TRP Financial Services Report

The update comes to you a day late as we were quiet observing the Memorial Day Holiday.  With both the House and Senate in Recess this week, lobbyist and staff get a chance to catch their breaths and prepare for the next five weeks – which are shaping up to be busy on a number of fronts, but especially for those involved in the Ex-Im battle as the June 30th deadline is fast approaching.  

Near Term

  • The House and Senate are in Recess for the Memorial Day District Work Period.
  • The Senate returns on March 31st to deal with the pending NSA reauthorization.

Further Out

  • Both the House Financial Services Committee and the Senate Banking Committee have scheduled hearings on the renewal of the Ex-Im.  As was widely reported, Senator Cantwell and others secured a commitment from Leader McConnell to have a vote on Ex-Im on the Senate floor though it is unclear when this vote will take place. 
  • The remaining statutorily imposed deadlines for the year are:

    • June 1: USA PATRIOT Act
    • June 30: Export-Import Bank
    • July 31st Surface Transportation
    • Sept. 30: Child Nutrition & WIC
    • Sept. 30: FAA Authorization
    • Sept. 30: End of the Federal Fiscal Year
    • End of September or October: Extraordinary Measures for dealing the Debt Ceiling run out and default becomes possible.

The Past Week
Legislative Branch
Hensarling Supoenas Fed in Leak Probe
On Thursday, Chairman Hensarling issued a subpoena to the Federal Reserve as part of the Committees ongoing investigation about whether potentially market moving information was prematurely released.  Ranking Member Waters criticized the subpoenas as “politicizing” and “having a chilling effect” on the already ongoing DOJ investigation. 
Financial Services Committee Marks-up Baker’s Dozen of Capital Markets Legislation
On Wednesday the Financial Services Committee marked up thirteen bills that had been discussed at Capital Markets subcommittee the week before.  Multiple Democratic members used the hearing as a forum to call for the renewal of the Ex-Im Bank and Chairman Hensarling announced that the Committee would be holding a hearing on the issue during the first week of June.
The approved bills were:

  • H.R. 432, the “SBIC Advisers Relief Act of 2015,” which “amends the Investment Advisers Act of 1940 to reduce unnecessary regulatory costs and eliminate duplicative regulation of advisers to Small Business Investment Companies (SBICs).”
  • H.R. 686, the “Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2015,” which amends the Securities Exchange Act “to create a simplified SEC registration system for brokers known as M&A brokers that perform services in connection with the transfer of ownership of smaller privately held companies.”
  • H.R. 1334, the “Holding Company Registration Threshold Equalization Act of 2015,” which would amend Title VI of the Jumpstart Our Business Startups Act (JOBS Act) to “raise the threshold for mandatory SEC registration of savings and loan companies from 500 shareholders of record to 2,000 shareholders of record” to “raise the threshold for a savings and loan company to terminate its registration from 300 to 1,200 shareholders of record.”
  • H.R. 1525, the “Disclosure Modernization and Simplification Act of 2015,” which would direct the SEC to “simplify its disclosure regime for issuers and investors by permitting issuers to submit a summary page on Form 10-K with cross-references to the content of the report.”
  • H.R. 1675, the “Encouraging Employee Ownership Act of 2015,” which would amend SEC Rule 701 to increase the securities sales threshold “from $5 million to $10 million and index the amount for inflation every five years.”
  • H.R. 1723, the “Small Company Simple Registration Act of 2015,” which would “allow smaller reporting companies to incorporate by reference any documents filed with the SEC after the effective date of the Form S-1.”
  • H.R. 1847, the “Swap Data Repository and Clearinghouse Indemnification Correction Act of 2015,” which would repeal the indemnification provisions in Sections 725, 728, and 763 of the Dodd-Frank Act (DFA).
  • H.R. 1965, the “Small Company Disclosure Simplification Act,” which would provide “a voluntary exemption for all Emerging Growth Companies and other issuers with annual gross revenues under $250 million from the SEC's requirements to file their financial statements in an interactive data format known as eXtensible Business Reporting Language (XBRL).”
  • H.R. 1975, the “Securities and Exchange Commission Overpayment Credit Act,” which would “allows the SROs to offset previous Section 31 overpayments against future Section 31 fees, under a 10-year statute of limitations.”
  • H.R. 2064, the “Improving Access to Capital for Emerging Growth Companies Act,” which would “reduce the number of days an EGC [emerging growth company] must have a confidential registration statement on file with the SEC before it may conduct a road show from 21 days to 15.”
  • H.R. 2354, the “Streamlining Excessive and Costly Regulations Review Act, which “requires the SEC to review significant regulations it has previously issued.”
  • H.R. 2356, the ‘‘Fair Access to Investment Research Act of 2015,” which “directs the SEC to provide a safe harbor for research reports that cover Exchange Traded Funds (ETFs) so that these reports are not considered “offers” under Section 5 of the Securities Act of 1933.”
  • H.R. 2357, the ‘‘Accelerating Access to Capital Act of 2015,” which “amends the SEC's Form S-3 registration statement (a simplified registration form for companies that have met prior reporting requirements) for smaller reporting companies that have a class of common equity securities listed and registered on a national securities exchange.”

Financial Services Subcommittee Wades into Cybersecurity Debate
On Tuesday, the Financial Institutions and Consumer Credit Subcommittee held a hearing entitled, “Protecting Critical Infrastructure: How the Financial Sector Addresses Cyber Threats.”  Witnesses included representatives from various financial services trade associations.  During the hearing the subcommittee discussed how nation-state attacks differ from individual criminal attacks, whether the Chip & Pin card system will limit the risk of data breach and whether additional regulations were necessary.
Taskforce Holds Hearing on Nexus Between Terrorists and Criminals
On Thursday, the Financial Services Committee Taskforce on Terrorism Financing held a hearing entitled “A Dangerous Nexus: Terrorism, Crime, and Corruption.” The hearing examined the interactions and interconnections of transnational terrorism, crime, and corruption.  During the hearing members discussed, among other things how drug trafficking and money laundering in Europe, Africa and South American is used to fund a variety of nefarious actors.  In addition, Ranking Members brought up how large, all cash transactions in real estate purchases are being used to launder dirty money and questioned whether more needed to be done to prevent the real estate system from being taken advantage of by criminals and terrorists. 
Subcommittee Holds Hearing on Rural Housing
On Tuesday, May 19th the Financial Services Housing and Insurance Subcommittee held a hearing entitled, “Oversight of the Rural Housing Service.”  Witnesses included, Tony Hernandez, Director of the Rural Housing Service and Matthew Scire, the GAO’s director of Financial Markets and Community Reinvestment.   During the hearing members on both sides of the aisle questioned whether the role of the Rural Housing Services could be equally well served by the FHA.  
Democrats Ask for Hearing on Charges in Flash Crash Probe
On Friday, four Democratic members of the House Financial Services Committee, led by Rep. Stephen Lynch (D-MA) wrote to Chairman Hensarling to urge him to hold a hearing to examine whether lax oversight by the SEC and CFTC lead to the 2010 Flash Crash, as well as to shed more light on recent revelations uncovered as part of the arrest of the individual suspected of causing the crash. 
Democrats Push CFPB to Take up Rule on Arbitration
On Thursday, nearly 60 Democratic members of the House and Senate sent a letter to CFPB Director Cordray, urging him to take up a rulemaking to prohibit mandatory arbitration contracts in consumer financial services contracts.  The letter builds on a report the CFPB issued back in March.  In addition the CFPB’s unified agenda released last week indicates that the Bureau continues to examine the issue (see more below in CFPB section).
Banking Committee Passes Shelby’s Reg Reform Bill on Party-line vote
On Thursday, the Senate Banking Committee passed, by a 12-10 straight party line vote, Chairman Shelby’s regulatory reform bill.  Prognosticators had previously noted that absent the bill getting 3-5 Democrat votes the likelihood that the Senate would devote floor time to the bill was minimal.  Despite the perspective of the analysts, Shelby remained optimistic that this was only the first round of a longer negotiation.   Based on statements by both Shelby and Ranking Member Sherrod Brown (D-OH) it appears that an agreement on a reduced proposal remains possible.
Senate Clears TPA
Friday evening, after some tense negotiations, the Senate was able to pass Trade Promotion Authority (TPA) by a vote of 62-37 with 14 Democrats voting affirmatively.  The bill will not move to the House where is expected to encounter an even bumpier fight.  The move came after Senator McConnell agreed to an up or down vote on the Export Import Bank in order to win the support of key Democratic Senators to shut off debate. 
NSA Reauthorization Goes Down — Senate to Come Back on the 31st
With members of the Senate itching to get out of town they first had to deal with reauthorizing the NSA.  However after the NSA bill backed by the White House and Leader McConnell failed to garner enough votes to get cloture, going down 57-42, it was expected that a two month punt would sail through, as it had already passed the House by a wide margin.  Instead the bill failed by a vote of 45-54 setting up the Senate to return Sunday night only hours before the Patriot Act is set to expire.
Select Highlights from the Administration
FSOC Releases Annual Report
On Tuesday the Federal Stability Oversight Council (FSOC) released its 2015 annual report, and gave an indication that it would continue to focus on clearinghouses, swap platforms, risk management and cyber threats.     
Consumer Financial Protection Bureau (CFPB)
Bureau Releases Update to Unified Regulatory Agenda
On Friday, the CFPB released its spring 2015 update to its unified regulatory agenda.  The document indicates that Bureau intends to finish its HMDA update this year.  The Bureau also did not offer any indication that the TILA / RESPA Integrated Disclosure issue would be delayed beyond the current August 1st effective date.  Other issues the CFPB intends to take up this year, though not complete until 2016 include the rule on prepaid financial products and their small dollar lending rule.  In addition, it appears that the CFPB continues to actively solicit feedback as to whether it should put forward new rules to govern the use of mandatory arbitration provisions in consumer financial products or services.
Securities and Exchange Commission (SEC)
Chief of Staff to Chair White to Resign
On Tuesday, it was announced that Lona Nallengara, Chief of Staff to Chair White, would be leaving the SEC at the end of June.  Mr. Nallengara has been at the SEC for the past four years.  According to news accounts his next move is still to be determined.   
Federal Reserve
Fed Seeks Comment on NACHA Proposal
On Thursday the Fed announced that it was seeking comment by July 2nd on a proposal put forward by NACHA to determine whether the NACHA proposal allows for receiving institutions to appropriately recoup costs while simultaneously expanding the adoption of the Fed’s same-day automated clearing house (ACH) service. 
Department of Justice (DOJ)
Six Banks Plead Guilty to Rigging Foreign Exchange Markets
On Wednesday six banks agreed to plead guilty to felony charges that the banks conspired to manipulate various foreign exchange markets in the United States and Europe.  In addition to the guilty pleas the banks agreed to pay $5.8 billion in fines, though in a closed session the SEC granted all parties waivers to continue existing business lines.  Shortly after the announcement Senator Warren (D-MA) called for hearings by the Department of Labor to examine whether or not these banks should be allowed to manage retirement accounts. 
Next Week’s Schedule
The House and Senate are in Recess for the Memorial Day District Work Period