Money Matters: This Week in Washington

This Week in Washington for October 12, 2020

October 12, 2020

Dina Ellis

THE BIG PICTURE

For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series: https://www.paulhastings.com/coronavirus

The President was discharged from Walter Reed Medical Center on Monday evening, and returned to the White House to continue his recovery from Covid-19. The President was eager to get back on the campaign trail, despite concerns over his health and the potential for further spread, and over the weekend addressed a crowd of supporters on the South Lawn. The case count in the White House continued to rise, with several aides and residence staff members testing positive, including top aide Stephen Miller and press secretary Kayleigh McEnany. The President urged Americans via Twitter to not “be afraid of Covid” adding “don't let it dominate your life,” and touted an experimental treatment he had received as a “cure.” This message stood in contrast to the rising death toll, which approached 215,000 over the weekend, and surging infection rates in several parts of the country which have sparked concern among public health officials - particularly as the weather begins to cool and outdoor activities become less feasible.

Vice President Mike Pence and Senator Kamala Harris faced off on Wednesday evening in their first and only debate of the campaign. The evening was a more civil affair than the Presidential debate two weeks prior, as the pair sparred over court packing, the administration’s coronavirus response, and the future of the Affordable Care Act. The President’s Covid-19 diagnosis complicated planning for the second Presidential debate scheduled to take place on the 15th. The President refused to participate in a virtual format, lobbying for the event to be held in-person as planned, while the Biden camp refused that demand as a safety precaution, given the uncertainty around the President’s illness. In the end the Commission canceled the debate, and the President and Biden will face off for the final time on October 22nd.

On Tuesday the President announced he was ending negotiations over a coronavirus relief package until after the election. The move caused the stock market to plummet and drew blowback from vulnerable Republican incumbents, as small businesses and unemployed Americans continue to suffer. Later in the week the administration reversed course, with House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin speaking several times to discuss a potential deal. On Friday, the President reportedly approved a US$1.8T proposal that includes enhanced unemployment benefits, though the price tag may be a non-starter for some Senate Republicans.

Other highlights of last week include:

• An additional 840,000 Americans filed for unemployment benefits.

• Several members of the Joint Chiefs of Staff are in quarantine after coming in contact with Coast Guard vice commandant, Adm. Charles Ray. The Joint Chiefs projected confidence in their remote capabilities, saying “there is no change to the operational readiness or mission capability of the U.S. Armed Forces.”

• The FBI thwarted a plot by a militant group to kidnap Michigan Governor Gretchen Whitmer. The scheme appeared to be related to Whitmer’s imposition of coronavirus restrictions.

LAST WEEK ON THE HILL

Democrats Criticize Proposed Labor Department Rule Weakening Tool to Advance Financial Interests of Workers and Retirees: Sen. Sherrod Brown (D-OH), Sen. Patty Murray (D-WA), Rep. Bobby Scott (D-VA) and Rep. Maxine Waters, led several of their Democratic colleagues in submitting a comment letter to the Department of Labor criticizing its proposed rule to limit fiduciaries’ ability to use proxy voting, a key tool to further the financial interests of the workers and retirees they serve. The Members argued, “In practice, this proposal does the opposite of protecting retirees – it decreases the value of retirement plans’ investments by discouraging fiduciaries from using a key tool to fight for the financial interests of the workers and retirees they serve. Amid its summer regulatory ‘tsunami,’ the Department has once again overlooked its statutory and administrative obligations for rulemaking. This blatant attempt at disenfranchising ERISA-governed plans is ill-advised, unjustified, and unnecessary.”

Leading Democrats Raise Questions about Trump Administration’s Export of Potential Missile Materials to China: On Monday, a group of leading national security Democrats raised an alarm over an approval by the Trump Administration to export over 227 tons of sensitive material critical to building missiles to the People’s Republic of China. In a new letter to Secretary of Commerce Wilbur Ross, Senate Foreign Relation Committee Ranking Member Bob Menendez (D-NJ), Minority Leader Chuck Schumer (D-NY), Ranking Member of the Senate Banking Committee Sherrod Brown (D-OH), Ranking Member of the Senate Armed Services Committee Jack Reed (D-RI), and Senate Democratic Whip Dick Durbin (D-IL) demanded answers and justification concerning the Department’s decision to approve the exportation of 455,000 pounds of fine grain bulk graphite to the People’s Republic of China and the nature of the transaction. On September 29, Secretary Ross sent Congress a letter to certify the sale – as required by law given the grave national security issues entailed – but his certification failed to provide any detail about or justification for the proposed export.

Warren Asks the Largest Financial Institutions How They Are Assessing and Mitigating Risks Resulting from the COVID-19 Induced Recession: On Wednesday, Sen. Elizabeth Warren (D-MA) sent letters to the largest banks – those with over US$250B in total consolidated assets – requesting information on how these institutions are assessing and mitigating risks resulting from the COVID-19 pandemic. Senator Warren raised concerns about the Federal Reserve Board of Governors’ lack of transparency about methods and findings of its recent stress tests and noted that banks may not be prepared for the economic fallout in the coming months, especially if households and businesses don’t receive needed relief from Congress.

Warren, Murray, Peters Call for GAO to Investigate Trump Administration Interference in FDA and CDC Coronavirus Decisions: On Friday, Senators Elizabeth Warren (D-MA), Patty Murray (D-WA), and Gary Peters (D-MI), sent a letter to the Government Accountability Office (GAO) calling for an immediate investigation to understand the extent of undue political influence at the Centers For Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) and whether this interference has violated the agencies' scientific integrity and communication policies. “The CDC and FDA’s independence as scientific agencies is crucial to safeguarding the public health and saving lives,” the Senators wrote. “These agencies must be able to develop, review, and disseminate public health data, guidelines, and other information that are based on science, facts, and medical principles-and not the political imperatives and moods of a president and his advisors. But the Trump Administration has reportedly pressured the CDC and FDA throughout the COVID-19 pandemic, repeatedly applying political pressure and imposing orders on career scientists that undermine the agencies' credibility and independence.”

LEGISLATION INTRODUCED AND PROPOSED

H.R. 8324: Rep. Ted Budd (R-NC) introduced H.R. 8324, the Make PPE in America Act, which would provide for domestic sourcing of personal protective equipment.

H.R. 8533: Rep. Katherine Clark (D-MA) introduced H.R. 8533, which would provide an exception to the volume cap requirement for private activity bonds used to finance the preservation, improvement, or replacement of certain Federally assisted buildings.

H.R. 8536: Rep. Mike Gallagher (R-WI) introduced H.R. 8536, which would amend the Fair Credit Reporting Act to delay the reporting of medical debt by consumer reporting agencies.

H.R. 8540: Rep. John Katko (R-NY) introduced H.R. 8540, which would require the Secretaries of Housing and Urban Development, Agriculture, and Health and Human Services to conduct a study of how housing design can help prevent the spread of communicable diseases.

THIS WEEK ON THE HILL

Senate Judiciary Committee to Hold Hearings on Barrett Nomination: The Senate Judiciary Committee is set to hold four days of hearings on the nomination of Judge Amy Coney Barrett to the vacant seat on the Supreme Court. Barrett’s opening statement was published over the weekend, in which she praised the late Justice Antonin Scalia for whom she clerked, and expressed the view that “The policy decisions and value judgments of government must be made by the political branches elected by and accountable to the People. The public should not expect courts to do so, and courts should not try.”

THE REGULATORS

Federal Reserve Warns Recovery Dependent on More Government Support: The Federal Reserve Board released the minutes from their September 15-16 meeting, which revealed “many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.” Later in the week, Federal Reserve Chairman Jerome Powell said it would be a tragedy for the economy if government support was allowed to lapse, and argued Congress should err on the side of caution as the risks of pouring too much stimulus into the economy were far lower than the risk of not doing enough, which “would lead to a weak recovery, creating unnecessary hardship for households and businesses.”

DOJ Publishes Cryptocurrency Enforcement Framework: On Thursday, Attorney General Bill Barr announced the release of “Cryptocurrency: An Enforcement Framework,” a publication produced by the Attorney General’s Cyber-Digital Task Force. The Framework provides a comprehensive overview of the emerging threats and enforcement challenges associated with the increasing prevalence and use of cryptocurrency; details the important relationships that the Department of Justice has built with regulatory and enforcement partners both within the United States government and around the world; and outlines the Department’s response strategies. In a statement, Barr noted that “Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society. Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.”

SEC Updates Regulatory Framework for Fund of Funds Arrangements: On Wednesday, the SEC voted to adopt a new rule and related amendments designed to put in place a comprehensive regulatory framework for fund of funds arrangements. Chairman Clayton celebrated the move, saying, “the framework adopted today will provide flexibility to fund managers to allocate and structure investments efficiently, without the costs and delays of seeking individualized exemptive orders, as long as the arrangements satisfy a number of conditions designed to enhance investor protection.”

SEC Proposes Conditional Exemption for Finders Assisting Small Businesses with Capital Raising: On Wednesday, the SEC voted to propose a new limited, conditional exemption from broker registration requirements for “finders” who assist issuers with raising capital in private markets from accredited investors. If adopted, the proposed exemption would permit natural persons to engage in certain limited activities involving accredited investors without registering with the Commission as brokers. The proposed exemption seeks to assist small businesses to raise capital and to provide regulatory clarity to investors, issuers, and the finders who assist them.

SEC to Hold National Compliance Outreach Seminar for Investment Companies and Investment Advisers Virtually: On Wednesday, the SEC announced that it has rescheduled its compliance outreach program's national seminar for investment companies and investment advisers to November 19, 2020. This program is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms enhance their compliance programs for the protection of investors. The November program will be offered as a live webcast – both speakers and attendees will be participating in the program remotely.

Treasury Sanctions Eighteen Major Iranian Banks: On Thursday, the Secretary of the Treasury, in consultation with the Secretary of State, identified the financial sector of the Iranian economy pursuant to section 1(a)(I) of Executive Order 13902, which authorizes Treasury to sanction any Iranian financial institution. Subsequently, the Office of Foreign Assets Control sanctioned eighteen major Iranian banks. As part of this action, OFAC sanctioned sixteen Iranian banks for operating in Iran’s financial sector and one bank for being owned or controlled by a sanctioned Iranian bank. Additionally, the action included the designation of an Iranian military-affiliated bank under Treasury’s counter-proliferation authority.

CFTC Unanimously Approves a Final Rule Amending Form CPO-PQR: On Tuesday at its open meeting, the CFTC unanimously approved a final rule adopting amendments to Form CPO-PQR for commodity pool operators (CPOs). The amendments to Form CPO-PQR (1) eliminate existing Schedules B and C of the form, except for the Pool Schedule of Investments; (2) amend the information requirements and instructions to request Legal Entity Identifiers (LEIs) for commodity pool operators and their operated pools that have them, and to delete questions regarding pool auditors and marketers; and (3) make certain other changes due to the rescission of Schedules B and C, including the elimination of all existing reporting thresholds.

CFTC and the Office of Financial Research Sign Memorandum of Understanding to Allow Information Sharing: On Tuesday, CFTC Chairman Heath Tarbert and Office of Financial Research Director Dino Falschetti signed a Memorandum of Understanding that establishes a framework for the CFTC to share with OFR information and data reported on Form CPO-PQR, which is filed with the CFTC by CFTC-registered commodity pool operators (CPOs). The MOU also confirms both agencies’ commitment to working together to fulfill their statutory and regulatory mandates. “Collaboration is vital to monitoring risk across the financial system. No single regulator has all of the data required for a complete picture,” said Falaschetti, “This agreement will provide the OFR with important data to assist the FSOC in identifying and responding to risks to financial stability.”

CFTC Posts Record-Breaking Enforcement Year: On Tuesday, the CFTC announced a record-breaking year in the agency’s Division of Enforcement. The agency highlighted that during Fiscal Year 2020, which closed on September 30, 2020, it the Commission had: Filed more enforcement actions (113) than any other year in the agency’s history; Approved a case imposing the largest monetary relief in the agency’s history, with a $920 million resolution for violations relating to manipulation and spoofing; Filed an action in coordination with more state authorities – 30 states in total – than ever, alleging more than $180 million defrauded from elderly victims; Aggressively pursued fraud occurring during the COVID-19 pandemic, at a time when victims may be particularly vulnerable, filing 29 associated cases since a national emergency was declared on March 13, 2020; and Continued its emphasis on coordination and parallel actions with criminal authorities and its regulatory partners.

LabCFTC Opens Registration for October 21 “Empower Innovation 2020” Event: On Thursday, the CFTC opened registration and released the agenda for LabCFTC’s Empower Innovation 2020 session, “Regulation and Innovation Re-imagined.” The October 21st session is the second of three interactive virtual events hosted by LabCFTC to facilitate a dialogue on cutting-edge fintech innovation among innovators, regulators, market participants, and the public. Participants will engage with leaders from some of the nation’s key regulators to discuss their views on the role technology plays in fostering innovation and best practices for collaboration among policymakers and innovators.

CFPB Report Finds Continued Decline in the Market for Certain Kinds of College Credit Cards: On Thursday, the CFPB issued a report on agreements between credit card issuers and institutions of higher education, as well as certain organizations affiliated with such institutions. The report finds that in 2019 the number of total agreements in effect, as well as the number of accounts open under the agreements, continues a general trend of decline. Overall, between 2009 and 2019 the number of agreements in effect, year-end open accounts, and payments by issuers all declined by more than two-thirds. Agreements with alumni associations continue to represent the large majority of agreements, accounts, and payments by issuers.

FDIC to Host Inaugural Meeting of Advisory Committee of State Regulators: On Thursday, the FDIC announced that it would convene the first meeting of its Advisory Committee of State Regulators (ACSR) on Wednesday, October 14th. The FDIC’s advisory committee members will discuss and receive updates on a range of policy issues regarding the regulation of state-chartered financial institutions throughout the U.S. and its territories. The inaugural meeting’s agenda includes a discussion of state banking conditions, financial technology and an update on efforts to expand financial inclusion.

COMINGS AND GOINGS AT THE AGENCIES

CFTC Enforcement Director James McDonald to Depart Agency: On Tuesday, the CFTC announced that Division of Enforcement Director James McDonald would depart the agency, effective October 8, 2020. Mr. McDonald has served as Director of Enforcement since April of 2017. Vincent McGonagle, Principal Deputy Director of the Division of Enforcement, will serve as Acting Director.

THE COURTS

First Openly Gay Judge Nominated to California Supreme Court: On Monday, California Governor Gavin Newsom announced the nomination of Judge Martin Jenkins to serve on the state’s Supreme Court. If appointed, Jenkins would become the first openly gay man to serve on the court, and the first Black man to sit on the court in nearly three decades.

OTHER NOTEWORTHY ITEMS

Supreme Court Denies Challenge to Pennsylvania Shutdown Order: On Monday the Supreme Court declined to hear a challenge to Pennsylvania Governor Tom Wolf’s decision to close all non-life-sustaining businesses as a response to the outbreak of the pandemic. The decision was the second time the high court had decided not to review the case, having first decline to review an emergency petition in May.

Trump Campaign Loses Ballot-Counting Challenge in New Jersey: On Tuesday, a federal judge in New Jersey denied the Trump campaign’s challenge to the state’s plan to accept mail-in ballots up to two days after Election Day. The judge ruled that to do so would create a disincentive to vote by absentee ballot in the midst of a pandemic.

Supreme Court Rejects Effort to Block Montana Mail Ballots: On Thursday, the Supreme Court refused to block Montana election officials from sending mail-in ballots. State Republican officials had contended that the move by Governor and Senate candidate Steve Bullock to allow counties to send out the ballots as a coronavirus safety precaution violated a U.S. constitutional provision.

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