Hensarling Chooses to Move Forward with CHOICE Act

Last Friday, September 9, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced his intention to move forward with the Republican plan to replace the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and formally introduced the Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (CHOICE Act), which “will end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from growth-strangling regulation that slows the economy and harms consumers; impose tougher penalties on those who commit financial fraud; and demand greater accountability from Washington regulators.”

Among its numerous provisions, the legislation provides an “off-ramp” from the post-Dodd-Frank supervisory regime and Basel III capital and liquidity standards for banking organizations that choose to maintain high levels of capital, retroactively repeals the authority of the Financial Stability Oversight Council (FSOC) to designate firms as systematically important financial institutions (SIFIs), fundamentally reforms the Consumer Financial Protection Bureau (CFPB) and imposes stricter accountability requirements on other financial regulators, and imposes enhanced penalties for financial fraud and self-dealing.

The Financial Services Committee will take its first step to move forward with the CHOICE Act by marking-up the bill on Tuesday, September 13. However, while Chairman Hensarling is focused on advancing his proposal, any action on the CHOICE Act this year is mostly to set the stage for debate in 2017 and beyond. Notably, while Senate Banking Committee Chairman Richard Shelby (R-AL) has also introduced his own financial services reform package, there has been little interest in the Senate in moving forward with his bill, or any other significant legislation for that matter.

Looking ahead, the House is likely to hold one additional “cats and dogs” markup before year’s end, though the timing of such action is unclear. It is expected that Committee members’ priorities that have yet to be addressed this Congress will drive whatever legislation the Committee ultimately decides to take up – if and when it does move forward with such a markup. Separately, the Committee’s Task Force to Investigate Terror Financing is reportedly on track to issue its final report and recommendations on how to comprehensively update the nation’s banking laws to better prevent the financing of terrorism activity in the face of a global and modernized financial system.

This Week’s Hearings:

  • Tuesday, September 13: The House Financial Services Committee will mark-up H.R. 5983, the Financial CHOICE Act.
  • Tuesday, September 13: The Senate Banking, Housing, and Urban Affairs Committee will hold a hearing titled “The National Flood Insurance Program: Reviewing the Recommendations of the Technical Mapping Advisory Council’s 2015 Annual Report.”
  • Thursday, September 15: The Senate Agriculture, Nutrition, and Forestry Committee will hold a hearing to consider the following nominations:
    • Christopher James Brummer, of the District of Columbia, to be a Commissioner of the Commodity Futures Trading Commission; and
    • Brian D. Quintenz, of the District of Columbia, to be a Commissioner of the Commodity Futures Trading Commission

Regulatory Activity

CFTC Approves Cybersecurity and Japanese Collateral Rules as Two Commissioner Nominations Are Set to Move

On Thursday, September 8, the Commodity Futures Trading Commission (CFTC) unanimously voted to adopt cybersecurity regulations for certain derivatives markets (System Safeguards Testing Requirements and System Safeguards Testing Requirements for Derivatives Clearing Organizations). The rules aim to enhance and clarify existing requirements relating to companies’ cybersecurity testing and safeguards. Additionally, by a 2-1 vote, the CFTC affirmed that Japanese collateral rules for companies’ derivative swaps are comparable to what the U.S. adopted earlier this year.

Looking ahead, the CFTC is now likely to focus the remainder of the year on finalizing one of its remaining priorities – Regulation Automated Trading (“Regulation AT”). As the CFTC moves forward with this and other priorities, it is important to note that on Thursday, September 15, the Senate Agriculture Committee will hold a hearing to consider two pending Commissioner nominations: Republican Brian Quintenz and Democrat Chris Brummer, both of whom were nominated by President Barack Obama in March to join the CFTC, which has been operating with just three Commissioners since August 2015.

Treasury and Federal Banking Agencies Outline Approach on Correspondent Banking

Last week, the Treasury Department, along with the Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration (NCUA) (collectively, the Federal Banking Agencies) issued a “Joint Fact Sheet on Foreign Correspondent Banking,” which outlined their approach to the supervision and enforcement of U.S. economic sanctions, anti-money laundering (AML), and countering terrorism financing (CFT) laws. The Joint Fact Sheet explains that, while the Treasury Department’s Office of Foreign Assets Control (OFAC) generally administers U.S. sanctions, and its Financial Crimes Enforcement Network (FinCEN) generally administers AML/CFT laws, the Federal Banking Agencies have a role as well, as they are tasked with conducting examinations of depository institutions for compliance with those laws. As such, OFAC, FinCEN, and the Federal Banking Agencies are to work together to ensure a “well-functioning, transparent, resilient, and safe and sound financial system.” According to the Joint Fact Sheet, the Federal Banking Agencies will take a “risk-based approach” to their supervision duties in an effort to appropriately use their resources, which will guide their scoping, planning, and transaction testing during their examinations.

CFPB Issues Record-Breaking Find Against Wells Fargo

On Thursday September 8, the CFPB assessed a $100 million fine – the largest fine in the agency’s history – against Wells Fargo for illegally opening unauthorized accounts in order to boost sales figures. According to the CFPB, Wells Fargo employees secretly opened deposit and credit accounts under existing customers’ names without their knowledge, which often racked up fees or other charges. Wells Fargo has agreed to pay the CFPB’s fine, along with a $35 million penalty to the OCC and a $50 million penalty to the City and County of Los Angeles. The CFPB levied the fine under the authority it was granted by the Dodd-Frank Act to “take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices.”