PH FedACTion: Financial Regulatory Updates

This Week in Washington for October 26, 2020

October 26, 2020

Dina Ellis

THE BIG PICTURE

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The United States reported over 80,000 new coronavirus cases on Friday, its highest daily total since the outset of the pandemic. As hospitalization and death rates begin to creep up, public health officials warn the country is entering a concerning phase, where the virus has taken root nationally. Tensions between the President and top infectious disease expert Dr. Anthony Fauci were evident on the campaign trail, with the President disparaging Fauci as a “disaster” but acknowledging the blowback if he were fired would be akin to a “bomb.” A second outbreak tied to the White House came to light over the weekend, with five aides to Vice President Mike Pence testing positive for the virus.

President Trump and former Vice President Joe Biden faced off for the final time Thursday evening at their second debate in Nashville. The evening was a calmer and more substantive affair than their first meeting, with the candidates discussing their plans to deal with the pandemic, healthcare, immigration, and sparring over their tax histories and family entanglements. With one week to go before Election Day, both campaigns are embarking on a last push to energize voters. Nearly 60 million early and mail-in ballots have already been cast, dwarfing the early turnout in 2016.

On Thursday, all 12 Republican members of the Senate Judiciary Committee voted to advance Judge Amy Coney Barrett’s nomination to serve on the Supreme Court, while all of the Democratic members of the panel boycotted the vote. Senate Majority Leader Mitch McConnell held a rare weekend session, in order to enable the full chamber to hold a confirmation vote on Monday evening.

Stimulus negotiations between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi continued throughout the week, and while some progress was made, several sticking points remain—including liability protections, state and local aid, and school funding amounts. President Trump indicated he supported a large package, but that position put him at odds with many Senate Republicans. On Wednesday, Democrats blocked Republicans’ US$500B “skinny” bill, calling the measure insufficient as hope remained for a comprehensive package. Time is running short for a deal prior to the election, though over the weekend Pelosi expressed optimism that an agreement could still come together.

Other highlights of last week include:

• The President announced the normalization of relations between Israel and Sudan, as part of a US brokered agreement.

• The FBI and DHS issued an alert that Russian and Iranian actors are behind a series of cyberattacks targeting state and local governments in the run-up to the election.

• An additional 787,000 Americans filed for unemployment benefits last week.

LAST WEEK ON THE HILL

Warren Urges More Rigorous Bank Merger Reviews as the Justice Department Looks to Update Its Guidelines: Sen. Elizabeth Warren (D-MA) sent a letter to Assistant Attorney General Makan Delrahim, head of the DOJ’s Antitrust Division, to raise concerns that in updating its 1995 Bank Merger Competitive Review guidelines for the first time in 25 years, DOJ “seeks to weaken the already insufficient process currently in place to review bank mergers, making it even easier for these mergers to occur.”

Senate Democrats Call on SEC to Withdraw Form 13F Proposal: On Thursday, a group of Senate Democrats wrote to Chair Jay Clayton urging the SEC to withdraw the proposed changes that would dramatically increase the Form 13F reporting threshold for institutional investment managers. The lawmakers stressed the proposal would undermine transparency in the U.S. stock market and eliminate critical information used by public companies and the SEC. The Senators called on the agency to withdraw the rule and pursue reforms that increase transparency.

Brown Urges CFPB to Delay Planned Reorganization of Supervision, Enforcement, And Fair Lending Division: On Thursday, Sen. Sherrod Brown (D-OH) demanded that CFPB Director Kathy Kraninger delay implementing a proposed reorganization of the agency’s Division of Supervision, Enforcement, and Fair Lending (SEFL). Brown, in his letter, made clear that the agency’s move is inappropriate ahead of an election that could determine a future CFPB Director. “After seeing details of the SEFL reorganization, I am even more convinced that it is misguided and will weaken the Bureau’s ability to protect consumers from exploitation, abuse, and discrimination in the marketplace. If you insist on going down this ill-advised path, you should at least not move forward with the SEFL reorganization until it is clear that you will continue as Director,” wrote Senator Brown.

ON THE FLOOR

Senate Rejects CRA Resolution of Disapproval: On Monday, the Senate voted 43 to 48 to reject H.J. Res. 90, a Congressional Review Act resolution introduced by House Financial Services Committee Chair Maxine Waters
(D-CA), which would have nullified the OCC’s rule revamping the Community Reinvestment Act.

LEGISLATION INTRODUCED AND PROPOSED

S. 4818: Sen. Ben Cardin (D-MD) introduced S. 4818, which would provide assistance to small businesses affected by COVID-19.

S. 4820: Sen. Pat Toomey (R-PA) introduced S. 4820, which would amend the Internal Revenue Code of 1986 to expand the use of retirement plan funds to obtain long-term care insurance.

Fair Access to Financial Services Act: Senators Sherrod Brown (D-OH), Tina Smith (D-MN), Cory Booker
(D-NJ), Bob Menendez (D-NJ), Elizabeth Warren (D-MA), and Chris Van Hollen (D-MD) introduced the Fair Access to Financial Services Act, a bill that would prohibit banks and other financial institutions from discrimination in providing goods or services on the basis of race, color, religion, national origin, sex, gender identity, or sexual orientation.

THE REGULATORS

Agencies Finalize Rule to Reduce the Impact of Large Bank Failures: On Tuesday, the Federal Reserve, FDIC, and OCC finalized a rule to limit the interconnectedness and reduce the impact from failure of the largest banking organizations. To discourage the largest banking organizations from purchasing TLAC debt, the final rule prescribes a more stringent regulatory capital treatment for holdings of TLAC debt. The regulatory capital treatment in the final rule will help to reduce the interconnectedness between the largest banking organizations and, if a GSIB were to fail, reduce the impact on the U.S. financial system from that failure.

Agencies Issue Final Rule to Strengthen Resilience of Large Banks: On Tuesday, the Federal Reserve, FDIC, and OCC finalized a rule strengthening the resilience of large banks by requiring them to maintain a minimum level of stable funding over a one-year period. The net stable funding ratio, or NSFR, final rule will require large banks to maintain a minimum level of stable funding, relative to each institution’s assets, derivatives, and commitments. As a result, the NSFR rule will support the ability of banks to lend to households and businesses in both normal and adverse economic conditions by reducing liquidity risk and enhancing financial stability.

Agencies Invite Comment on Proposed Rule under Bank Secrecy Act: On Friday, FinCEN and the Federal Reserve invited comment on a proposed rule that would amend the recordkeeping and travel rule regulations under the Bank Secrecy Act. FinCEN and the Board, pursuant to their shared authority, are proposing amendments to the recordkeeping rule jointly, while FinCEN, pursuant to its sole authority, is proposing amendments to the travel rule.

Fed Chairman Discusses Digital Currency: On Monday, Fed Chairman Jerome Powell discussed the potential for the bank issuing a digital currency. He said a decision had not yet been made, as the issue needs “extensive” public consultation, emphasizing that it is more important to “get it right than be first,” adding, “we are committed to carefully and thoughtfully evaluating the potential costs and benefits of a central bank digital currency for the U.S. economy and payments system.”

Financial Action Task Force Adopts New Standards on Proliferation Financing: On Friday, the Financial Action Task Force concluded its 32nd plenary meeting by agreeing to revise its standards to further strengthen the global response to the financing of proliferation related to weapons of mass destruction. The FATF also continued its focus on the impact of the COVID-19 pandemic on detecting and countering fraud, including attempts to defraud government backed stimulus programs. The task force also adopted an updated report on trade-based money laundering and recognized progress by a number of jurisdictions in rectifying their AML/CFT deficiencies. “The collaboration of the FATF is vital to addressing global illicit financial activity, including fraud associated with the COVID-19 pandemic, proliferation financing risk, and other AML/CFT priorities,” said Secretary Mnuchin.

SEC and CFTC Approve Final Rule on Security Futures Margin and Request for Comment on Portfolio Margining: On Thursday, at their first joint open meeting to vote on rulemaking initiatives, the SEC and CFTC approved: (1) a joint final rule to harmonize the minimum margin level for security futures held in a futures account with the minimum margin level for security futures held in a securities portfolio margin account, and (2) the issuance of a joint request for comment on the portfolio margining of uncleared swaps and non-cleared security-based swaps.

SEC to Host Panel with Women Entrepreneurs of Color on October 28: On Thursday, the SEC announced that it will host a virtual forum featuring women entrepreneurs and investors of color from Los Angeles and Atlanta, discussing their business experiences and ways to improve access to capital for minorities and women. The discussion, titled “Women of Color Entrepreneurs on Being Powerful Voices for Access to Capital,” will take place on October 28.

CFTC and BoE Sign New MOU for Supervision of Cross-Border Clearing Organizations: On Tuesday, the CFTC and Bank of England announced that they have signed an updated Memorandum of Understanding regarding cooperation and the exchange of information in the supervision and oversight of clearing organizations that operate on a cross-border basis in the United States and in the United Kingdom. The MoU strengthens the relationship between the regulators responsible for the resilience of the largest and most important derivatives markets and central counterparties in the world.

CFTC Staff Issues Advisory on Virtual Currency for Futures Commission Merchants: On Wednesday, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued an advisory to futures commission merchants regarding the holding of virtual currency in segregated accounts. The advisory provides guidance to FCMs on how to hold and report certain deposited virtual currency from customers in connection with physically-delivered futures contracts or swaps. The advisory also provides guidance that FCMs should follow when designing and maintaining risk management programs concerning the acceptance of virtual currencies as customer funds.

CFPB Issues Final Rule Extending the GSE Patch: On Tuesday, the CFPB issued a final rule to extend the Government-Sponsored Enterprise (GSE) Patch until the mandatory compliance date of a final rule amending the General Qualified Mortgage (QM) loan definition in Regulation Z. The GSE Patch was scheduled to expire on January 10, 2021. The Bureau is not amending the provision in Regulation Z; stating that the GSE Patch will expire if the GSEs (Fannie Mae and Freddie Mac) exit conservatorship.

CFPB Releases Advance Notice of Proposed Rulemaking on Consumer Access to Financial Records: On Thursday, the CFPB issued an advance notice of proposed rulemaking, requesting information related to consumer access to financial records. In issuing the ANPR, the Bureau is asking the public how it might most efficiently and effectively develop regulations to implement Section 1033 of the Dodd-Frank Act, which provides for consumer rights to access financial records. While consumer access to financial records can enable the development of innovative and beneficial consumer financial products, it can also present consumer risks. The Bureau’s ANPR seeks comments and information on costs and benefits of consumer data access; competitive incentives; standard-setting; access scope; consumer control and privacy; and data security and accuracy.

SEC Issues Record $114 Million Whistleblower Award: On Thursday, the SEC announced an award of over $114 million to a whistleblower whose information and assistance led to the successful enforcement of SEC and related actions. The $114 million award consists of an approximately $52 million award in connection with the SEC case and an approximately $62 million award arising out of the related actions by another agency. The combined $114 million reward marks the highest award in the program’s history, and eclipses the next highest award of $50 million, made to an individual in June 2020.

FDIC Releases Household Banking Survey: On Monday, the FDIC released its biennial survey entitled “How America Banks: Household Use of Banking and Financial Services,” which reported that a record 95 percent of U.S. households had a bank or credit union account in 2019. The report also found that a record low 5.4 percent of U.S. households were unbanked in 2019.

FDIC Approves Interim Final Rule to Provide Temporary Relief from Part 363 Audit and Reporting Requirements: On Tuesday, the FDIC issued an interim final rule (IFR) to provide relief for insured depository institutions that, absent regulatory action, would be required to incur substantial costs on a temporary basis. The FDIC’s IFR would allow IDIs that have experienced growth to determine whether they are subject to the requirements of Part 363 of the FDIC’s regulations for fiscal years ending in 2021 based on the consolidated total assets as of December 31, 2019. Such IDIs, whose asset growth may be temporary but significant, would be otherwise required to develop processes and systems to comply with the annual independent audits and reporting requirements of Part 363 on a potentially short-term basis.

FDIC Announces Meeting of Advisory Committee on Community Banking: On Friday, the FDIC announced it will host a meeting of its Advisory Committee on Community Banking on Wednesday, October 28. Committee members will discuss local banking conditions; proposed changes to the FDIC’s supervisory appeals process; the FDIC’s Rapid Prototyping Competition; and a potential voluntary certification program to promote new technologies. The agenda also includes updates on supervision matters, insurance and research issues, and the work of the Minority Depository Institutions Subcommittee.

FHFA Extends Temporary Policy Allowing Purchase of Qualified Loans in Forbearance: On Wednesday, the FHFA approved an extension of the current temporary policy that allows for the purchase of certain single-family mortgages in forbearance that meet specific eligibility criteria as set by Fannie Mae and Freddie Mac (the Enterprises). The policy is extended for loans originated through November 30, 2020.

HUD Secretary Ben Carson Hosts Discussion on Federal Government’s Response to Homelessness: On Wednesday, HUD Secretary Ben Carson held a roundtable in Austin, Texas, on the federal response to homelessness. The U.S. Interagency Council on Homelessness unveiled a new strategic plan to reduce homelessness, “Expanding the Toolbox: The Whole-of-Government Response to Homelessness,” which shares strategies to increase self-sufficiency by considering homelessness beyond a sole issue of housing and instead focusing on the root causes of homelessness for each individual and family experiencing homelessness.

COMINGS AND GOINGS AT THE AGENCIES

New York Fed Launches Search for New First Vice President: On Tuesday, the Federal Reserve Bank of New York announced the search for a new first vice president and chief operating officer, following the retirement of Michael Strine.

THE COURTS

Supreme Court Agrees to Hear Challenge to Administration’s Border Wall and Asylum Policies: On Monday, the Supreme Court agreed to review the administration’s immigration initiatives on border wall funding and policy that asylum seekers remain in Mexico while their applications remain pending.

OTHER NOTEWORTHY NEWS

NYDFS to Host First-Ever Techsprint: New York Superintendent of Financial Services Linda Lacewell announced DFS’ first-ever techsprint—an initiative to convene regulators and industry stakeholders to work towards a common goal of Digital Regulatory Reporting (DRR), which aims to give regulators instant access to data provided by firms under their supervision. This effort comes in the context of a trend by global financial regulators to employ techsprints as a mechanism to rapidly prototype technology solutions to key supervisory problems.

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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.