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Financial Services Report

May 16, 2016

 Looking Ahead

Near Term

  • Busy week in the House as the chamber will consider the Defense Authorization bill.  This massive legislation often includes debate on numerous amendments.
  • The House Financial Services Committee has three hearings scheduled for the week – including one the CFPB’s recently released NRPM on arbitration.
  • The Senate will continue it work on the appropriations process, as it begins on a combined Transportation-HUD and Military Construction-VA minibus appropriations bill. Included in this debate will be three Zika-related amendments, the result of weeks of negotiations on the issue between leaders of both parties and the White House.
  • A Senate Banking Subcommittee will hold a hearing on access to capital that will examine how small and mid-sized businesses are accessing (or not) funds in the wake of the financial crisis.

Further Out

  • With both the OCC and Treasury having released their initial statements about the “FinTech” market – the next government stakeholder event is the FTC’s forum on June 9th.
  • Senate Banking Committee is scheduled to hold two days of hearings on the sanctions component of the Iran deal. 

The Past Week

Legislative Branch
House
Housing and Insurance Subcommittee Compares US and UK for Affordable Housing Policy
On May 12, the House Financial Services Committee's Subcommittee on Housing and Insurance held a hearing entitled “The Future of Housing in America: A Comparison of the United Kingdom and the United States for Affordable Housing.”  During the hearing Subcommittee Chairman Luetkemeyer indicated that he had been asked by Speaker Paul Ryan (R-WI) to explore innovative solutions to combat poverty in America specifically related to housing.  And both the Chair and Ranking Member of the Subcommittee highlighted the “right to buy” program that the United Kingdom had implemented, though the Chairman offered less than a full endorsement.
 
Senate
Warren, Sanders and other Dems Call on Fed to Bolster Diversity
On Thursday, Sen. Elizabeth Warren (D-MA) and presidential hopeful Sen. Bernie Sanders (D-VT) joined more than 100 other Congressional Democrats in sending a letter to Federal Reserve Chair Janet Yellen arguing that the central bank has not met its “statutory and moral obligation” to fill leadership posts with more diverse candidates. The letter also received support from the frontrunner for the Democratic presidential nomination, Hillary Clinton, whose campaign called a move to rid bankers off the boards of regional Fed banks “long overdue.” Fed spokesman David Skidmore countered that the central bank has improved its diversity considerably since 2010 and that “46 percent of all directors are diverse in terms of race and/or gender.”
 
Cotton and Warren Ask FINRA to Address Adviser Misconduct
On Wednesday, the bipartisan duo of Sens. Tom Cotton (R-AR) and Elizabeth Warren (D-MA) sent a letter to the Financial Industry Regulatory Authority (FINRA) to insist the body do more to combat adviser misconduct and protect investors. The letter cites an academic paper that suggests only about half of advisers who committed misconduct lost their jobs, and that many with a history of problems are able to secure jobs at other firms.
 
Heller Questions FDIC Chair on De Novo Community Banks, ILCs
On Friday, Sen. Dean Heller (R-NV) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg to encourage the agency’s facilitation of de novo community banks and the creation of Industrial Loan Companies (ILCs). While acknowledging Gruenberg’s favorable remarks on the subject, the Nevada senator requested further information on any FDIC plans to remove regulatory barriers and compliance issues that “disincentivize” the creation of new banks, and whether the agency has any proposals to promote applications for future ILCs.
 
Select Highlights from the Administration
Treasury
Treasury Says Small Businesses May Need Protections on Marketplace Loans
On Monday, a Treasury Department issued its long awaited response to a July RFI about online, marketplace and P2P lending.   Among other things, the report suggested that small business borrowers may need protections similar to those given to consumer borrowers when taking loans from marketplace lenders. The report said that policymakers should determine if such protections are necessary and “clarify any current oversight and enforcement” on the issue. Treasury also announced the creation of a working group with regulators from other agencies, including the Consumer Financial Protection Bureau (CFPB). The working group move was welcomed by House Financial Services Committee Vice-Chairman Rep. Patrick McHenry (R-NC), who also expressed his concerns on the reports need for new regulation of financial innovation.  
 
Department of Labor (DOL)
Labor Department Official Suggests Changes Possible to Fiduciary Rule
At a conference hosted by the Investment Company Institute (ICI) on Tuesday, Department of Labor (DOL) Deputy Assistant Secretary Tim Hauser suggested that the Department has “every intent” to make changes to the rule as problems emerge. Hauser, who played a leading role in the crafting the rule, expressed confidence that the financial advice industry would be able to adjust to the fiduciary rule, which legally requires investment advisers to act in their clients’ best interest. Despite being open to some modifications, Hauser noted that the DOL is not considering moving back compliance deadlines for the rule – including the April 2017 date where all advisers are required to act as fiduciaries.
 
Federal Reserve
Fed Creates New Financial Stability Division
On Wednesday, the Federal Reserve Board announced the creation of a new division that will handle the Fed’s responsibilities as a member of the Financial Stability Oversight Council (FSOC) and the Financial Stability Board. The division, which replaces the Office of Financial Stability and Policy Research, was announced as a measure to reflect the “growth in responsibilities and staffing” associated with analyzing threats to financial stability. Nellie Liang, a board economist who ran the Office of Financial Stability, will stay on and serve as the new division’s director.  
 
Securities and Exchange Commission (SEC)
SEC Panel to Consider Changes to ‘Accredited Investor’ Definition
The Securities and Exchange Commission (SEC) Advisory Committee on Small and Emerging Companies announced last week that they will again consider possible changes to the agency’s definition of “accredited investors,” who are allowed to participate in some unregistered offerings. In 2015, the committee recommended that the agency broaden the pool by allowing for a “sophistication test” that was not based on income or net worth, a change that SEC Chair Mary Jo White endorsed earlier this year.  
 
Next Week’s Schedule
Tuesday May 17th

  • Hearing: House Financial Services Subcommittee on Capital Formation Legislation – 2:00 PM – The House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee will hold a hearing entitled “Legislative Proposals to Enhance Capital Formation, Transparency, and Regulatory Accountability.” Details here.
  • Hearing: Senate Finance on Tax Systems – 10:00 AM – The Senate Finance Committee will hold a hearing entitled “Integrating the Corporate and Individual Tax Systems: The Dividends Paid Deduction Considered.” Details here.

Wednesday May 18th

  • Hearing: House Financial Services Subcommittee on CFPB Arbitration Rule – 2:00 PM – The House Financial Services Financial Institutions and Consumer Credit Subcommittee will hold a hearing entitled “Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers?” Details here.

Thursday May 19th

  • Hearing: House Financial Services Subcommittee on Bank Settlement Agreements – 9:15 AM – The House Financial Services Oversight and Investigations Subcommittee will hold a hearing entitled “Settling the Question: Did Bank Settlement Agreements Subvert Congressional Appropriations Powers?” Details here.

Hearing: Senate Banking Subcommittee on Access to Capital – 10:00 AM – The Senate Banking Subcommittee on Securities, Insurance, and Investment will hold a hearing entitled “Improving Communities' and Businesses' Access to Capital and Economic Development.” Details here.