THE BIG PICTURE
Labor Secretary Alex Acosta resigned his position on Friday, after media reports led to increased scrutiny of a plea deal he struck with convicted sex offender Jeffrey Epstein during his tenure as a U.S. attorney in Florida. Earlier in the week, Secretary Acosta had sought to defend himself against criticism that the deal was overly lenient, arguing that “facts are being overlooked.” Despite continued support by the President, who told reporters “I’m with him,” by the end of the week, Secretary Acosta determined his position had become untenable.
On Thursday, the President announced that in the face of multiple legal hurdles, the administration would cease its efforts to include a question about citizenship on the 2020 census, a decision he termed “deeply regrettable.” In lieu of the question, the President revealed plans to issue an executive order requiring agencies to turn over citizenship data to the Commerce Department, vowing to leave “no stone unturned.”
In 2020 news, on Monday, Congressman Eric Swalwell (D-CA) became the first contender to drop out of the Democratic presidential primary, after struggling to distinguish himself in a crowded field. The next day, billionaire philanthropist Tom Steyer announced his bid, reversing a prior decision not to mount a campaign. Senator Elizabeth Warren (D-MA) released her second quarter fundraising haul, revealing she had raised an impressive US$19.1M, despite not holding any fundraisers.
Other highlights of last week include:
- After negotiations with House Democrats, the highly anticipated public testimony of former Special Counsel Robert Mueller was postponed by one week, from July 17th to the 24th. As part of the agreement, Mueller agreed to increase the length of both hearings.
- On Monday, New York Governor Andrew Cuomo signed into law a bill that authorizes the release of state tax returns to select congressional committees, saying, “this bill gives Congress the ability to fulfill its Constitutional responsibilities, strengthen our democratic system and ensure that no one is above the law.”
- The President took to Twitter on Thursday to express his skepticism over cryptocurrencies and bitcoin, saying he was “not a fan” and describing them as “unregulated crypto assets” whose value is “highly volatile and based on thin air.”
- Billionaire and former third-party presidential contender Ross Perot passed away on Tuesday at the age of 89.
- The British Ambassador to the United States, Kim Darroch, announced his resignation on Wednesday amidst a media furor over leaked diplomatic cables in which he described the President as “inept.”
LAST WEEK ON THE HILL
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “Monetary Policy and the State of the Economy”: On Wednesday, the Committee held a hearing to receive the testimony of Fed Chairman Jerome Powell on the conduct of monetary policy and the state of the economy. In her opening remarks, Chairwoman Maxine Waters (D-CA) emphasized that it “is essential that the Federal Reserve maintains its independence from the executive branch” in response to ongoing criticism from the President. Later in the hearing, Powell hinted that a rate cut could be on the horizon, saying, “crosscurrents have reemerged, creating greater uncertainty” in the economy.
Hearing on “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance Disclosures”
- The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System
: On Wednesday, the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets held a hearing to consider several draft legislative proposals, including (1) H.R.____, the “ESG Disclosure Simplification Act of 2019”; (2) H.R.____, the “Shareholder Protection Act of 2019”; (3) H.R.____, the “Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019”; (4) H.R.____, to require issuers required to file an annual or quarterly report under the Securities Exchange Act of 1934 to disclose the total amount of corporate tax such issuer paid in the period covered by the report; and (5) H.R.____, the “Climate Risk Disclosure Act of 2019.”
- Tim Mohin, Chief Executive, Global Reporting Initiative (GRI)
- James Andrus, Investment Manager-Financial Markets, Sustainable Investment, CalPERS Investment Office
- The Honorable Paul S. Atkins, Chief Executive Officer, Patomak Global Partners
- Degas A. Wright, CFA, Chief Executive Officer, Decatur Capital Management, Inc.
- Mindy S. Lubber, President and Chief Executive Officer, Ceres
: On Thursday, the Committee met to mark up a set of bills on a range of issues, including credit reporting, housing, diversity and inclusion, and investor protection, ultimately advancing 10 to the full House for consideration.
- H.R. 281, the Ensuring Diverse Leadership Act of 2019, introduced by Rep. Joyce Beatty (D-OH), was advanced by a vote of 56-2.
- H.R. 1018, the Improving Corporate Governance through Diversity Act of 2019, introduced by Rep. Gregory Meeks (D-NY), was advanced by a vote of 53-5.
- H.R. 2852, the Homebuyer Assistance Act of 2019, introduced by Rep. Brad Sherman (D-CA), was advanced by a voice vote.
- H.R. 3279, the Diversity in Corporate Leadership Act of 2019, introduced by Rep. Carolyn Maloney, was advanced by a vote of 52-6.
- H.R. 3614, the Restricting Use of Credit Checks for Employment Decisions Act, introduced by Rep. Al Lawson (D-FL), was advanced by a vote of 32-26.
- H.R. 3618, the Free Credit Scores for Consumers Act of 2019, introduced by Rep. Joyce Beatty (D-OH), was advanced by a vote of 32-26.
- H.R. 3619, the Appraisal Fee Transparency Act of 2019, introduced by Rep. William Lacy Clay (D-MO), was advanced by a voice vote.
- H.R. 3620, the Strategy and Investment in Rural Housing Preservation Act of 2019, introduced by Rep. William Lacy Clay (D-MO), was advanced by a unanimous vote of 57-0.
- H.R. 3622, the Restoring Unfairly Impaired Credit and Protecting Consumers Act, introduced by Rep. Rashida Tlaib (D-MI), was advanced by a vote of 32-26.
- H.R. 3642, the Improving Credit Reporting for All Consumers Act, introduced by Rep. Alma Adams (D-NC), was advanced by a vote of 32-26.
SENATE BANKING COMMITTEE
Hearing on “The Semiannual Monetary Policy Report to the Congress”: On Thursday, the Committee held a hearing to receive the testimony of Fed Chairman Jerome Powell, as well as evaluate the current state of the U.S. economy and the Fed’s implementation of monetary policy, and discuss its supervisory and regulatory activities.
- The Honorable Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System
Senate Commerce Committee “Executive Session”: On Wednesday, the Senate Commerce Committee approved S. 553, the Blockchain Promotion Act, which was sponsored by Senators Ed Markey (D-MA) and Todd Young (R-IN), and would direct the Commerce Department to establish a blockchain working group to recommend a consensus-based definition of the technology. The working group would also consider recommendations for the NTIA and FCC to undertake a study that would examine the potential impact of blockchain on spectrum policy and opportunities for the adoption of blockchain to promote efficiencies within the federal government. “Blockchain is an exciting new technology with great potential and promise,” said Senator Markey. “At its core, blockchain is a tool for exchanging data in a secure and accountable fashion, and it has already been deployed to expand access to renewable energy, enhance health care delivery systems, and improve supply chain efficiency. This legislation will help further understand applications for this technology and explore opportunities for its use within the federal government.”
ON THE FLOOR
House Passes Seven Financial Services Bills: On Wednesday, the House passed seven pieces of financial services legislation:
House Approves NDAA
- H. Res. 456, Emphasizing the Importance of State Regulators, a bipartisan resolution emphasizing the investor protection and education missions of state and federal security regulators and calling on the SEC to collaborate with state security regulators. This resolution was introduced by Rep. Ayanna Pressley (D-MA) and Rep. Bill Huizenga (R-MI). It passed by a voice vote.
- H.R. 1988, the Protect Affordable Mortgages for Veterans Act of 2019, bipartisan legislation which addresses unintended administrative complications that resulted from implementation of Section 309 of S. 2155, the “Economic Growth, Regulatory Relief, and Consumer Protection Act.” This legislation clarifies requirements for certain refinanced VA mortgage loans to allow them to be securitized by Ginnie Mae, thereby enabling those banks to make additional loans, including to veterans. This bill was introduced by Rep. David Scott (D-GA) and Rep. Lee Zeldin (R-NY). It was approved on a voice vote.
- H.R. 2162, The Housing Financial Literacy Act of 2019, bipartisan legislation that requires HUD to provide a 25-basis-point discount in upfront FHA single-family mortgage insurance premiums for first-time-homebuyers who complete a housing counseling program to help them sustain homeownership. This bill was introduced by Rep. Joyce Beatty (D-OH) and Rep. Steve Stivers (R-OH). It passed by a voice vote.
- H.R. 2409, Expanding Access to Capital for Rural Job Creators, bipartisan legislation that would require the SEC to identify unique challenges rural small businesses face in securing capital, and to describe the most serious issues that these businesses and their investors face in its annual report to Congress. This legislation was introduced by Rep. Cindy Axne (D-IA) and Rep. Alex Mooney (R-WV). It passed by a vote of 413-7.
- H.R. 2515, the Whistleblower Protection Reform Act of 2019, bipartisan legislation that expands whistleblower protections by amending Dodd-Frank to clarify that whistleblowers who report misconduct to their employers and not to the SEC also have protections against retaliation under the law. This legislation was introduced by Rep. Al Green (D-TX) and Rep. Bill Huizenga (R-MI). It passed by a vote of 410-12.
- H.R. 2919, Improving Investment Research for Small and Emerging Issuers Act, a bill that requires the SEC to report on investment research regarding small issuers, including emerging growth companies and companies considering initial public offerings. This legislation was introduced by Rep. Bill Huizenga (R-MI) and Rep. Ben McAdams (D-UT). It passed by a voice vote.
- H.R. 3050, Expanding Investment in Small Businesses Act of 2019, a bill to direct the SEC to report on (1) the limitation on shares of an individual company that a diversified investment company may own, and (2) the limitation’s impact on capital formation. This legislation was introduced by Rep. Bryan Steil (R-WI). It passed by a vote of 417-2.
: On Friday, the House voted 220-197 to pass the National Defense Authorization Act for Fiscal Year 2020. On Thursday, an amendment offered by Rep. Brad Sherman (D-CA) and co-sponsored by Rep. Maxine Waters (D-CA), Chairwoman of the Financial Services Committee, passed the House by voice vote. The Sherman-Waters amendment would prohibit U.S. persons from trading in new Russian sovereign debt within 90 days of enactment, sending a strong signal to Russia, as well as to the markets, that the U.S. resolve to punish Russia for election interference remains strong and, if repeated, will likely trigger an even greater U.S. response.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 3629: Rep. Stephen Lynch (D-MA) introduced H.R. 3629, the “Clarity in Credit Score Formation Act of 2019,” which would amend the Fair Credit Reporting Act to establish clear federal oversight of the development of credit scoring models by the Bureau of Consumer Financial Protection.
H.R. 3641: Rep. Katie Porter (D-CA) introduced H.R. 3641, the “Stronger Enforcement of Civil Penalties Act of 2019,” which would enhance civil penalties under the federal securities laws.
H.R. 3642: Rep. Alma Adams (D-NC) introduced H.R. 3642, the “Improving Credit Reporting for All Consumers Act,” which would amend the Fair Credit Reporting Act to fix the consumer report dispute process, to ban misleading and unfair consumer reporting practices.
H.R. 3652: Rep. Tulsi Gabbard (D-HI) introduced H.R. 3652, which would provide for the study and promotion of hemp.
H.R. 3701: Rep. Vicente Gonzalez (D-TX) introduced H.R. 3701, which would establish a statute of limitations for certain actions of the Securities and Exchange Commission.
H.R. 3702: Rep. Al Lawson (D-FL) introduced H.R. 3702, which would authorize the Secretary of Housing and Urban Development to provide disaster assistance to States, Puerto Rico, units of general local government, and Indian tribes under a community development block grant disaster recovery program.
H.R. 3745: Rep. Al Lawson (D-FL) introduced H.R. 3745, which would provide physical standards and reform the inspection process for housing assisted under section 8 of the United States Housing Act of 1937.
THIS WEEK ON THE HILL
Wednesday, July 17
Senate Banking Committee (Subcommittee on Economic Policy) Hearing on “Economic Mobility: Is the American Dream in Crisis?”: 9:30 AM in 538 Dirksen Senate Office Building.
Thursday, July 18
Senate Banking Committee Hearing on “Export Control Reform Implementation: Outside Perspectives”: 10:00 AM in 538 Dirksen Senate Office Building.
Agencies Adopt Final Rule to Exclude Community Banks from the Volcker Rule: On Tuesday, the Federal Reserve, CFTC, FDIC, OCC, and SEC announced that they had adopted a final rule to exclude community banks from the Volcker Rule, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act. The Volcker Rule generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds. Under the final rule, which is unchanged from the proposal, community banks with US$10B or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets are excluded from the Volcker Rule.
Agencies Simplify Regulatory Capital Rules: On Tuesday, the Federal Reserve, FDIC, and OCC issued a final rule that aims to reduce regulatory burden by simplifying several requirements in the agencies’ regulatory capital rules. The simplifications in the final rule only apply to banking organizations that do not use the “advanced approaches” capital framework, which are generally firms with less than US$250B in total consolidated assets and less than US$10B in total foreign exposure. The final rule will be effective as of April 1, 2020, for the amendments to simplify capital rules, and as of October 1, 2019, for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments.
Agencies Propose Rule on the Capital Treatment of Land Development Loans: On Friday, the Federal Reserve, FDIC, and OCC invited public comment on a proposal to clarify the treatment of land development loans under the agencies’ capital rules. The proposal expands on the agencies’ September 2018 proposal to revise the definition of high volatility commercial real estate (HVCRE) as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The land development proposal would clarify that loans that solely finance the development of land for residential properties would meet the revised definition of HVCRE, unless the loan qualifies for another exemption.
Federal Reserve Plans Volcker Rule Revamp in the Fall: In a speech on Thursday, Fed Vice Chairman of Supervision Randal Quarles announced that the Board planned to issue a proposal overhauling the Volcker Rule “early in the fall.”
CFTC Staff Issues Report Regarding the Swap Dealer De Minimis Exception and On-Venue and Cleared Swaps: On Monday, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a report that presents data and analysis regarding the swap dealer de minimis exception, with a specific focus regarding on-venue and cleared swaps. Commissioner Quintenz explained that the “staff report issued elucidates two fundamental facts about the de minimis exception. First, the report shows that the removal of exchange-traded and cleared swaps from the de minimis calculation would result in no reduction of regulatory coverage. Second, the report highlights once again the glaring deficiencies of using notional value as the registration threshold triggering swap dealer registration.”
CFTC Staff Issues Advisory Clarifying US$50M Initial Margin Threshold and Documentation Requirements: On Tuesday, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a Staff Advisory noting that CFTC’s uncleared swap margin rules do not require documentation governing the posting, collection, and custody of initial margin until the initial margin threshold amount exceeds US$50M. The Advisory was issued in furtherance of the March 2019 statement by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions concerning initial margin implementation.
CFTC Staff Provide Guidance, No-Action Relief for FCM Separate Account Practices: On Wednesday, the CFTC’s Division of Swap Dealer and Intermediary Oversight and Division of Clearing and Risk issued a joint DSIO staff advisory interpretation and DCR time limited no-action relief letter related to the treatment of separate accounts by futures commission merchants. “Today’s advisory underscores the prohibition on an FCM’s ability to limit recourse for any customer,” said DSIO Director Matthew Kulkin. “Further, the time-limited no-action relief allows derivative clearing organizations to permit FCMs to continue some margining practices relied upon by FCMs to accommodate separate accounts of the same owner. CFTC staff’s recognition of these practices carefully balances the needs of certain customer relationships without increasing the risk to clearing member FCMs, provided that the FCM also complies with rigorous risk management conditions.”
CFTC Commissioner Behnam Announces the Establishment of the Market Risk Advisory Committee’s Climate-Related Market Risk Subcommittee: On Wednesday, CFTC Commissioner Rostin Behnam announced that the Commission had voted to establish the Climate-Related Market Risk Subcommittee (Subcommittee) under the CFTC’s Market Risk Advisory Committee (MRAC). “The June 2019 MRAC meeting, which examined climate change-related financial risks, laid the groundwork for this important next step. I look forward to convening experts from industry, academia, and the public interest for what I intend to be a robust and critical effort to identify and examine the risks that climate change poses to the stability of our financial system, and determine what future actions policymakers and market participants must consider to mitigate these risks,” said Commissioner Behnam.
CFTC and SEC Invite Public Comment on a Joint Proposal to Align Margin Requirements for Security Futures with Requirements for Similar Financial Products: On Tuesday, the CFTC and SEC approved a joint proposal to align the minimum margin required on security futures with other similar financial products. The proposal would set the minimum margin requirement for security futures at 15 percent of the current market value of each security future. “The proposal highlights the ongoing collaboration between the two Commissions and our progress in harmonization of our respective regulatory regimes,” said SEC Chairman Jay Clayton.
SEC-Approved Public Token Offering Launches: On Thursday, New York-based Blockstack launched a US$28M public offering, becoming the first digital token offering to be approved by the SEC. In a press release, Blockstack said, “this is the first time in U.S. history that a crypto token offering has received SEC qualification. We believe this is a huge step forward for decentralized applications, internet security, and privacy.”
SEC Staff Publishes Statement Highlighting Risks for Market Participants to Consider as They Transition Away from LIBOR: On Friday, SEC staff released a statement encouraging market participants to proactively manage their transition away from LIBOR and outlining several potential areas that may warrant increased attention during that time. “The transition away from LIBOR is gaining some much needed traction, but, as the staff’s statement makes clear, significant work remains,” said Chairman Jay Clayton. “The risks the statement highlights deserve careful attention and I draw particular attention to the staff’s observation: ‘For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.’ The SEC will continue to monitor disclosure and risk management efforts related to the LIBOR transition, and we welcome engagement from market participants on these important matters.”
SEC Announces August 13 Meeting of Small Business Capital Formation Advisory Committee: On Tuesday, the SEC announced the August 13 meeting of its Small Business Capital Formation Advisory Committee, which provides the Commission with advice and recommendations on rules, regulations, and policy matters relating to small businesses, from privately-held emerging companies to smaller public companies. The committee’s meeting, which will be held at Creighton University in Omaha, Nebraska, precedes the SEC’s 38th annual Government-Business Forum on Small Business Capital Formation, which will take place at the Heider College of Business on August 14.
Treasury Targets Iranian-Backed Hizballah Officials for Exploiting Lebanon’s Political and Financial System: On Tuesday, Treasury’s Office of Foreign Assets Control designated key Hizballah political and security figures leveraging their privileged positions to facilitate Hizballah’s malign agenda and do Iran’s bidding. Sigal Mandelker, Treasury’s Under Secretary for Terrorism and Financial Intelligence, said in a statement that “Hizballah threatens the economic stability and security of Lebanon and the wider region, all at a cost to the Lebanese people. The United States will continue to support efforts of the Lebanese government to protect its institutions from exploitation by Iran and its terrorist proxies, and to secure a more peaceful and prosperous future for Lebanon.”
COMINGS AND GOINGS AT THE AGENCIES
Allison Herren Lee Sworn In As SEC Commissioner: On Monday, Allison Herren Lee was sworn into office as an SEC Commissioner. Commissioner Lee fills a term that expires on June 5, 2022.
Deputy Chief Accountant to Leave the SEC: On Tuesday, the SEC announced that Julie Erhardt, Deputy Chief Accountant (Technology and Innovation) in the Office of the Chief Accountant (OCA), plans to leave the agency in July after more than 14 years of noteworthy service.
External Affairs Director to Depart CFTC: On Tuesday, the CFTC announced that Erica Elliott Richardson, Director of the CFTC’s Office of External Affairs (OEA), will leave the agency later this summer.
Maggie Sklar to Depart CFTC Chairman Giancarlo’s Office: On Friday, the CFTC announced that Maggie Sklar is leaving her role as Senior Counsel to Chairman J. Christopher Giancarlo upon his departure in July.
OTHER NOTEWORTHY NEWS
Industry Groups Call for Federal Privacy Bill: In a letter to congressional leaders, a group of 27 association groups argued that “a comprehensive federal privacy law that establishes a single technology and industry-neutral framework for our economy” is needed to remove uncertainty for both businesses and consumers and to “ensure our competitiveness in the global marketplace.”