TRP Financial Services Report

February 17, 2015

Looking Ahead

Near Term 

  • The House and Senate are in recess this week.  When they return the Senate has teed up the 4th cloture vote on H.R. 240, the Homeland Security funding bill.  Unless Congress does something, funding for DHS will run out on Feb 27th.

 Further Out 

  • Following the recent Executive Order by President Obama on Cybersecurity sharing, the Senate is also expected to wade into the issue soon, possibly as soon as it resolves the DHS funding issue.  While the base bill is expected to be about cyber sharing, other related issues, including data breach notification could be wrapped into the debate.  However, there are also rumors that a Trade Promotion Authority (TPA) bill could be ready and if so, it would likely bump cyber, at least in the short term. 
  • Other Key Dates in the Congressional calendar include:

    • Sometime After March 15: Debt Limit
    • March 31: “Doc Fix”
    • May 31: Surface Transportation
    • June 1: USA PATRIOT Act
    • June 30: Export-Import Bank
    • Sept. 30: CHIP Funding
    • Sept. 30: Child Nutrition & WIC
    • Sept. 30: FAA Authorization

The Past Week
Legislative Branch

Mark-up of Financial Services Committee Views and Estimates of FY16 Budget Gets Political
Over two days last week, the Financial Services Committee held a mark-up of its views over the areas of the FY16 budget under its jurisdiction.  During the mark-up Democrats offered 14 amendments, on areas from fully funding the SEC, to preventing the CFPB from having to seek appropriations from Congress, to reauthorizing the Ex-Im bank.   All but three of the amendments were defeated on party line votes. 
House Passes Series of Stand Alone Tax Break Bills
On Friday, by a vote of 272-142, the House passed H.R. 636, legislation to make permanent three individual provisions of the tax code.  The White House issued a veto threat against the measure, which kept all but 33 Democrats from voting for the bill, because the legislation did not provide for any offsets for the cost of the cuts thus increasing the Federal deficit.   Walter Jones (R-NC), was the sole Republican to oppose the measure.
The vote followed the passage of another package of tax provisions on Thursday.  That legislation, H.R. 644, would make permanent deductions for donations of food inventory, tax-free donations of money from individual retirement accounts and for property donated for conservation, and it passed 279-137, also under the threat of a Presidential veto.
Ways and Means Passes H.R. 529
On Thursday, by a voice vote, the Ways and Means Committee passed H.R. 529, a bill to expand the college savings programs commonly known as 529 plans.  Under H.R. 529, the savings accrued in 529s could be used for computers in addition to tuition, as well as allow people to return excess college funds back into other tax deferred accounts.  The full house is expected to take up the measure in the near future.  At the same hearing, the Committee also approved H.R. 622, to extend the deduction for state sales taxes instead of income taxes and H.R. 880 would extend the  R&D tax credit for businesses. 
Shelby Holds Two Hearings on Regulatory Relief for Community Banks
On Tuesday and Thursday this past week, the Senate Banking Committee held two hearings to examine whether there was a need for regulatory relief for community banks and credit unions.  During the hearing, Chairman Shelby made it clear he was interested in pursuing reforms to Dodd-Frank designed to help smaller banks, while Ranking Member Sherrod Brown (D-OH) and Senator Elizabeth Warren (D-MA) indicated their unwillingness to let any modification go through just because it was marketed to help community banks, though Brown did note his support for S. 423 (see below).  
Legislation to Streamline Annual Notices Introduced
On Tuesday, Senators Jerry Moran (R-Kas.) and Heidi Heitkamp (D-N.D.) introduced S. 423, legislation that would require banks to alert customers when their privacy policies and information-sharing practices change, while eliminating the need for those institutions to send annual privacy notices.  The bill is cosponsored by Sens. Tom Cotton (R-Ark.), Bob Corker (R-Tenn.), Mike Crapo (R-Idaho), Dean Heller (R-Nev.), Mark Kirk (R-Ill.), Jeff Merkley (D-Ore.), Tim Scott (R-S.C.), Jon Tester (D-Mont.), Pat Toomey (R-Penn.), Mark Warner (D-Va.) and Elizabeth Warren (D-Mass.).

Select Highlights from the Administration

Office of the Comptroller of the Currency (OCC)
Deputy Comptroller for Operational Risk Highlights Severity of Cyber Risks for Banks
On Wednesday, Beth Dugan, Deputy Comptroller for Operational Risk gave a speech as part of the Clearing House’s Operational Risk Colloquium, where she spoke on the growing risk of cyber attacks at large financial institutions.  Among other things, she noted that “the severity of cyber threats is escalating rapidly and attackers are exhibiting an increasing ability to exploit vulnerabilities in commonly used infrastructure” and that if banks use old defenses against these modern threats, which appear to compromising both primary and back-up sites, they will be vulnerable to total operational shutdowns.  Then on Monday, a report
Securities and Exchange Commission (SEC)
White Outlines 2015 Agenda
On February 12th while speaking before the Commission’s Investment Adviser Committee, Chair White outlined the SEC’s rulemaking agenda for 2015.  Among other things, she noted that the SEC will continue to work to complete its remaining Dodd-Frank and JOBS Act mandates, including the additional Title VII and executive compensation rulemakings under Dodd-Frank, as well as Regulation A and crowdfunding under the JOBS Act.  In addition, she noted that “the staff is also continuing its work in areas of other significant Committee recommendations, including whether to subject broker-dealers to a fiduciary standard when providing investment advice, obtaining sufficient funding for investment adviser examinations, enhancing the disclosure of risks in target date funds, and completing our review of the “accredited investor” definition.”
Penalty Waivers Continue to Grow as Flashpoint
On Friday, in a speech before the 37th Annual Conference on Securities Regulation and Business Law, SEC Commissioner Dan Gallagher waded into the growing controversy surrounding penalty waivers, nothing that the Commission “continue to resist the temptation to conflate disqualifications and enforcement sanctions” and that he would oppose future settlements in cases where the SEC hasn’t clarified whether the firm will face knock-on sanctions from the agreement.

Next Week’s Schedule

The House and Senate Are in Recess Next Week