Financial Services Report

December 18, 2017

Looking Ahead

Near Term

  • The House and Senate are poised to approve the tax reform bill and if everything goes according to plan, it will be on the President’s desk by mid-week.
  • Funding for the government expires on Friday.  A continuing resolution to punt the hard choices of what to include in a long-term spending bill until mid-January has been teed up and is expected to pass the Senate on Friday.  How late on Friday remains to be determined. 
  • The House will also take up a bill (H.R. 3312) that would revise the authorities of the Financial Stability Oversight Council (FSOC) in their designation of certain financial services firms as “systemically important” by replacing the Dodd-Frank threshold of $50 billion in assets, and instead requiring the regulators to come up with an activities-based approach.
  • The House is also expected to take up the “Corporate Governance Reform and Transparency Act of 2017 (H.R. 4015).  This legislation would require firms that give investors proxy voting advice to register with the SEC and would also increase the disclose of these firm’s methods and potential conflicts of interest.
  • The Senate Banking Committee is scheduled to hold votes on a slate of nominees to fill vacancies at the Ex-Im board on Tuesday.  This includes the nominee to be President of the Bank, Scott Garrett. However, his nomination has faced bipartisan opposition and may not be approved.  

Further Out

  • Senator Crapo’s Bipartisan Regulatory Relief bill is expected to be on the Senate floor in January.
  • There are 323 ays until the mid-term elections.

The Past Week

Legislative Branch
House Passes Bill to Ease Rules on Privacy Disclosures
On Thursday, the House approved a measure (H.R. 2396) that would allow certain companies – primarily lenders for vehicle finance purchase to post their privacy policies online rather than make an annual mailing.   This legislation is a technical edit to a law passed last year.  The measure passed by a 275-146 vote, with 44 Democrats joined most Republicans in supporting the measure.  
Financial Services Committee Approves 14 Bills in Markup
On Tuesday and Wednesday, the House Financial Services Committee held yet another a markup on a set of bills on issues ranging from financial institutions’ efforts to combat human trafficking to permanently undoing the Securities and Exchange Commission’s mandate to promulgate rules related to natural resource issuers disclosure of payments to foreign governments. The multi-day markup included some bipartisan measures and all were eventually approved and sent to the House floor.  Included amongst the bipartisan bills, were the International Insurance Standards Act that would increase transparency in international insurance standard negotiations, with the stated aim of preserving the State-based system of insurance regulation in the United States, and the Credit Access and Inclusion Act would amend the Fair Credit Reporting Act (FCRA) to authorize the Department of Housing and Urban Development (HUD) to furnish consumer credit reports to include an individual’s payment history from rent payments and utility contracts.  Both bills were passed with bipartisan majorities; the former by a 56-4 vote, which was a testament to its lead Democrat, and the latter by a 60-0 unanimous vote.
CFIUS Hearing
On December 14th the Monetary and Trade Subcommittee held a hearing entitled, “Examining the Operations of the Committee on Foreign Investment in the United States (CFIUS)”.   The witnesses were all from the private sector, though most had held senior positions in previous administrations.   During the hearing, Congressman Pittiginer (R-NC) highlighted his legislation to expand CFIUS’ powers.   Issues of Chinese and other foreign corporations’ purchases of US companies will continue to receive stricter scrutiny as the President is set ratchet up the rhetoric against China in a speech this week.
Bipartisan Group Introduces RETIRE Act
On Tuesday, a bipartisan group of lawmakers introduced the Receiving Electronic Statements to Improve Retiree Earnings (RETIRE) Act (H.R. 4610) that would allow for pension plan information to be delivered electronically. The original supporters are Reps. Jared Polis (D-CO), Phil Roe (R-TN), Ron Kind (D-WI), and Mike Kelly (R-PA), though they were joined by 24 other cosponsors — 13 Democrats and 11 Republicans — after the bill was released.
Kihuen to retire in 2018
On Saturday, Representative Ruben Kihuen, (D-NV), a rising star of the Democratic party and a member of the House Financial Services Committee announced he would not stand for e-election in 2018.  The announcement followed Friday’s news that the House Ethics Committee had opened an investigation into the Congressman based on allegations of sexual harassment.  It is unclear whether Democrats will replace him on the Financial Services on allow him to remain on for the rest of the 115th Congress.
GOP Releases Final Tax Text, Expect Passage Tuesday
On Friday, the conferees for the tax report released their finalized version (text) of the Tax Cuts and Jobs Act that reflects reconciled provisions from the versions that passed the House and Senate in recent weeks. Many of the last changes were designed to bring holdouts on board, most notably the expansion of the Child Tax Credit that was desired by Sens. Marco Rubio (R-FL) and Mike Lee (R-UT). With Republicans of all stripes satisfied by the changes, it appears that floor consideration will be relatively straightforward. Both chambers are reportedly planning to vote on the bill tomorrow, leaving the remainder of the week to hammer out a government funding agreement before breaking for the holidays. All expectations are that the bill will pass both chambers and that President Trump will be able to sign it into law as early as Wednesday.
In releasing the package, Republican leaders have suggested that the legislation is now ‘fully baked,’ with tax conferee Sen. Rob Portman (R-OH) telling reporters today that “it’s closed now . . . I think we’ll have the votes.” Sen. Bob Corker (R-TN), who voted against the legislation in its original Senate consideration, released a statement today saying that he now supported the bill as a “once-in-a-generation opportunity to make U.S. businesses domestically more productive and internationally more competitive.”  Though he appears to still be digesting the bill.   Democrats have consistently opposed the tax reform effort over concerns on both policy and process, but their objections are likely to be moot given Republican majorities in both chambers.
Judiciary Sub Holds Antitrust Hearing on Consumer Welfare Standard, Comcast Merger
On Wednesday, Senate Judiciary Subcommittee on Antitrust, Competition, and Consumer Rights held a hearing entitled, “The Consumer Welfare Standard in Antitrust: Outdated or a Harbor in a Sea of Doubt?” The hearing tackled the issue of antitrust more broadly, with Ranking Member Amy Klobuchar (D-MN) discussing her pending legislation on the issue at length. With only three members attending — Chair Mike Lee (R-UT), Sen. Klobuchar, and Sen. Richard Blumenthal (D-CT) — the hearing was able to take a highly academic tone as all three senators asked multiple rounds of questions. Despite the turnout, the partisan divide was on display as Chair Lee tended to take a softer approach while Sen. Blumenthal targeted the recent Comcast merger and the pending decision by the Federal Communications Commission (FCC) to reverse Obama-era “net neutrality” rules. 
Senate Commerce Panel Talks AI in Digital Economy
On Tuesday, the Senate Commerce Subcommittee on Communications, Technology, Innovation, and the Internet convened a hearing titled “Digital Decision-Making: The Building Blocks of Machine Learning and Artificial Intelligence.” The hearing examined the potential benefits of artificial intelligence (AI) in today’s economy, including a discussion on the development of algorithms powering AI in many sectors such as financial services, healthcare, defense, and infrastructure. The panel — consisting of five thought leaders from the AI industry — provided thorough detail on some of the innovations in the AI sector, and offered their takes on what the federal government’s role should be in regulating AI practices. They also discussed the impact AI has on small businesses and the workforce, and urged Congress to support policies that help each industry integrate AI practices seamlessly.
Select Highlights from the Administration
Federal Reserve
FOMC Votes to Increase Interest Rates Quarter-Point And Forecasts Three Hikes in 2018
As expected, the Federal Open Markets Committee (FOMC) elected to bump interest rates up a quarter point in their December meeting to 1.5 percent. In what will likely be her last press conference as Federal Reserve Chair, Janet Yellen said that the Fed has revised up their projections for economic growth and will likely raise rates three times in 2018 if the economy performs in line with their forecast. Jerome Powell will be taking the helm at the central bank early in 2018, but his monetary policy beliefs are not expected to be radically different than those of his predecessor.
Financial Stability Oversight Council (FSOC)
FSOC Approves 2017 Report in December Meeting
On Thursday, Treasury Secretary Steven Mnuchin led an open meeting of FSOC as the body considered its 2017 Annual Report and received an update on the Commodity Future Trading Commission’s (CFTC) Project KISS. The report to Congress covered market conditions as well as the Council’s work on assessing the effectiveness of post-crisis regulations. The Council approved the report by voice vote. On Project KISS — Keep It Simple, Stupid — CFTC Chair J. Christopher Giancarlo explained his agency’s goal to simplify rules and practices in a policy-neutral manner.
Securities and Exchange Commission (SEC)
SEC Agenda for 2018 Includes Fiduciary Project
On Thursday, the SEC’s agenda was revealed to include anticipated work on “standards of conduct for investment professionals” to complement the Department of Labor’s contentious fiduciary rule. According to the release, the agency plans to propose regulations in connection with the rule in October 2018, but the past history of the fiduciary rule suggests that this timeframe may be optimistic.
PCOAB Gets Major Overhaul, Five New Members
On Tuesday, the audit regulator known as the Public Company Accounting Oversight Board (PCOAB) set a new course with the appointment of new members for all five slots on the body’s board. Under its former leadership PCOAB, which falls under the authority of the Securities and Exchange Commission (SEC), had been criticized by some as completing its analyses too slowly and being overly prescriptive with its rulemaking. SEC Chair Jay Clayton was apparently dissatisfied with that situation and took the relatively unprecedented step of appointing a complete new board. The new board members are: Chair William Duhnke, a Republican Senate aide; James Kaiser, a partner at PricewaterhouseCoopers; Jay Brown, professor at the University of Denver School of Law; Kathleen Hamm, Global Chief of Securities at Promontory Financial Group; and, Duane DesParte, Controller at Exelon Corporation.