Money Matters: This Week in Washington

This Week in Washington for November 11, 2019

November 11, 2019

Dina Ellis

THE BIG PICTURE

The impeachment inquiry continued to intensify last week, as the House began to prepare for the public phase of the proceedings. Acting White House Chief of Staff Mick Mulvaney defied a subpoena to appear before the panel for an interview moments before it was set to take place, claiming immunity. His appearance was to be one of the final closed-door interviews as the first public hearing will take place on Wednesday, with two State Department officials, Bill Taylor and George Kent, set to appear. Former Ambassador Marie Yovanovitch is scheduled to appear on Friday. Republicans remained focused on the whistleblower, demanding the individual be named and testify publicly. Minority Leader Kevin McCarthy announced that Rep. Jim Jordan, one of the President’s top defenders, would be temporarily appointed to the Intelligence Committee to “ensure more accountability and transparency in this sham process.”

With the November 21 deadline to fund the government looming, Congressional leaders are in talks over another stopgap measure to extend funding through December and give both Chambers additional time to negotiate. The White House signaled the President would support a continuing resolution as long as it did not “impede the President's ability to pursue his policies.”

In a surprise move, billionaire and former New York City mayor Michael Bloomberg is considering launching a campaign for the presidency by entering the Democratic primary. Bloomberg filed paperwork to have his name included on the ballot in Alabama, one of the first states to hold a primary vote, which paves the way for him to join the race.

Other highlights of last week include:

• On Monday, the administration formally moved to withdraw the United States from the Paris Climate Agreement, the first day on which they could do so. The withdrawal will not take effect until November 4, 2020, the day after Election Day.

• The President formally announced he had selected Dan Brouillette to succeed Rick Perry as the Acting Secretary at the Energy Department effective December 1.

• Former Attorney General Jeff Sessions announced his bid for his old Alabama Senate seat on Thursday.

• Rep. Pete Visclosky (D-IN) announced he would retire at the end of this term, after having served in Congress since 1985.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

No hearings were held during House recess period.

SENATE BANKING COMMITTEE

Hearing on “Examining Bipartisan Bills to Promote Affordable Housing Access and Safety”: On Thursday, the full Committee held a hearing to receive testimony from leaders in the housing community on bipartisan opportunities this Congress to expand access to affordable housing, to improve the safety conditions within current federally-assisted housing, and considered how Congress might better target existing housing resources to meet unaddressed need. They examined three bipartisan pieces of legislation: (1) S. 2160, the “C.O. ALERTS Act”; (2) S. 1804, the “HUD Manufactured Housing Modernization Act”; and (3) H.R. 4300, the “Fostering Stable Housing Opportunities Act.”

• Ms. Ivory N. Mathews, Interim Executive Director, Columbia Housing

• Mr. Mark J. Yost, President and CEO, Skyline Champion Corporation, on behalf of the Manufactured Housing Institute

• Ms. Peggy Bailey, Vice President for Housing Policy, Center on Budget and Policy Priorities

LEGISLATION INTRODUCED AND PROPOSED

S. 2725: Sen. Mike Rounds (R-SD) introduced S. 2725, the “Native American Housing Affordability Act of 2019,” which would modify the procedures for loan guarantees provided for Native American housing.

S. 2787: Sen. Ron Wyden (D-OR) introduced S. 2787, which would amend the Internal Revenue Code of 1986 to require reporting for qualified opportunity funds, to make modifications to opportunity zones. “The Opportunity Zone program has been troubled from the start,” Wyden said in a statement, adding that “the Treasury Department has been steering potentially billions in tax breaks to Donald Trump’s friends, and there are no safeguards to ensure taxpayers are not simply subsidizing handouts for billionaires with no benefit to the low-income communities this program was supposed to help.”

Taxpayers and Savers Protections Act: Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) led a group of lawmakers in introducing the bipartisan, bicameral Taxpayers and Savers Protection (TSP) Act, which would prevent the Federal Retirement Thrift Investment Board (FRTIB) from steering federal retirement savings to China. Rep. Mark Meadows (R-NC) will be introducing the companion bill in the House.

H.R. 4909: Rep. Dusty Johnson (R-SD) introduced H.R. 4909, the “CFTC Cost-Benefit Analysis Improvement Act,” which would expand the scope of the matters required to be evaluated by the Commodity Futures Trading Commission in considering the costs and benefits of its proposed regulations and orders.

THIS WEEK ON THE HILL

Wednesday, November 13

House Financial Services Committee Hearing on “How America Leads Abroad: An Examination of Multilateral Development Institutions”: 10:00 AM in 2128 Rayburn House Office Building.

THE REGULATORS

CFTC Unanimously Approves Proposed Rule: At an open meeting held on Tuesday, the CFTC unanimously approved a proposed rule that would amend Commission Regulation 160.30 by establishing specific requirements for policies and procedures to protect customer records and information. The CFTC also approved applications for registration orders for three European exchanges and held a charter signing ceremony for the agency’s new Veterans Affinity Group.

CFTC and DOJ Collaboration Leads to Increase in Enforcement: Fueled by new data tools, the enforcement arms at the CFTC and DOJ have increased collaboration on investigations, which is yielding a spike in enforcement actions. CFTC Enforcement Director James McDonald said in an interview, “I think our collective goal here is to try to have as many different avenues of information or leads about suspicious misconduct open to each of us.” The DOJ’s Fraud Chief Robert Zink recently noted that commodities fraud enforcement “has not been as robust as it probably should have been” over the last 20 to 30 years but is now a top priority.

SEC Proposes to Modernize the Advertising and Cash Solicitation Rules for Investment Advisers: On Monday, the SEC announced that it had voted to propose amendments to modernize the rules under the Investment Advisers Act addressing investment adviser advertisements and payments to solicitors. The proposed amendments are intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices. “The advertising and solicitation rules provide important protections when advisers seek to attract clients and investors, yet neither rule has changed significantly since its adoption several decades ago,” said SEC Chairman Jay Clayton, adding “the reforms we have proposed today are designed to address market developments and to improve the quality of information available to investors, enabling them to make more informed choices.”

SEC Announces Extension of Temporary Measure to Facilitate Cross-Border Implementation of the European Union's MiFID II's Research Provisions: On Monday, the staff of the SEC issued an extension of an Oct. 26, 2017 no-action letter it provided to assist market participants regarding their U.S.-regulated activities as they engage in efforts to comply with the provisions relating to research in the Markets in Financial Instruments Directive II (MiFID II) and related implementing rules and regulations. Under the extension of the temporary no-action letter, the staff would not recommend enforcement action to the Commission under the Investment Advisers Act of 1940 against broker-dealers receiving payments in hard dollars or through research payment accounts from clients subject to MiFID II. This no-action letter, which was set to expire July 3, 2020, has been extended until July 3, 2023. The “extension of the staff’s no-action letter is an important step in our continued efforts to address changes in the market for research payments driven by MiFID II with an eye toward preserving investor access to research to the maximum extent possible,” said SEC Chairman Jay Clayton.

SEC Proposes Rule Amendments to Improve Accuracy and Transparency of Proxy Voting Advice: On Tuesday, the SEC voted to propose amendments to its rules governing proxy solicitations to enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients. The proposal would also provide an opportunity for a period of review and feedback through which companies and other soliciting parties would be able to identify errors in the proxy voting advice. The review and feedback period would only be available to companies that file definitive proxy materials 25 days or more in advance of the relevant meeting. The Commission’s proposal aims to enhance the accuracy and transparency of the information that proxy voting advice businesses provide to investors and others who vote on investors’ behalf, and thereby facilitate their ability to make informed voting decisions. In a statement, Rep. Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, and Senator Sherrod Brown (D-OH), Ranking Member of the Senate Banking Committee issued a statement expressing their disapproval, saying they were “deeply disappointed that the SEC initiated these rulemakings that take the side of corporate executives over investors.”

SEC Proposes Amendments to Modernize Shareholder Proposal Rule: On Tuesday, the SEC voted to propose amendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement. The proposed amendments would update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to require a company to include a proposal in its proxy statement. In the proposed amendments, the Commission has maintained the long-standing US$2,000 minimum ownership threshold. However, the proposed amendments would require that, in order to take advantage of that ownership threshold, a proponent must have held the shares for at least three years in order to demonstrate long-term investment in the company. The proposed amendments would also update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders.

SEC and PCAOB Chairmen Met with Auditing Firm to Discuss Audit Quality in Emerging Economies and Markets: On Monday, the SEC announced that SEC Chairman Jay Clayton, Public Company Accounting Oversight Board (PCAOB) Chairman William Duhnke, and members of the SEC staff met last week with senior representatives of the four largest global network auditing firms to discuss the audit quality and certain of the challenges faced in auditing public company operations in emerging markets, including China, the largest emerging market economy. The discussions emphasized the need for effective and consistent global firm oversight of member firms, including those operating in emerging markets. The discussions also focused on the design and implementation of audit procedures that are tailored to reflect changes in risk.

SEC Division of Enforcement Publishes Annual Report for Fiscal Year 2019: The SEC has seen an uptick in enforcement actions in fiscal year 2019, according to data in its annual report released on Wednesday. In fiscal year 2019, the SEC brought 862 enforcement actions, 5% more than the 821 brought in 2018, including 526 standalone actions. These actions addressed a broad range of significant issues, including issuer disclosure/accounting violations; auditor misconduct; investment advisory issues; securities offerings; market manipulation; insider trading; and broker-dealer misconduct. Through these actions, the SEC obtained judgments and orders totaling more than US$4.3B in disgorgement and penalties, 10% more than the US$3.95B obtained in 2018. The SEC also returned roughly US$1.2B to harmed investors as a result of enforcement actions.

Fed Officials Discuss Effects of Climate Change on Economy: Speaking at a conference on Friday, Fed Governor Lael Brainard discussed the need for more research into the “profound effects” that climate change will have on the economy. She noted “monetary policymakers must accurately assess how disasters such as hurricanes, wildfires and flooding affect labor markets, household and business spending, output and prices,” adding that “we also have a lot to learn from the broader research community about the economic and financial effects of climate change.” Earlier in the week NY Fed Executive VP Kevin Stiroh cautioned that risk managers must take climate change into account as, “the U.S. economy has experienced more than $500 billion in direct losses over the last five years due to climate and weather-related events.”

Federal Reserve Board Invites Comment on Proposal to Extend Compliance Dates for Foreign Banks Subject to Its Single-Counterparty Credit Limit Rule: On Friday, the Federal Reserve invited public comment on a proposal to extend by 18 months the initial compliance dates for foreign banks subject to its single-counterparty credit limit rule. The extension would provide additional time for foreign jurisdictions' versions of the rule to become effective and would apply only to the combined U.S. operations of the foreign banks and not to any U.S. intermediate holding companies of those banks.

IRS Issues Proposed Rule Regarding Updated Life Expectancy and Distribution Period Tables: On Friday, the IRS issued a notice of proposed rulemaking regarding updated life expectancy and distribution period tables used for purposes of determining minimum required distributions. The rule says that “the effect of these changes is to reduce required minimum distributions, which would allow participants to retain larger amounts in their retirement plans to account for the possibility they may live longer.”

FDIC Struggling to Update Rules for Brokered Deposits: The FDIC is reportedly working on an update to the rules governing brokered deposits, but is encountering some difficulties in figuring out how to do so in a way that complies with existing statutes. “It’s a complicated and complex statutory language” acknowledged FDIC Chairwoman Jelena McWilliams, adding “there is just a lot of dichotomy.”

Financial Stability Oversight Council Holds Meeting: On Thursday, Treasury Secretary Mnuchin convened a meeting of the Financial Stability Oversight Council in executive session. The Council discussed the development of its 2019 annual report and potential amendments to its interpretive guidance on nonbank financial company designations. The Council also heard a presentation from staff of the Federal Reserve Board, the OCC, the FDIC, and Treasury regarding cloud service providers. The Council discussed financial institutions’ use of cloud service providers, banking agencies’ authorities to oversee third-party service providers, and regulators’ current supervisory activities related to cloud service providers.

CFPB Holds Symposium on Section 1071 of the Dodd-Frank Act: On Wednesday the CFPB held a symposium on Section 1071, which requires financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses. The Bureau heard from some industry representatives who said they would welcome more “sunshine” in this area as, “it will help market participants better understand the market and better serve those markets.” Others took a different view, however, and argued that the increased cost of compliance with the implementation of Section 1071 could drive participants out of the market.

CFPB Considering Options around Advisory Opinions Related to Consumer Finance Companies: The CFPB is exploring the possibility of creating a program to provide greater clarity to consumer finance companies by issuing advisory opinions as guidance. Deputy Director Brian Johnson said in a speech on Thursday that “there are always enhanced opportunities to provide greater guidance ex ante to industry so that they can conform their behavior to the requirements of the law.”

Agencies Warned to Guard against “Rent-A-Banks”: In a letter to the heads of the OCC, FDIC, and Federal Reserve, a public interest group warned the regulators to be vigilant against so-called “rent-a-banks,” wherein nonbank consumer lenders partner with banks to evade California’s rate restrictions. The group wrote it is “patently clear that the involved lenders would be forming these partnerships for the purpose of evading the law and that the involved banks would be renting out their charters to willing bidders, enabling the lenders to do so. These schemes are an abuse of their bank charters and put both consumers and the banks at risk.”

CFIUS May Issue Guidance on Enforcement: Speaking at an event, Thomas Feddo who oversees the Committee on Foreign Investment in the United States, acknowledged the need for more clarity on the agency’s enforcement mechanisms. He noted, “I suspect that somewhere in the future, sooner rather than later, we will promulgate enforcement guidelines that will give greater clarity to the business community about how we will exercise our enforcement authorities.”

COMINGS AND GOINGS AT THE AGENCIES

Colleen Campbell Tapped to Lead Communications for Education Department’s Student Loan Servicing Revamp: Colleen Campbell, who currently serves as director of postsecondary education at the left-leaning Center for American Progress, had accepted a role leading strategic communication efforts at the Education Department’s Office of Federal Student Aid as they roll out their NextGen plan to overhaul the way the federal government collects student loans. Campbell said that she accepted the role in “a government and an administration under someone who I don’t always agree with” because she believes the NextGen plan has “a vision that’s borrower- and student-focused.”

THE COURTS

CFPB Argues Enforcement Actions Could Survive Unconstitutionality Ruling: In response to a petition from a payday lender, in a brief filed with the Supreme Court, the DOJ and CFPB argued that in the event the Court ruled that the CFPB’s structure was unconstitutional that the Bureau could still “commence or continue enforcement proceedings” as “an enforcement action can proceed so long as an official who is properly accountable to the president approves it.”

OTHER NOTEWORTHY ITEMS

Financial Stability Board Calls for Regulation of Stablecoins: The Financial Stability Board’s Regional Consultative Group held a meeting in Mexico during which members discussed stablecoins and their implications for financial stability. They agreed that stablecoin projects, particularly those of potentially global reach and magnitude, need to meet the highest regulatory standards and be subject to appropriate prudential supervision and oversight. They discussed the FSB’s project to take stock of existing supervisory and regulatory approaches and emerging practices and noted they would advise on possible multilateral responses, as needed.

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