Money Matters: This Week in Washington

This Week in Washington for June 10, 2019

June 10, 2019

Dina Ellis

THE BIG PICTURE

The President made his first state visit to the United Kingdom last week – a whirlwind three day trip that included a state banquet at Buckingham Palace, tea at Clarence House, a private tour of Westminster Abbey, and meetings with British Prime Minister Theresa May and business leaders. Following the visit, the President traveled to Doonbeg, Ireland, and met with Irish Prime Minister Leo Varadkar.

On Thursday, the President commemorated the 75th anniversary of the D-Day invasion in Normandy. He joined French President Emmanuel Macron and other world leaders at a ceremony, and hailed the veterans in attendance in his speech saying, “You are the pride of our nation. You are the glory of our republic. And we thank you from the bottom of our hearts.”

House Democrats formally introduced a resolution to hold Attorney General William Barr and former White House Counsel Don McGahn in contempt for their failure to comply with congressional subpoenas. The resolution will allow House Judiciary Committee Chairman Jerry Nadler to seek civil enforcement. The Rules Committee is expected to hold a markup of the resolution on Monday, with the full House slated to vote on the measure Tuesday.

Other highlights of last week include:

• On Monday, the House finally passed the US$19.1B disaster relief package, after multiple delays during the recess period.

• The Supreme Court rejected the administration’s request to fast track its decision on whether it will consider the President’s rescission of the DACA program.

• The May jobs report was released on Friday, showing the U.S. economy added 75,000 jobs while the unemployment rate held steady at 3.6%.

• The President announced on Friday that proposed tariffs on Mexican imports were “indefinitely suspended,” after Mexico pledged to do more to halt illegal border crossings.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing on “Promoting American Jobs: Reauthorization of the U.S. Export-Import Bank”: On Tuesday, the full Committee held a hearing to discuss the revival and long-term reauthorization of the Export-Import Bank (EXIM). Chairwoman Maxine Waters lauded the Bank, saying it “plays an important role in the U.S. government’s efforts to support American jobs, maintains the vitality of critical industry sectors, and thwarts the movement of manufacturing production overseas” and argued that “failure to reauthorize and strengthen EXIM would result in the loss of tens of thousands of jobs, as U.S. exporters suffer declining overseas sales.”

• Linda Menghetti Dempsey, Vice President, International Economic Affairs, National Association of Manufacturers

• Owen Herrnstadt, Chief of Staff to the International President, International Association of Machinists & Aerospace Workers

• David Hinson, Vice President, Institute for Diversity & Emerging Business, U.S. Chamber of Commerce

• Roy Kamphausen, Senior Vice President for Research, The National Bureau of Asian Research

• Archana Sharma, Chief Executive Officer, AKAS Tex, LLC

• Steven Wilburn, Chief Executive Officer, FirmGreen Incorporated

Hearing on “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending”: On Tuesday, the Subcommittee on Consumer Protection and Financial Institutions held a hearing to consider emerging threats to the stability of the economy, particularly those posed by leveraged lending. They also considered three draft pieces of legislation: (1) H.R. __, the “Protecting the Independent Funding of the Office of Financial Research Act”; H.R. __, the “Leveraged Lending Data and Analysis Act”; H.R. __, the “Leveraged Lending Examination Enhancement Act.”

• Erik F. Gerding, Professor of Law & Wolf-Nichol Fellow, University of Colorado Law School

• Victoria Ivashina, Lovett-Learned Chaired Professor of Finance, Harvard Business School

• Gaurav Vasisht, Senior Vice President and Director, Financial Regulation Initiatives, The Volcker Alliance

• Gregory Nini, Assistant Professor of Finance, LeBow College of Business, Drexel University

SENATE BANKING COMMITTEE

Hearing on “Confronting Threats From China: Assessing Controls on Technology and Investment, and Measures to Combat Opioid Trafficking”: On Tuesday, the Committee met to consider threats emanating from China. Ranking Member Sherrod Brown (D-OH) remarked that on the 30th anniversary of Tiananmen Square, it was important to remember those who fought for democracy and human rights as part of that movement. The Committee sought to address China’s fentanyl control systems, as well as the range of challenges posed by China in export control, intellectual property theft, technology transfer, and foreign investments.

• The Honorable Kevin J. Wolf, former Assistant Secretary of Commerce for Export Administration in the Bureau of Industry and Security (BIS), U.S. Department of Commerce

• Mr. Scott Kennedy, Senior Adviser, Freeman Chair in China Studies and Director, Project on Chinese Business and Political Economy, Center for Strategic & International Studies

• Mr. Richard Nephew, former Principal Deputy Coordinator for Sanctions Policy, U.S. Department of State

Hearing on “Nominations”: On Wednesday, the Committee met to conduct a hearing on the following nominations:

• Mr. Thomas Peter Feddo, to be an Assistant Secretary of the Treasury for Investment Security

• Ms. Nazak Nikakhtar, to be Under Secretary of Commerce for Industry and Security

• Mr. Ian Paul Steff, to be Assistant Secretary of Commerce and Director General of the United States and Foreign Commercial Service

• The Honorable Michelle Bowman, to be a Member of the Board of Governors of the Federal Reserve System

• Mr. Paul Shmotolokha, to be First Vice President of the Export-Import Bank of the United States

• Ms. Allison Herren Lee, to be a Member of the Securities and Exchange Commission

OTHER COMMITTEES

House Appropriations Committee (Subcommittee on Financial Services and General Government) “Markup”: On Monday, the Subcommittee on Financial Services and General Government held a markup of the FY20 appropriations bill. The Subcommittee advanced the bill to the full Committee for consideration by voice vote.

ON THE FLOOR

Dreamer Protections: On Tuesday, the House voted 237-187 to pass the “Dream and Promise Act” on a largely party line vote. The measure, which was first introduced in March, would give permanent citizenship to 2.5 million undocumented immigrants, including the Dreamers, and some recipients of Temporary Protected Status (TPS) and Deferred Enforced Departure (DED). The White House opposes the bill, arguing that it “would incentivize and reward illegal immigration while ignoring and undermining key Administration immigration objectives.”

Senate Confirms Next CFTC Chair: On Wednesday, the Senate voted 84-9 to confirm Dr. Heath Tarbert as the next Chairman of the CFTC, succeeding Chris Giancarlo whose term ended in April. Dr. Tarbert most recently served as assistant Treasury secretary for international markets. Treasury Secretary Steven Mnuchin applauded the confirmation, noting that he looked “forward to working with Heath in his new capacity and know that he will advance CFTC’s efforts to foster transparent, competitive, and financially sound markets.”

LEGISLATION INTRODUCED AND PROPOSED

H.R. 3082: Rep. Joyce Beatty (D-OH) introduced H.R. 3082, which would require $20 notes to include a portrait of Harriet Tubman.

H.R. 3111: Rep. Nydia Velazquez (D-NY) introduced H.R. 3111, which would make administrative reforms to the National Flood Insurance Program to increase fairness and accuracy and protect the taxpayer from program fraud and abuse.

H.R. 3124: Rep. Mike Conaway (R-TX) introduced H.R. 3124, which would amend the Sarbanes-Oxley Act of 2002 to require the Public Company Accounting Oversight Board to maintain a list of certain foreign issuers. In a statement, Rep. Conaway said that “Any Chinese company who wishes to be listed on U.S. stock exchanges, or access U.S. capital, should be required to comply with U.S. laws on financial transparency.”

H.R.3141: Rep. Dean Phillips (D-MN) introduced H.R. 3141, which would limit the collection of annual premiums under the FHA program for mortgage insurance for single family housing.

H.R.3146: Rep. David Scott (D-GA) introduced H.R. 3146, which would provide for the monthly installment payment of premiums for coverage under the National Flood Insurance Program.

National Flood Insurance Reauthorization: On Friday the House Financial Services Committee released a draft five-year extension of the National Flood Insurance Program, which the Committee will markup on Tuesday.

THIS WEEK ON THE HILL

Monday, June 10

House Judiciary Committee Hearing on “Lessons from the Mueller Report: Presidential Obstruction and Other Crimes”: 2:00 PM in 2141 Rayburn House Office Building.

Tuesday, June 11

House Financial Services Committee Hearing on “An Examination of State Efforts to Oversee the $1.5 Trillion Student Loan Servicing Market”: 10:00 AM in 2128 Rayburn House Office Building.

Senate Banking Committee Hearing on “Data Brokers and the Impact on Financial Data Privacy, Credit, Insurance, Employment and Housing”: 10:00 AM in 538 Dirksen Senate Office Building.

House Financial Services Committee “Markup”: 2:00 PM in 2128 Rayburn House Office Building.

House Appropriations Committee “Markup of FY2020 Financial Services and General Government Appropriations Bill”: 10:30 AM in 2359 Rayburn House Office Building.

Wednesday, June 12

House Financial Services Committee “Continuation of Markup”: 10:00 AM in 2128 Rayburn House Office Building.

THE REGULATORS

Treasury Sanctions Iran’s Largest Petrochemical Holding Group: On Friday, Treasury’s Office of Foreign Assets Control (OFAC) took action against Iran’s largest and most profitable petrochemical holding group for providing financial support to the engineering conglomerate of the Islamic Revolutionary Guard Corps. “By targeting this network we intend to deny funding to key elements of Iran’s petrochemical sector that provide support to the IRGC,” said Treasury Secretary Steven Mnuchin. “This action is a warning that we will continue to target holding groups and companies in the petrochemical sector and elsewhere that provide financial lifelines to the IRGC.”

Fed’s Quarles Urges Banks to Transition Away from LIBOR: The Federal Reserve’s vice chairman for banking supervision, Randal Quarles, urged banks to transition away from using the London Interbank Offered Rate (LIBOR), in favor of the new Secured Overnight Financing Rate (SOFR) which was developed by the New York Fed and Treasury Department. Mr. Quarles argued that “with only two and a half years of further guaranteed stability for LIBOR, the transition should begin happening in earnest,” warning that “history may not view [the decision to continue using LIBOR] kindly … it may be fairly difficult to explain to those who may ask exactly why it made sense to continue using a rate that you had been clearly informed had such significant risks attached to it.”

Federal Reserve Governor Defends Proposal to Change to Stress Test Rules: On Wednesday, Federal Reserve Governor Michelle Bowman defended the bank’s recent proposal to change the rules surrounding stress test procedures for large banks, saying “I would say that we’ve targeted the requirements more to the risk of the banks as they pose them.”

FDIC Head Calls CRA Talks “Productive”: Speaking on Tuesday, FDIC Chairwoman Jelena McWilliams described ongoing inter-agency discussions around modernizing the Community Reinvestment Act as “productive,” but said “I hesitate to put a timeline on this process” even while it remains a priority for the agency.

SEC Commissioner Peirce Discusses FinTech: The SEC released Commissioner Hester Peirce’s remarks from her appearance at the FinTech Forum in Washington, D.C., entitled “Spelling FinTech without the “F” for Fear.” In her speech she noted that the agency is sometimes “so focused on the dark side of technology that we forget that it improves lives too” and discussed the importance of remaining open to innovation even if it means “untethering ourselves and the industry we regulate from tired paper-based requirements.” She also told the audience that now is the opportune moment “to work with the developers of new technology to ensure that a well-intentioned legal framework is not an unnecessary barrier to the achievement of something good for society.”

SEC Charges Issuer With Conducting $100 Million Unregistered ICO: On Tuesday, the SEC sued Kik Interactive Inc. for conducting an illegal US$100M securities offering of digital tokens. The SEC charges that Kik sold the tokens to U.S. investors without registering their offer and sale as required by U.S. securities laws. “Companies do not face a binary choice between innovation and compliance with the federal securities laws,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.

SEC Chairman Discusses Conditions for Bitcoin ETF: SEC Chairman Jay Clayton in an interview on Thursday noted that the agency would need to feel “comfortable” with custody before approving a crypto exchange-traded fund, saying “We’re engaging on this, but there are a couple of things about it that we need to feel comfortable with. The first is custody: custody is a long-standing requirement in our markets.” He also discussed the agency’s concern about the lack of preventative measures around market manipulation, saying “we have sophisticated rules and surveillance to ensure that people are not manipulating the stock market, those cryptocurrency markets by large do not have that; And we’re working hard to see if we can get there, but I’m not just going to flip a switch and say this is just like stocks and bonds, because it’s not.”

SEC Adopts Rulemaking Package for Investment Advisers and Broker-Dealers: The SEC voted on Wednesday to adopt a package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products. Specifically, these actions include new Regulation Best Interest, the new Form CRS Relationship Summary, and two separate interpretations under the Investment Advisers Act of 1940. “The rules and interpretations we are adopting today address issues that the Commission has been actively considering for nearly two decades,” said SEC Chairman Jay Clayton. “Our staff, working collaboratively across all of our Divisions and many of our Offices, has leveraged its decades of experience and expertise in considering these issues. I believe that the exceptional work of the SEC staff, including their careful evaluation of the feedback we received, will benefit retail investors and our markets for years to come.”

FCC Votes to Affirm Robocall Blocking by Default to Help Protect Consumers: On Thursday, the FCC approved a Declaratory Ruling to affirm that voice service providers may, as the default, block unwanted calls based on reasonable call analytics, as long as their customers are informed and have the opportunity to opt out of the blocking. This action empowers providers to protect their customers from unwanted robocalls before those calls even reach the customers’ phones.

COMINGS AND GOINGS AT THE AGENCIES

SEC Announces Kevin Zerrusen as Senior Advisor to the Chairman for Cybersecurity Policy: On Monday, the SEC announced that Kevin Zerrusen will serve as Chairman Jay Clayton’s Senior Advisor for Cybersecurity Policy. In this role, Mr. Zerrusen will coordinate efforts across the agency to address cybersecurity policy, engage with external stakeholders, and help enhance the SEC’s mechanisms for assessing cyber-related risks.

SEC Names Ahmed Abonamah Deputy Director of the Office of Municipal Securities: On Monday, the SEC announced that Ahmed Abonamah had been named Deputy Director of the agency’s Office of Municipal Securities (OMS). Mr. Abonamah has been with the SEC for over three years and most recently has served as OMS’s Senior Counsel to the Director since August 2017.

Marshall Gandy Named Co-Head of SEC’s Investment Adviser/Investment Company Examination Program: On Tuesday, the SEC announced that Marshall Gandy has been named Co-National Associate Director of the Investment Adviser/Investment Company examination program in the Office of Compliance Inspections and Examinations (OCIE). He joins Co-National Associate Director Kristin Snyder, who has led the program since August 10, 2016, and was named OCIE’s Deputy Director on July 25, 2018. Together, Ms. Snyder and Mr. Gandy will oversee more than 630 lawyers, accountants, and examiners responsible for inspections of SEC-registered investment advisers and investment companies.

David Peavler Named Director of SEC’s Fort Worth Office: On Thursday, the SEC announced that David Peavler had been named Director of the Fort Worth Regional Office. Mr. Peavler previously served for nearly 15 years in senior Division of Enforcement roles in the Fort Worth Regional Office, most recently as an Associate Director. He rejoins the SEC from HD Vest Inc., where he has served as General Counsel since 2017.

THE COURTS

SEC Seeks US$313K Fine over Stock Sales: On Wednesday, the SEC asked a federal court in New York to approve nearly US$313K in fines against a cryptocurrency company, Longfin Corp. and it’s CEO, as part of a proposed default judgment.

OTHER NOTEWORTHY ITEMS

Analyst Predicts BTC Could Hit Record High by the End of 2019: Bitcoin analyst Oliver Price detailed his prediction that BTC could hit US$25K in value by the end of 2019, saying “There are multiple drivers behind the recent resurgence. There are geopolitical, technological and regulatory drivers. The net effect of the trade war between the U.S. and China has led to the sudden interest in bitcoin as a hedge on investments.”

Lawmakers Request Diversity Data from Bank Holding Companies: On Wednesday, Rep. Maxine Waters (D-CA), who chairs the House Financial Services Committee, and Rep. Joyce Beatty (D-OH), who chairs the Subcommittee on Diversity and Inclusion, sent letters to 37 bank holding companies with over US$50B in assets, requesting their diversity and inclusion data and policies from 2015 to the present. The letters match those sent to seven megabanks in April, and aim to provide the American public with a complete picture of how large banks are meeting their commitments to diversity and inclusion. “Unfortunately, a complete picture of diversity and inclusion in the financial services industry cannot be obtained until the financial services industry shares their diversity data and policies with the OMWIs, Congress, and the public,” the lawmakers wrote.

Realtor Association Expresses Concern Over FHFA Director’s Comments on GSEs: In a letter to FHFA Director Mark Calabria, the National Association of Realtors raised concerns over his recent comments that questioned the need for an explicit government guarantee of Fannie Mae and Freddie Mac, and argued that “A curtailed or eliminated guarantee could raise costs and threaten access to credit in small- and mid-sized towns when recessions or natural disasters hit.”