THE BIG PICTURE
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Coronavirus cases in the United States surpassed 11 million on Sunday, as an alarming surge accelerates across the nation. The U.S. is now averaging 150,000 new cases a day as hospitalization and death rates trend upward. Despite promising results from vaccine trials, public health officials cautioned it will be many months before a vaccine is widely available and warned that the country is at the precipice of a “dark winter” unless drastic changes are implemented. The upcoming Thanksgiving holiday could prove a flashpoint, as HHS Secretary Alex Azar urged Americans to exercise “extra caution.” A second outbreak of COVID-19 cases has been tied to the White House, and nearly 130 Secret Service officers are ill or in quarantine after the President’s final campaign swing.
Nearly two weeks after Election Day, and a week after the race was called for Joe Biden, President Trump continued to refuse to concede the election. The President and his surrogates made several unsubstantiated claims of voter fraud as his campaign filed lawsuits across the country, albeit with limited success. Democrats criticized his posture as damaging to the democratic process and the integrity of the election, as state and federal election officials declared the election to be “the most secure in American history.” On Sunday, the President seemed to acknowledge for the first time via Twitter that Biden had won, but described the election as “rigged” and quickly reiterated that he would not concede.
The administration’s refusal to acknowledge President-elect Joe Biden’s victory has hindered transition work, as access to officials, resources, and perhaps most critically, intelligence briefings, has been delayed until the result is formally ascertained by the GSA. On Friday, Biden was declared the apparent winner in Georgia, becoming the first Democrat to do so in nearly three decades, and bringing the Electoral College split to 306-232. Given the close vote margin, Georgia’s Secretary of State announced a hand recount would be conducted prior to formally certifying the results. Despite transition impediments, President-elect Biden announced his choice of Ron Klain to serve as his incoming Chief of Staff and launched his agency review teams. Biden is expected to announce more appointments in the coming weeks as his team continues takes shape.
The fate of an additional stimulus measure in the lame duck remains uncertain as discussions between congressional leadership have faltered since late October. House Speaker Nancy Pelosi issued a statement urging congressional Republicans to “stop the circus” and return to the negotiating table, but did not offer a new proposal. Significant distance remains between the parties on the scope and scale of a package, with Senate Majority Leader Mitch McConnell pointing to promising vaccine results as supporting evidence for his insistence on a more targeted relief measure.
Other highlights of last week include:
- On Monday, the President announced he had fired Defense Secretary Mark Esper as part of a larger shake-up at the Pentagon, and appointed Chris Miller to serve as the next Acting Secretary.
- An additional 709,000 Americans filed for unemployment benefits last week, according to figures released by the Labor Department.
LAST WEEK ON THE HILL
Brown and Reed Question FHFA on GSE Loan Sales That Could Remove Vital Borrower Protections: On Tuesday, Senators Sherrod Brown (D-OH) and Jack Reed (D-RI) sent a letter to Mark Calabria, Director of the Federal Housing Finance Agency, expressing concern about recent loan sales by Fannie Mae and Freddie Mac, which could put thousands of homeowners at risk of further delinquency or foreclosure. If the loans were not sold, borrowers would be eligible for forbearance under the CARES Act and protected from foreclosure under FHFA’s foreclosure moratorium. The Senators argued that Fannie and Freddie’s decision to sell the loans to private investors, who are not obligated to provide forbearance to borrowers or halt foreclosures, leaves consumers at risk of losing their homes during this public health and economic crisis.
Tlaib and Lynch Lead Letter Criticizing OCC for Unilateral Actions on Fintech Charter, Cryptocurrency: On Tuesday, Representatives Rashida Tlaib (D-MI) and Stephen Lynch (D-MA) led a group of their colleagues in sending a letter to Acting Comptroller of the Currency Brian Brooks concerning the bureau’s recent unilateral actions in the digital financial activities space, including interpretive letters on cryptocurrency custody, stablecoins, and its announced plans to start offering special purpose ‘payments’ charters. The lawmakers wrote, “Our concern regarding the OCC’s excessive focus on crypto assets and crypto-related financial services is shared by the American Bankers Association and other trade groups who have expressed similar reservations that such services move too far away from the core business of banking.”
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions during the Pandemic”: On Thursday, the full Committee held a virtual hearing to conduct oversight on the federal prudential regulators, with a particular focus on their actions and initiatives taken in response to the COVID-19 pandemic. In her opening remarks, Chairwoman Maxine Waters
(D-CA) described the election of President-elect Biden as a clear mandate to protect consumers and end what she described as the current administration’s Wall Street first agenda.
- Brian Brooks, Acting Comptroller of the Currency, Office of the Comptroller of the Currency
- Rodney Hood, Chairman, National Credit Union Administration
- Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation
- Randal Quarles, Vice Chairman of Supervision, Board of Governors of the Federal Reserve System
SENATE BANKING COMMITTEE
Hearing on “Oversight of Financial Regulators”: On Tuesday, the full Committee held a virtual hearing to receive testimony from each of the federal prudential regulators on their efforts, activities, objectives, and plans in the regulatory arena, as well as an update on their COVID-19 related actions. Ranking Member Sherrod Brown (D-OH) criticized the agencies, claiming the election showcased the will of the people, and voters had “rejected an administration where Wall Street and corporations run the economy.” During the hearing, Sen. Pat Toomey (R-PA), who is likely to chair the committee in 2021, expressed the view that while the Fed’s Main Street Lending Program had been “a remarkable success,” it is time to “terminate these programs” given the economy’s progress toward recovery.
- Randal Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System
- Brian Brooks, Acting Comptroller, Office of the Comptroller of the Currency
- Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation
- Rodney Hood, Chairman, National Credit Union Administration
Senate Appropriations Committee Releases FY21 Bills in Effort to Advance Process: On Tuesday, the Committee released all twelve of its Fiscal Year 2021 (FY21) funding measures and the FY21 subcommittee allocations. Committee Chairman Richard Shelby (R-AL) said in a statement that the bills are “the product of bipartisan cooperation among members of the committee” and noted he looked forward to “working with Chairwoman Lowey, Vice Chairman Leahy, and Ranking Member Granger to resolve our differences in a bipartisan manner.” The proposal includes a smaller budget for the SEC than included in the House measure, but includes comparable funding for the CFTC.
ON THE FLOOR
McConnell and Schumer Reelected to Lead Caucuses: Senators Mitch McConnell (R-KY) and Chuck Schumer (D-NY) were reelected to serve as the leaders of their respective caucuses on Tuesday. Sen. John Thune (R-SD) and Sen. Dick Durbin (D-IL) are expected to maintain their roles as party whips in the next Congress.
McConnell Moves Forward on Shelton Nomination to Federal Reserve: On Thursday Senate Majority Leader Mitch McConnell moved to advance debate on Judy Shelton’s nomination to a vacant seat on the Federal Reserve Board, teeing up a procedural vote as early as this week on her nomination. Shelton’s bid had proven controversial, given some of her unorthodox views; however Sen. Lisa Murkowski (R-AK) indicated Thursday she will support Shelton. Sen. Mitt Romney (R-UT) reiterated his opposition on Thursday, meaning if the Democratic caucus remains united in opposition, Shelton can only afford to lose another Republican vote.
THIS WEEK ON THE HILL
Tuesday, November 17
Senate Banking Committee Hearing on “Oversight of the Securities and Exchange Commission”: 10:00 AM via WebEx.
Thursday, November 19
House Financial Services Committee (Subcommittee on Housing, Community Development and Insurance) Hearing on “Insuring against a Pandemic: Challenges and Solutions for Policyholders and Insurers”: 10:00 AM via WebEx.
CFTC Staff Extends Relief for SEFs from Certain Block Trade Requirements: On Friday, the CFTC’s Division of Market Oversight extended temporary no-action relief to swap execution facilities and other market participants originally provided in 2017 by a CFTC Staff Letter. Under the approved extension, the relief is now set to expire on the compliance date of the Part 43 Real-time Public Reporting Requirements final rule. The 2017 no-action relief provided that DMO will not recommend enforcement action against a SEF that has rules and/or procedures that use the SEF’s non-order book trading systems or platforms to facilitate execution of block trades for swaps that are intended-to-be-cleared, and thus are not compliant with CFTC Regulation 43.2, if certain conditions are met.
CFTC Staff Extends No-Action Relief from Certain Audit Trail Requirements: On Friday, the CFTC’s Division of Market Oversight extended no-action relief to swap execution facilities from the requirement to capture post-execution allocation information in their audit trail data. This extension allows DMO to continue to assess audit trail requirements related to post-execution allocation information. This no-action relief will now expire on the earlier of either (i) November 15, 2021, at 11:59 p.m. EST, or (ii) the applicable effective or compliance date of a Commission action—including a rulemaking or order—providing a permanent solution for SEF audit trail obligations related to post-execution allocation information.
FinCEN Holds Virtual FinCEN Exchange on Ransomware: On Thursday, FinCEN convened a virtual FinCEN Exchange with representatives from financial institutions, technology firms, third-party service providers, and federal government agencies, to discuss growing concerns regarding ransomware, as well as the efforts to curtail it. Topics discussed included ransomware detection and reporting, emerging trends and typologies, and recovery of victims' funds. Ransomware attacks are a growing concern for the financial sector, given the role of some financial institutions in the processing of ransom payments. Last month, FinCEN issued an advisory to alert financial institutions to predominant trends, typologies, and potential indicators of ransomware and associated money-laundering activities.
SEC Charges Investment Advisory Firms and Broker-Dealers in Connection with Sales of Complex Exchange-Traded Products: On Friday, the SEC settled actions against three investment advisory firms and two dually-registered broker-dealer and advisory firms for violations that related to unsuitable sales of complex exchange-traded products to retail investors. The sales occurred between January 2016 and April 2020. These actions are the first arising from investigations generated by the Division of Enforcement's Exchange-Traded Products Initiative, which utilized trading data analytics to uncover potential unsuitable sales.
OCC Reports Key Risks, Effects of COVID-19 in Federal Banking System: On Monday, the Office of the Comptroller of the Currency reported the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Fall 2020. Highlights from the report include: (1) Credit risk is increasing as the economic downturn impacts customer ability to service debts; (2) Strategic risk is an emerging issue due to the historically low rate environment, potential credit stress, and their effect on bank profitability; (3) Operational risk is elevated as financial institutions respond to altered work environments and an evolving and complex operating environment. Cybersecurity threats contribute as a key driver of the heightened operational risk environment; (4) Compliance risk is elevated due to a combination of altered work environments, and the requirement to quickly operationalize federal, state, and proprietary programs designed to support businesses and consumers.
Department of Labor Announces Registration Requirements for Pooled Plan Providers: On Thursday, the Labor Department announced a final rule establishing registration requirements for pooled plan providers. The rule implements the registration requirements for pooled plan providers pursuant to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). “Pooled employer plans will give employers, especially small unrelated employers, a way of offering their employees a workplace retirement savings option with reduced burdens and costs,” said Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson. “This final rule lays the groundwork for a sensible registration process so that providers can get pooled plans up and running.”
COMINGS AND GOINGS AT THE AGENCIES
Mike Willis Named Associate Director in SEC’s Division of Economic and Risk Analysis: On Thursday, the SEC announced that it had named Mike Willis as an Associate Director in the Division of Economic and Risk Analysis (DERA). Mr. Willis will lead DERA’s newly created Office of Data Science and Innovation, which provides the Commission and its staff with expertise on data analytics, risk assessment, and structured disclosure.
Supreme Court Hears Oral Arguments on Affordable Care Act: On Tuesday, the Supreme Court heard oral arguments on a challenge to the Affordable Care Act. During questioning, some conservative justices appeared open to preserving key aspects of the law, such as protections for those with preexisting conditions. If the law were to be invalidated, some 20 million American would lose access to their insurance.
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.