providers understand their anti-money laundering and counter-terrorist financing obligations, and effectively implement the FATF’s requirements.” Treasury Secretary Mnuchin addressed an audience of FATF participants, saying that “We will not allow cryptocurrency to become the equivalent of secret numbered accounts” and touted the guidelines as a step toward “mak[ing] sure that virtual asset service providers do not operate in the dark shadows.”
Wall Street Voices Opposition to State Fiduciary Duty Proposals: In comment letters, trade associations expressed their opposition to New Jersey’s plan to hold broker-dealers to the same standards as investment advisors, arguing “Imposing a fiduciary duty on a customer’s relationship with its broker-dealer is artificial and confuses the fundamental purpose of the brokerage relationship with that of an advisory relationship,” adding, “The proposal will serve to disadvantage the basic brokerage model, and result in harm to New Jersey’s retail investors.”
Following the SEC’s passage of the Best Interest Rule, Massachusetts has similarly proposed a more strict standard, with secretary of the commonwealth William Galvin saying “they have muddied the waters with what they’ve done” adding, “once again, it’s up to the states to try to protect people.”