THE BIG PICTURE
The Supreme Court released a series of high profile decisions last week, closing out their current term. Chief Justice John Roberts joined with the Court’s liberals in Department of Commerce v. New York, rejecting the administration’s justification for adding a citizenship question to the 2020 census, saying “the evidence tells a story that does not match the explanation [Commerce Secretary Wilbur Ross] gave for his decision.” In Rucho v. Common Cause, the conservative majority ruled that partisan gerrymandering was a “political question” that was beyond the reach of federal courts, finding they could not declare maps unconstitutional—a decision that will likely have an impact on districts following the next census. In a fiery dissent, Justice Elena Kagan argued, “gerrymanders like the ones here may irreparably damage our system of government.” The Court declined to hear an appeal seeking to restore an Alabama law outlawing a form of abortion, but agreed to hear the cases surrounding the administration’s decision to rescind the Deferred Action for Childhood Arrivals next term, which begins in October.
The first debates in the Democratic presidential primary were held over two nights last week in Miami. The candidates sparred over their views on a wide array of issues including immigration reform, climate change, healthcare and social justice. On the first night, Senator Elizabeth Warren had a strong evening, and distinguished herself as one of two candidates on stage willing to commit to abolishing private health insurance in favor of a government run program. Beto O’Rourke’s performance was panned by some after a volley with Julian Castro where he was accused of not doing his homework, a shift for the once widely hyped candidate. On the second evening, current frontrunner Joe Biden stumbled in several exchanges with Senator Kamala Harris, particularly around school busing, in what amounted to a disappointing evening for his campaign.
Other highlights of last week include:
- President Trump became the first sitting president to set foot in North Korea, following a meeting with Kim Jong Un in the demilitarized zone on Sunday.
- Despite his initial reluctance, former Special Counsel Robert Mueller will appear before both the House Intelligence and Judiciary Committees on July 17th after being served with a subpoena.
- It was announced that Stephanie Grisham, who has served as a top aide to First Lady Melania Trump, will succeed Sarah Huckabee Sanders as press secretary.
- Customs and Border Protection commissioner John Sanders announced his resignation, effective July 5th.
- The House Oversight Committee voted 25-16 to subpoena Kellyanne Conway after she failed to voluntarily appear for a hearing focused on her alleged violations of the Hatch Act.
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion”: On Tuesday, the Subcommittee on Diversity and Inclusion held a hearing to explore the challenges minority- and women-owned firms face trying to compete in the asset management industry, and will discuss draft legislation (H.R. __, the “Diverse Asset Managers Act”) to increase the use of diverse asset managers by institutional investors.
- Juan Martinez, Vice President/Chief Executive Officer and Treasurer, Knight Foundation
- John Rogers, Chairman, CEO & Chief Investment Officer, Ariel Investments
- Brenda Chia, Founding Board Member & Co-Chair, Association of Asian American Investment Managers (AAAIM)
- Angela Miller-May, Chief Investment Officer, Chicago Teachers’ Pension Fund
- Meredith Jones, Investment researcher and Author
Hearing on “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation”: On Tuesday, the Task Force on Financial Technology held its inaugural hearing to consider local and international perspectives on Fintech regulation. Rep. Warren Davidson (R-OH) pressed SEC official Valerie Szczepanik on whether lack of guidance regarding cryptocurrencies in the U.S. has forced companies abroad, to which she replied that “it’s important to remember that distributed ledger technology is nascent and it’s fast evolving,” adding that “our laws that we have currently are flexible and principles based … this isn’t the first time we’ve had a new technology come to bear. We regulate around activity and conduct.”
- Paul Watkins, Assistant Director, Office of Innovation, Consumer Financial Protection Bureau
- Beth Knickerbocker, Chief Innovation Officer, Office of the Comptroller of the Currency
- Valerie Szczepanik, Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation, Securities and Exchange Commission
- Charles E. Clark, Director, Department of Financial Institutions, State of Washington, on behalf of the Conference of State Bank Supervisors
- Christopher Woolard, Board Member and Director of Strategy and Competition, Financial Conduct Authority, United Kingdom
Hearing on “Perspectives on Artificial Intelligence: Where We Are and the Next Frontier in Financial Services”: On Wednesday, the Task Force on Artificial Intelligence held a hearing on artificial intelligence. Ranking Member French Hill (R-AR) discussed the panel’s aim of finding “ways to foster innovation through the use of artificial intelligence for both disruptive innovators and incumbent financial players, small and large.”
- Dr. Nicol Turner-Lee, Fellow, Governance Studies, Center for Technology Innovation, Brookings Institution
- Dr. Bonnie Buchanan, Head of School of Finance and Accounting and Professor of Finance, Surrey Business School, University of Surrey
- Dr. Douglas Merrill, Founder and CEO, ZestFinance
- Mr. R. Jesse McWaters, Financial Innovation Lead, World Economic Forum
“Markup”: On Wednesday, the full Committee held a markup of H.R. 1690, the “Safe Housing for Families Act of 2019,” introduced by Rep. Chuy Garcia (D-IL), which would authorize US$300M over three years to fund the installation and maintenance of carbon monoxide detectors in Department of Housing and Urban Development-subsidized housing units. The bill was advanced to the full House by voice vote. The Committee had been expected to also markup H.R. 3407, the “United States Export Finance Agency Act of 2019,” but did not call it up.
SENATE BANKING COMMITTEE
Hearing on “Should Fannie Mae and Freddie Mac be Designated as Systemically Important Financial Institutions?”: On Tuesday, the full Committee met to assess the viability of a formal designation of Fannie Mae and Freddie Mac as systemically important financial institutions under Title 1 of Dodd-Frank. Chairman Mike Crapo (R-ID) expressed interest in determining “to what extent a SIFI designation … would result in increased capital levels at the GSEs that can shield taxpayers from liability in the event of a future market downturn; how the Fed and FHFA would coordinate their oversight efforts in the event of a designation” as well as the broader impact on the mortgage market. Turnout from the Committee was sparse, with only 6 of 25 members in attendance.
- Mr. Alex Pollock, Distinguished Senior Fellow, R Street Institute
- Dr. Douglas Holtz-Eakin, President, American Action Forum
- The Honorable Susan Wachter, Sussman Professor of Real Estate and Professor of Finance, The Wharton School of the University of Pennsylvania
Hearing on “Oversight and Reauthorization of the Export-Import Bank of the United States”: On Thursday, the full Committee held a hearing to discuss the reauthorization and future oversight of the Export-Import Bank. The Committee heard from the newly confirmed President of the Bank, Kimberly Reed.
- The Honorable Kimberly Reed, President and Chairman of the Board of Directors of the Export-Import Bank of the United States
Senate Agriculture Committee Hearing on “The State of the Derivatives Market and Perspectives for CFTC Reauthorization”: On Tuesday, the full Committee met to consider about the state of global derivative markets and CFTC reauthorization. They discussed shifts in the global landscape since the last time the agency was reauthorized in 2008, including the advent of blockchain technology and various cryptocurrencies, as well as the increasing importance of cybersecurity. The panel received testimony from the derivative industry’s SRO about the safety and soundness of U.S. derivative markets, from a global trade association about current market trends, from an agricultural cooperative, and a consumer advocacy organization formed after the 2008 financial crisis about any additional reforms it believes may be necessary.
- Mr. Thomas Sexton, President and CEO, National Futures Association, Chicago, Ill.
- The Honorable Walter Lukken, President and CEO, Futures Industry Association, Washington, D.C.
- Mr. Joe Barker, Director of Brokerage Services, CHS Hedging, St. Paul, Minn.
- Mr. Dennis Kelleher, President and CEO, Better Markets, Washington, D.C.
House Agriculture Committee Hearing on “Brexit and Other International Developments Affecting U.S. Derivatives Markets”: On Wednesday, the Subcommittee on Commodity Exchanges, Energy, and Credit held a hearing on the implications of “Brexit” and other international developments on the U.S. derivatives market. Chairman David Scott (D-GA) noted the importance of this topic as “financial instruments do not operate in a vacuum” and emphasized that “What happens in the EU and the UK will ripple through financial markets” while expressing hope that the subcommittee could “begin to explore and better understand what Brexit and the associated geopolitical developments in Europe and elsewhere will mean for the derivatives market in the United States.”
- Mr. Terrence Duffy, Chairman and CEO, Chicago Mercantile Exchange, Chicago, Illinois
- Mr. Christopher Edmonds, Senior Vice President of Financial Markets, Intercontinental Exchange, Chicago, Illinois
- Mr. Daniel Maguire, CEO, LCH Group, London, United Kingdom
- Mr. Walt Lukken, President and CEO, Futures Industry Association, Washington, D.C.
- Mr. Stephen Berger, Managing Director, Global Head of Government and Regulatory Policy, Citadel LLC, on behalf of Managed Funds Association, New York, New York
House Energy Committee “Markup”: On Tuesday, the Committee held a markup of H.R. 3375, the bipartisan “Stopping Bad Robocalls Act,” sponsored by Rep. Frank Pallone (D-NJ) which would clarify the prohibitions on making robocalls. The bill was advanced to the full House by voice vote, after approving four amendments.
ON THE FLOOR
Appropriations Bills Pass House: On Tuesday, the House voted 227-194 to pass a US$383B five-bill package funding the Departments of Commerce, Justice, Agriculture, Veterans Affairs, Transportation, and HUD. On Wednesday, the House voted 224-196 to pass the US$24.6B fiscal year 2020 Financial Services and General Government Appropriations bill. The bill includes a 3.1% pay raise for federal employees as well as increases in funding to the Treasury Department and IRS.
Emergency Border Funding Package: On Thursday, the House voted 305-102 to pass a US$4.6B emergency funding package to address the humanitarian crisis on the southern border. The House was ultimately forced to vote on a bipartisan measure approved by the Senate instead of reconciling the measure with their own version of the bill after facing significant pressure from moderates in the caucus.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 3448: Rep. Ilhan Omar (D-MN) introduced H.R. 3448, which would forgive outstanding Federal and private student loans.
H.R. 3490: Rep. Nydia Velazquez (D-NY) introduced H.R. 3490, which would amend the Truth in Lending Act to prohibit certain unfair credit practices.
H.R. 3508: Rep. Mike Gallagher (R-WI) introduced H.R. 3508, which would impose sanctions with respect to the People’s Republic of China in relation to activities in the South China Sea and the East China Sea.
H.R. 3511: Rep. Marcy Kaptur (D-OH) introduced H.R. 3511, which would direct the Secretary of the Department of Housing and Urban Development and the Director of the Federal Housing Finance Agency to develop a program to provide assistance to creditworthy borrowers with Federal student debt in purchasing certain foreclosed homes owned by the Federal government, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and local land banks.
S. 1953: Senators Cory Gardner (R-CO) and Tammy Baldwin (D-WI) reintroduced S. 1953, the “Aluminum Pricing Examination (APEX) Act,” which would amend the Commodity Exchange Act to extend the jurisdiction of the Commodity Futures Trading Commission to include the setting of reference prices for aluminum premiums.
THIS WEEK ON THE HILL
No hearings scheduled during recess period.
Federal Reserve Releases Results of Comprehensive Capital Analysis and Review: On Thursday, the Federal Reserve Board released the results of the Comprehensive Capital Analysis and Review (CCAR), reporting that the nation’s largest banks have strong capital levels and virtually all are now meeting supervisory expectations for capital planning. The Board is not objecting to the capital plans of all 18 firms but is requiring one firm to address limited weaknesses identified from the test. “The stress tests have confirmed that the largest banks are both well capitalized and place a high priority on strong capital planning practices,” said Vice Chair for Supervision Randal K. Quarles. “The results show that these firms and our financial system are resilient in normal times and under stress.”
CFPB Director Discusses Abusive Standard: Speaking at the agency’s Abusive Acts or Practices Symposium, Director Kathy Kraninger acknowledged that uncertainty regarding the abusive standard under Section 1031 of the Dodd-Frank Act, which the agency uses to sue companies to protect consumers from “unfair, deceptive or abusive acts of practices,” had caused confusion in the marketplace, and “creates impediments to innovation and other beneficial developments.” Director Kraninger noted that the symposium would help “inform the Bureau’s thinking as to whether the Bureau should use its rulemaking or other tools to provide clarity about the general meaning of abusiveness—and, if so, which principles should be applied to determine the scope of abusiveness.”
FTC Announces New Crackdown on Illegal Robocalls: On Tuesday, the FTC and its law enforcement partners announced a major crackdown on illegal robocalls, including 94 actions targeting operations around the country that are responsible for more than one billion calls pitching a variety of products and services including credit card interest rate reduction services, money-making opportunities, and medical alert systems. The joint crackdown, “Operation Call it Quits,” is part of the Commission’s ongoing effort to help stem the tide of pre-recorded telemarketing calls. It also includes new information to help educate consumers about illegal robocalls.
CFTC to Clarify Cross-Border Regulatory Commitments: On Tuesday, the CFTC announced that it had unanimously approved a proposed rule to amend Part 30 of CFTC regulations that governs the offer and sale of foreign futures and options to customers located in the U.S. The proposed amendments would codify the CFTC’s authority to terminate exemptive relief issued to foreign firms. Chairman Giancarlo said in a statement that “Regulators must maintain strong relations across jurisdictions, both in spirit and in written commitments, especially when dealing with complex financial derivatives that impact global markets” adding that the agency was “once again seeking to lead by example, and looks to authorities in other jurisdictions to demonstrate a similar commitment to regulatory deference and support for market-led activity taking place across international markets.”
CFTC Announces LabCFTC Accelerator and Second FinTech Conference: On Thursday, the CFTC announced two events intended to facilitate and incorporate market-enhancing FinTech innovation. The agency launched LabCFTC Accelerator, a component of the broader CFTC’s LabCFTC initiative, focused on deploying a variety of tools, including internal pilots and tests, market research, and innovation competitions in order to drive better understanding and potential adoption of emerging technologies. It also announced that it will hold FinTech Forward 2019, the second annual conference dedicated to exploring the latest in FinTech developments, on October 24, 2019 at its Washington, D.C. headquarters during D.C. FinTech Week.
CFTC Staff Issues No-Action Relief for Floor Traders Engaged in Swaps Activity: On Thursday, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) announced that it will provide no-action relief to registered floor traders from compliance with certain conditions in a CFTC regulation related to the “swap dealer” definition. “Today’s relief eliminates ambiguity for market participants wishing to engage in swaps activity in their capacity as a floor trader,” said DSIO Director Matthew Kulkin. “Such clarity will encourage new liquidity providers to trade cleared swaps on registered venues without regulatory uncertainty, benefiting market participants seeking to access liquid, competitive cleared swaps markets.”
CFTC Extends Public Comment Period for Proposal to Amend Derivatives Clearing Organization Regulations: On Friday, the CFTC announced that it was extending to September 13 the comment period for the proposed rulemaking to amend certain regulations that apply to derivatives clearing organizations under Part 39 of the CFTC’s regulations. The proposed amendments would, among other things, address certain risk management and reporting obligations, clarify the meaning of certain provisions, simplify processes for registration and reporting, and codify existing staff relief and guidance. The original comment period for the proposed rulemaking was to expire on July 15.
CFTC, SEC and FCA Issue Joint Statement on Opportunistic Strategies in the Credit Derivatives Market: On Monday, CFTC Chairman J. Christopher Giancarlo, SEC Chairman Jay Clayton, and U.K. Financial Conduct Authority Chief Executive Andrew Bailey issued a joint statement regarding the credit derivatives market, saying “The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally.” They added that “the agencies will make collaborative efforts to prioritize the exploration of avenues, including industry input which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets.”
CFPB and Federal Reserve Issue Final Amendments to Regulation CC Regarding Funds Availability: On Monday, the Consumer Financial Protection Bureau and the Federal Reserve Board jointly published amendments to Regulation CC that implement a statutory requirement to adjust for inflation the amount of funds depository institutions must make available to their customers. The amendments apply in circumstances ranging from next business day withdrawal of certain check deposits to setting the threshold amount for determining whether an account has been repeatedly withdrawn.
FDIC to Centralize Key Aspects of Its Large, Complex Financial Institution Activities: On Thursday, the FDIC announced it plans to centralize the supervision and resolution activities for the largest banks and complex financial institutions in a new division to be named the Division of Complex Institution Supervision and Resolution (CISR) which will be headed by Rick Delfin, who is currently the Director of the FDIC’s Office of Complex Financial Institutions. Chairwoman Jelena McWilliams said the move “will enable us to take a more holistic approach to the supervision and resolution of these institutions and the unique challenges they present.” The new division will be responsible for the Agency’s supervision and monitoring of banks with assets greater than US$100B for which the FDIC is not the primary federal regulator. On the resolution side, the new division will be responsible for planning for and executing the FDIC’s resolution mandates for these institutions, as well as for other financial companies if called upon to protect U.S. financial stability. Currently, those activities are divided into three separate areas of the Agency.
FDIC Hosts Interagency Conference Focusing on Minority Depository Institutions: The FDIC hosted the 2019 Interagency Minority Depository Institution and CDFI Bank Conference this week in partnership with the Federal Reserve Board and the Office of the Comptroller of the Currency. The two-day conference, included discussions on a wide range of topics related to minority depository institutions (MDIs), such as innovation, supervision, cybersecurity, and federal programs supporting MDIs. Chairman McWilliams announced several FDIC initiatives focused on MDIs, including: establishment of a new MDI subcommittee to the FDIC's Advisory Committee on Community Banking to provide a new platform for MDIs to exchange best practices, and the initiation of a series of roundtables between MDIs and other FDIC-supervised institutions to promote collaborative opportunities, such as direct investments and deposits in MDIs.
Treasury Targets Senior IRGC Commanders Behind Iran’s Destabilizing Activities: On Monday, Treasury’s Office of Foreign Assets Control (OFAC) took action today against eight senior commanders of Navy, Aerospace, and Ground Forces of the Islamic Revolutionary Guards Corps (IRGC). The designations reinforced the President’s action in issuing an Executive Order imposing sanctions on the Supreme Leader of the Islamic Republic of Iran as well as the Supreme Leader’s Office. “The United States is targeting those responsible for effectuating the Iranian regime’s destructive influence in the Middle East. IRGC commanders are responsible for the Iranian regime’s provocative attacks orchestrated in internationally recognized waters and airspace, as well as Iran’s malign activities in Syria,” said Treasury Secretary Steven Mnuchin. “Treasury will continue to aggressively target the senior leaders and the financial apparatus sustaining this malign activity.”
Treasury Sanctions Nicolas Maduro’s Son: On Friday, Treasury’s Office of Foreign Assets Control (OFAC) designated the son of Venezuela’s illegitimate regime leader Nicolas Maduro Moros, who was previously sanctioned on July 31, 2017. This action, taken pursuant to Executive Order (E.O.) 13692, targets Nicolas “Nicolasito” Ernesto Maduro Guerra (Maduro Guerra) for being a current or former official of the Government of Venezuela. “Maduro’s regime was built on fraudulent elections, and his inner circle lives in luxury off the proceeds of corruption while the Venezuelan people suffer,” said Treasury Secretary Steven Mnuchin. “Maduro relies on his son Nicolasito and others close to his authoritarian regime to maintain a stranglehold on the economy and suppress the people of Venezuela. Treasury will continue to target complicit relatives of illegitimate regime insiders profiting off of Maduro’s corruption.”
COMINGS AND GOINGS AT THE AGENCIES
Director of CFTC’s Office of International Affairs to Leave the Agency: On Monday, the CFTC announced that Eric Pan, who has served as Director of CFTC’s Office of International Affairs since 2015, will leave the agency in August. After leaving the agency, Pan will spend a semester as a Senior Research Fellow in the Center for Law and Economic Studies at Columbia Law School in New York City.
SEC Names Vanessa Countryman to Lead the Office of the Secretary: On Monday, the SEC announced that Vanessa Countryman had been appointed as the agency’s Secretary, after having served as Acting Secretary since March 2019. Ms. Countryman joined the SEC in July 2010 as a Counsel to Commissioner Kathleen Casey and subsequently to Commissioner Daniel Gallagher. Beginning in 2013, Ms. Countryman served as Chief Counsel in the Division of Economic and Risk Analysis.
SEC Chief of Staff Lucas Moskowitz to Leave the Agency; Sean Memon Appointed to Succeed Him: On Wednesday, the SEC announced that Chief of Staff Lucas Moskowitz will leave the agency in early August to return to the private sector. Mr. Moskowitz has served in various roles in the federal government for nearly a decade, including more than five years at the SEC. He was named Chief of Staff by Chairman Jay Clayton in May 2017. It was also announced that Sean Memon will become the agency’s next Chief of Staff, having served as Deputy since May 2017.
SEC Names Bryan Wood as Deputy Chief of Staff: On Wednesday, the SEC announced that Bryan Wood had been named the agency’s Deputy Chief of Staff. Mr. Wood has served as the Director of the Office of Legislative and Intergovernmental Affairs since June 2017, and prior to joining the agency spent 10 years on Capitol Hill, most recently as Senior Advisor and Counsel at the House Financial Services Committee.
Holli Heiles Pandol as Director of the Office of Legislative and Intergovernmental Affairs: On Wednesday, the SEC announced that Holli Heiles Pandol had been named Director of the agency’s Office of Legislative and Intergovernmental Affairs. Ms. Pandol previously served in the Office of Legislative and Intergovernmental Affairs as Senior Counsel. Before joining the SEC, Ms. Pandol spent over five years on Capitol Hill, most recently as Counsel at the House Financial Services Committee.
FDIC Names Amy Thompson as Director of the Office of Communications: On Monday, the FDIC announced the appointment of Amy Thompson as Director of the Office of Communications. Prior to joining the FDIC, Ms. Thompson was Assistant Secretary for Public Affairs at HUD.
OTHER NOTEWORTHY ITEMS
23 States Join Multistate Licensing Agreement for Financial Services Companies: On Monday, 23 states committed to a multistate agreement that standardizes key elements of the licensing process for money transmitters and other money services businesses (MSB), building on an original agreement that 7 states had signed on to in February of 2018. “The collaboration among these 23 states has significantly streamlined the licensing process for participating companies,” said Charlie Clark, director of the Washington State Department of Financial Institutions. “This is a new era in the state system where we are not only coordinating but actively relying on our fellow regulators.”