THE BIG PICTURE
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Coronavirus cases in the United States hit 6.8 million last week as the death toll approached 200,000. While spikes in the Sunbelt and West have begun to decline, worrisome increases in the Midwest and some Southern states have fueled a rise in the daily average of new cases to 40,000. As vaccine candidates progress through trial phases, the President continues to express optimism that one will be ready before the end of the year and, on Friday, said there would be a vaccine dose for every American by April of next year. CDC Director Robert Redfield put forward a more cautious timeline, saying it may not be possible until the second or third quarter of 2021. As the country longs for a return to normalcy, the Big Ten football conference reversed an earlier decision to postpone the season and is set to resume playing in October.
Supreme Court Justice Ruth Bader Ginsburg passed away on Friday at the age of 87 due to complications from metastatic pancreatic cancer. Ginsburg, who in recent years had become a cultural icon popularized as the notorious RBG, was remembered as a champion for women’s rights and equality for all. Her death set off a political firestorm over who will pick her successor. With less than six weeks until the election, Democrats have demanded the seat remain vacant until the people have spoken. While Senate Majority Leader Mitch McConnell adhered to that principle in 2016, refusing to hold a hearing to consider President Obama’s choice of Merrick Garland for nearly 8 months, he has already indicated he plans to hold a Senate vote on President Trump’s nominee. The impact of the vacancy on the election remains uncertain, but both parties are seizing the issue to energize their base.
Despite increasing pressure to find common ground on a COVID-19 relief package, little progress has been made in negotiations. House Speaker Nancy Pelosi rejected the premise of the Senate’s “skinny” bill passed last week and vowed the chamber would remain in session until an agreement was reached. A bipartisan group of House members, the Problem Solvers Caucus, released their own US$2T proposal on Tuesday that would include US$450 a week in enhanced unemployment benefits, but the measure was dismissed by Democratic leadership as not doing enough to address medical and economic needs. The President seemed to endorse a larger package via Tweet on Wednesday, putting him at odds with Republican leadership.
Other highlights of last week include:
- On Tuesday, the President hosted the leaders of Israel, the UAE, and Bahrain for the signing of the “Abraham Accords” re-establishing diplomatic relations.
- An additional 860,000 Americans applied for jobless benefits last week, a slight decrease from prior weeks as the economy struggles to regain ground from COVID-related shutdowns.
LAST WEEK ON THE HILL
Brown and Colleagues Call on SEC to Protect the Whistleblower Program: On Thursday, Sen. Sherrod Brown (D-OH) led a group in sending a letter to SEC Chair Jay Clayton regarding the pending rule proposal that would alter the Whistleblower Program. The lawmakers stressed that the proposal could damage the SEC’s successful whistleblower program by making it harder for whistleblowers to receive awards and discouraging reporting of violations. The Senators urged the agency to strengthen whistleblower protections as a tool for addressing fraud and misconduct in the financial services industry.
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “Prioritizing Fannie’s and Freddie’s Capital over America’s Homeowners and Renters? A Review of the Federal Housing Finance Agency’s Response to the COVID-19 Pandemic”: On Wednesday, the full Committee held a hearing to conduct oversight over the Federal Housing Finance Agency surrounding its response to the COVID-19 pandemic. Committee Chairwoman slammed HUD Secretary Ben Carson for declining to appear in her opening remarks, claiming he appeared to have “enough time on his calendar to make non pandemic related decisions that undermine fair housing protections.”
- Dr. Mark Calabria, Director, Federal Housing Finance Agency
Hearing on “Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the
COVID-19 Pandemic”: On Thursday, the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets held a hearing to examine insider trading and stock option grants and the impact of such compensation schemes on the state of corporate integrity during the COVID-19 pandemic.
- Rick Claypool, Research Director, Office of the President, Public Citizen
- Jill Fisch, Distinguished Professor of Business Law and Co-Director of the Institute of Law and Economics, University of Pennsylvania Law School
- Jacob Frenkel, Chair of Government Investigations and Securities Enforcement, Dickinson Wright
- Granville Martin, Senior Vice President and General Counsel, Society for Corporate Governance
House Select Subcommittee on the Coronavirus Launches Investigation into Political Interference in CDC Scientific Reports on Coronavirus: On Monday, the Subcommittee on the Coronavirus Crisis sent a letter to HHS Secretary Alex Azar and CDC Director Robert Redfield requesting transcribed interviews and documents regarding efforts by the Trump Administration to block the publication of accurate scientific reports related to the coronavirus crisis. They wrote, “We are gravely concerned by reports showing that the President’s political appointees at HHS have sought to help him downplay the risks of the coronavirus crisis by attempting to alter, delay, and block critical scientific reports from CDC.”
Select Subcommittee Finds White House Task Force Weakened Recommendations as Infection Rates Rose: On Wednesday, the Subcommittee on the Coronavirus Crisis sent a letter to Vice President Mike Pence and Coronavirus Response Coordinator Dr. Deborah Birx Task Force raising concerns that the Task Force has weakened or retracted previous science-based recommendations in numerous states still in the “red zone,” including states that failed to comply with previous Task Force recommendations. The letter also demanded the release of all White House Coronavirus Task Force reports tracking the spread of the virus and making recommendations to contain the outbreak.
Congressional Oversight Commission Hearing on “Municipal Liquidity Facility”: On Thursday, the Congressional Oversight Commission held its second hearing to examine the Municipal Liquidity Facility established by the Federal Reserve pursuant to the CARES Act.
- Kent Hiteshew, Deputy Associate Director, Division of Financial Stability, Board of Governors of the Federal Reserve System
- Chris Edwards, Director, Tax Policy Studies, Cato Institute
- Marion Gee, President, Government Finance Officers Association, Finance Director
- Patrick McCoy, Director of Finance, Metropolitan Transit Authority
- Mark Zandi, Chief Economist, Moody’s Analytics
ON THE FLOOR
House Clears Bill on Security Standards for Internet of Things: On Monday, the House passed H. R. 1668, the IoT Cybersecurity Improvement Act, by voice vote. The bipartisan measure would leverage Federal Government procurement power to encourage increased cybersecurity for Internet of Things devices.
LEGISLATION INTRODUCED AND PROPOSED
H.R. 8252: Rep. Al Green (D-TX) introduced H.R. 8252, which would require the Director of the Federal Housing Finance Agency to require each enterprise to include a military service question on the form known as the Uniform Residential Loan Application above the signature line of such application.
H.R. 8280: Rep. Patrick McHenry (R-NC) introduced H.R. 8280, which would require the Securities and Exchange Commission to extend exemptions for securities offered as part of employee pay to other individuals providing goods for sale, labor, or services for remuneration, to preempt certain provisions of State law with respect to wage rates and benefits.
S. 4462: Sen. Roger Wicker (R-MS) introduced S. 4462, which would establish a national integrated flood information system within the National Oceanic and Atmospheric Administration and for other purposes.
S. 4559: Sen. Bob Menendez (D-NJ) introduced S. 4559, the Russia Bounty Response Act of 2020, which would respond to the provision of bounties by the Government of the Russian Federation for the killing of members of the Armed Forces of the United States and members of the Resolute Support Mission led by the North Atlantic Treaty Organization and with respect to certain Russian political figures and oligarchs.
S. 4607: Sen. John Kennedy (R-LA) introduced S. 4607, which would provide forgiveness for paycheck protection program and economic injury disaster loans related to COVID-19 made to businesses that are located in an area for which the President declared a major disaster related to Hurricane Laura or Hurricane Sally.
S. 4614: Sen. Kirsten Gillibrand (D-NY) introduced S. 4614, which would amend title 39, United States Code, to provide that the United States Postal Service may provide certain basic financial services.
America LEADS Act: On Thursday, Senate Democrats introduced the America Labor, Economic competitiveness, Alliances, Democracy and Security (America LEADS) Act, their proposal for a new U.S.-China policy. Sponsored by 11 leading Democrats, the legislation is guided by four pillars: (1) invest in American competitiveness; (2) support American alliances and partners; (3) restore and advance a values-centered foreign policy; and (4) ensure China pays a price for its predatory actions.
THIS WEEK ON THE HILL
Tuesday, September 22
House Financial Services Committee hearing on “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response”: 10:30 AM – Hybrid.
Wednesday, September 23
House Select Subcommittee on the Coronavirus Crisis hearing on “Federal Reserve’s Response to the Economic Crisis”: 10:00 AM – Hybrid.
Senate Commerce Committee hearing on “Revisiting the Need for Federal Data Privacy Legislation”: 10:00 AM in 253 Russell Senate Office Building.
Thursday, September 24
Senate Banking Committee hearing on “The Quarterly CARES Act Report to Congress”: 10:00 AM in 106 Dirksen Senate Office Building.
House Small Business Committee hearing on “Paycheck Protection Program: An Examination of Loan Forgiveness, SBA Legacy Systems, and Inaccurate Data”: 10:00 AM – Hybrid.
Friday, September 25
House Small Business Committee hearing on “A Review of PPP Forgiveness”: 9:30 AM – Hybrid.
SEC Adopts Amendments to Enhance Retail Investor Protections and Modernize the Rule Governing Quotations for Over-the-Counter Securities: On Wednesday, the SEC adopted amendments to Exchange Act Rule 15c2-11, an important component of the over-the-counter (OTC) market regulatory structure. The amendments are designed to modernize the rule, which was last substantively amended nearly thirty years ago, including to recognize advances in communications technologies. The amended rule enhances disclosure and investor protection in the OTC market by ensuring that broker-dealers, in their role as professional gatekeepers to this market, do not publish quotations for an issuer’s security when current issuer information is not publicly available, subject to certain exceptions.
SEC Releases Report and Recommendations on the 39th Annual Small Business Forum: On Monday, the SEC delivered a report to Congress on the 39th Annual Small Business Forum. The 2020 Forum highlighted challenges and success stories from startups to small cap companies across the country and featured discussions about women-owned, minority-owned, and rural businesses and their investors, as well as the potential paths for the next generation of publicly-listed companies.
FinCEN Issues Final Rule on AML: On Monday, the Financial Crimes Enforcement Network issued a final rule that requires minimum standards for anti-money laundering programs for banks lacking a Federal functional regulator. The move is part of an effort to ensure consistent Bank Secrecy Act coverage across the banking industry. The final rule also extends customer identification program and beneficial ownership requirements to those banks. Banks without a Federal functional regulator are currently required to comply with certain BSA obligations, including filing suspicious activity and currency transaction reports. FinCEN anticipates that banks lacking a Federal functional regulator will be able to leverage existing policies, procedures, and internal controls required by other statutory and regulatory requirements to fulfill the obligations set out in the final rule.
Federal Reserve Board Releases Hypothetical Scenarios for Second Round of Bank Stress Tests: On Thursday, the Federal Reserve released its hypothetical scenarios for a second round of bank stress tests. Earlier this year, the Board's first round of stress tests found that large banks were well capitalized under a range of hypothetical events. An additional round of stress tests is being performed due to the continued uncertainty from the COVID pandemic.
Federal Reserve Board Updates Frequently Asked Questions to Clarify the Board and Department of Treasury’s Expectations Regarding Lender Underwriting for the Main Street Lending Program: On Friday, the Federal Reserve Board updated its frequently asked questions to clarify the Board and Department of Treasury's expectations regarding lender underwriting for the Main Street Lending Program. The revised FAQs emphasize that lender underwriting should look back to the borrower's pre-pandemic condition and forward to their post-pandemic prospects. The FAQs also clarify supervisory expectations for lenders originating Main Street loans.
CFPB Releases Outline of Proposals under Consideration to Implement Small Business Lending Data Collection Requirements: On Tuesday, the CFPB released its Outline of Proposals under Consideration and Alternatives Considered for Section 1071 of the Dodd-Frank Act governing small business lending data collection and reporting. The Bureau will convene a Small Business Advocacy Review panel in October 2020. The panel will prepare a report that examines the impact of the potential rule on small businesses. The report, along with feedback received from small businesses, will be considered by the Bureau in its rulemaking to implement Section 1071.
CFTC Staff Provides Relief and Further Guidance Regarding FCM Separate Account Practices: On Tuesday, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) and Division of Clearing and Risk (DCR) issued a joint staff letter containing an advisory and time limited, conditional no-action relief related to the treatment by futures commission merchants (FCMs) of separate accounts for a particular customer. Specifically, the DCR-DSIO joint staff letter: (i) extends the time to comply with the conditions of relief until March 31, 2021, given the extraordinary difficulties created by COVID-19; (ii) provides further interpretations regarding the requirements of Regulation 1.56 for separate accounts; (iii) provides further conditional no-action relief for cases where compliance with Regulation 1.56 is ambiguous with the stipulation that fulfillment of the conditions be completed by March 31, 2021; and (iv) extends the overall time-limit on the conditional no-action relief with respect to Regulation 39.13(g)(8)(iii) through December 31, 2021.
CFTC Finalizes Rules to Improve Swap Data Reporting: On Thursday, the CFTC approved three final rules to revise CFTC regulations for swap data reporting, dissemination, and public reporting requirements for market participants. All three measures are part of the CFTC’s efforts to improve the quality, accuracy, and completeness of the data reported to the agency and streamline CFTC regulations. The Commission also unanimously approved a final rule that will permit derivatives clearing organizations (DCOs) organized outside of the U.S. to be registered with the CFTC. Finally, the Commission unanimously approved a supplemental notice of proposed rulemaking regarding amendments to the CFTC’s regulations that govern bankruptcy proceedings for commodity brokers.
State Regulators Roll Out One Company, One Exam for Nationwide Payments Firms: On Tuesday, the Conference of State Bank Supervisors announced the launch of a state-initiated program whereby nationwide payments firms will undergo one comprehensive exam in 2021 that seeks to satisfy all state examination requirements. Known as MSB Networked Supervision, the initiative applies to 78 of the nation’s largest payments and cryptocurrency companies that currently meet the 40-state threshold. These companies combined move more than US$1T a year in customer funds.
Treasury Releases Report on National Financial Literacy Strategy: On Monday, the Treasury Department released the National Strategy 2020 on behalf of the Financial Literacy and Education Commission. The National Strategy details the federal government’s financial literacy priorities and underscores its plan to collaborate with state, local, and tribal governments and the private sector to strengthen financial capability for all Americans. “High-quality financial education is critical to helping Americans successfully navigate challenges, capitalize on opportunities, build resilience, and recover from economic setbacks. The federal government plays an important role in empowering Americans to make independent financial decisions, and this National Strategy offers ways we can be even more effective in this task,” said Secretary Steven Mnuchin.
FDIC Launches Its First-Ever Academic Challenge: On Friday, the FDIC announced the launch of the agency’s first-ever Academic Challenge, a competition among teams of university and college students to address questions concerning the U.S. banking sector. The topic for this inaugural challenge is “The Effects of Community Banks on Local Economic Development.” The FDIC’s Center for Financial Research is hosting the 2020-2021 Academic Challenge, which will consist of two rounds. In the first round of the competition, teams of undergraduate students will use multiple public data sources to examine the effects of community banks on local economic development. In the second round, finalist teams will be invited to present their findings and answer questions from a panel of judges who work in the areas of banking and bank supervision.
EXIM Chair Reed Highlights Trade Finance Tools: On Wednesday, Export-Import Bank of the United States President and Chair Kimberly Reed delivered remarks to more than 160 registrants of a webinar hosted in partnership with the Alaska Manufacturing Extension Partnership Solutions (MEP), Alaska Small Business Development Center (SBDC), Anchorage Chamber of Commerce, and the Export Council of Alaska, outlining trade finance solutions for U.S. exporters. During the virtual event, Reed underscored how Alaska businesses, particularly small businesses, can utilize EXIM’s financing tools and resources to expand their international sales, showcase their “Made in the USA” products, and sustain American jobs.
COMINGS AND GOINGS AT THE AGENCIES
Federal Reserve Board Appoints Trevor Reeve as Director of the Division of Monetary Affairs: On Monday, the Federal Reserve announced the appointment of Trevor Reeve as director of the Division of Monetary Affairs. Prior to the appointment, Reeve served as a deputy director of the division. Reeve first joined the Board in 1998 as an economist in the Division of International Finance and was appointed to the Board's official staff in 2006.
Supreme Court to Hear Cases by Telephone: On Wednesday, the Supreme Court announced it would hear all oral arguments scheduled for the October session by telephone conference, following the same format used for the May teleconference arguments. In keeping with public health guidance in response to COVID-19, the Justices and counsel will all participate remotely.
OTHER NOTEWORTHY NEWS
State Department Issues Hong Kong Travel Advisory Related to China’s Security Law: On Monday, the State Department issued a Level 3 advisory, warning that “since the imposition of national security legislation on July 1, the PRC unilaterally and arbitrarily exercises policy and security power in Hong Kong.” The Department further warned U.S. citizens to exercise increased caution and to “be aware of their surroundings and avoid demonstrations.”
FATF Publishes Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing: On Monday, the Financial Action Task Force (FATF), a global anti-money laundering body, published “Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing.” The group warned, “Virtual assets and related services have the potential to spur financial innovation and efficiency, but their distinct features also create new opportunities for money launderers, terrorist financiers, and other criminals to launder their proceeds or finance their illicit activities.” Key indicators in the report focus on: technological features that increase anonymity; geographical risks; transaction patterns; transaction; sender or recipient profiles; and source of funds or wealth.
Paul Hastings’ Government Relations team is monitoring these issues. We help our clients craft strategies to address federal legislative and regulatory matters. Please reach out to us if your organization needs assistance with congressional or regulatory relations.