Lawmakers Press on with Financial Services Reform Efforts
On June 23, 2016, House Financial Services Committee Chairman Jeb Hensarling (R-TX) unveiled a discussion draft of legislation aimed at replacing the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The legislation, Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (Financial CHOICE Act), focuses, like many of the items on the Republicans’ agenda, on fostering a “pro-growth” climate within the U.S. economy. The measure seeks to end taxpayer-funded bailouts of large financial institutions, relieve banks that elect to be strongly capitalized from “growth-strangling regulation,” impose tougher penalties on those who commit fraud, and require greater accountability from Washington regulators. Key changes the Financial CHOICE Act aims to make include:
- Repealing the Financial Stability Oversight Council’s (FSOC) authority to designate systemically important financial institution (SIFIs), as well as any previous SIFI designations;
- Placing all financial regulatory agencies “on a budget”;
- Subjecting the Federal Reserve’s prudential regulatory and financial supervision activities to the Congressional appropriations process;
- Repealing the Volcker Rule; and
- Eliminating many of Dodd-Frank’s “unnecessary disclosures,” such as pay ratios
Despite continued efforts to reform the financial services landscape in the House, the issue has gotten little attention in the Senate as of late – and there is no sign that trend will change any time soon. As such, it is likely that any comprehensive financial services reform measures will have to wait until the 115th Congress.
In the near-term, however, it is possible Congress will enact targeted financial services reform via the appropriations process. In fact, the House by a largely party line vote of 239-185 on Thursday, July 7 passed the Financial Services and General Government Appropriations bill, which contains many substantive reforms, including:
- Reducing the IRS’ budget by $236 million, to $10.9 billion, bringing the agency’s funding below 2008 levels;
- Increasing the oversight of the Consumer Financial Protection Bureau (CFPB) by bringing funding for the agency under the annual Congressional appropriations process, instead of direct funding from the Federal Reserve;
- Changing the leadership structure of the CFPB from a single Director to a five-member Commission;
- Requiring the CFPB to study the use of pre-dispute arbitration prior to issuing regulations;
- Delaying the CFPB rule on short-term, small dollar lending;
- Capping the Security and Exchange Commission’s (SEC) budget at $1.5 billion, which is $50 million below the fiscal year 2016;
- Rescinding the unobligated balances of the SEC’s “reserve fund” – a “slush fund” created under Dodd-Frank from which the SEC can spend without Congressional oversight; and
- Prohibiting the SEC from requiring the disclosure of political contributions in SEC filings
President Obama has threatened to veto the bill.
The Senate version of the Financial Services and General Government Appropriations bill is less controversial, as it contains few substantive policy changes. Nevertheless, it is quite clear that the regular appropriations process will not reach a resolution by the end of the fiscal year, likely necessitating that Congress look to a continuing resolution, which may or may not contain provisions passed by the House.
Task Force Increases Efforts to Block Terrorism Financing
By way of follow-up to the myriad of hearings held over the last two years by the House Financial Services Committees’ Task Force to Investigate Terrorism Financing, Members of the Task Force have recently released six bills aimed at helping to curb the terrorism finance:
- H.R. 5594: To require the establishment of a national strategy for combating the financing of terrorism and related financial crimes, and for other purposes;
- H.R. 5608: To prevent Iran from directly or indirectly receiving assistance from the Export-Import Bank of the United States;
- H.R. 5607: To enhance the Department of the Treasury’s role in protecting national security, and for other purposes;
- H.R. 5606: To facilitate better information sharing to assist in the fight against the funding of terrorist activities, and for other purposes;
- H.R. 5603: To authorize the Secretary of the Treasury to pay rewards under an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption and the proceeds of such corruption hidden behind complex financial structures in the United States and abroad; and
- H.R. 5602: To amend title 31, United States Code, to authorize the Secretary of the Treasury to include all funds when issuing certain geographic targeting orders, and for other purposes.
Four of these six bills will be taken up by the full House this week and are expected to pass. Moreover, the Task Force is expected to release an in-depth report and recommendations this fall, which will likely reach beyond the scope of the recently-released legislation and further address what needs to be done to update the nation’s banking laws to better prevent the financing of terrorist activity.
This Week’s Hearings:
- Tuesday, July 12: The House Financial Services Committee will hold a hearing titled “Making a Financial Choice: More Capital or More Government Control?”
- Tuesday, July 12: The House Financial Services Subcommittee on Financial Institutions and Consumer Credit will hold a hearing titled “Examining the Opportunities and Challenges with Financial Technology (“FinTech”): The Development of Online Marketplace Lending”
- Wednesday, July 13: The House Financial Services Committee will hold a hearing titled “HUD Accountability”
- Wednesday, July 13: The House Financial Services Committee will mark-up the following legislation:
- H.R. ____, To prohibit the Secretary of the Treasury from issuing certain licenses in connection with the export or re-export of a commercial passenger aircraft to the Islamic Republic of Iran, to require annual reports by the Secretary of the Treasury and the Export-Import Bank on financing issues related to the sale or lease of such a commercial passenger aircraft or spare parts for such an aircraft, and for other purposes;
- H.R. ____, To prohibit the Secretary of the Treasury from authorizing certain transactions by a U.S. financial institution in connection with the export or re-export of a commercial passenger aircraft to the Islamic Republic of Iran, and for other purposes; and
- H.R. ____, the No Ex-Im Assistance for Terrorism Act
- Wednesday, July 13: The House Oversight and Government Reform Committee will hold a hearing titled “Oversight of the FDIC Application Process”
- Wednesday, July 13: The House Agriculture Committee will hold a hearing titled “Examining the CFTC’s Proposed Rule: Regulation Automated Trading”
- Thursday, July 14: The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing titled “The Financial Stability Oversight Council and the Designation of Non-Bank Financial Companies”
- Thursday, July 14: The Senate Banking Committee will hold a hearing titled “Evaluating the Financial Risks of China”
SEC to Hold Two Open Meetings
The (SEC) will hold an open meeting on Wednesday, July 13, to: (1) discuss whether to adopt certain amendments and issue guidance relating to Regulation SBSR under the Securities Exchange Act of 1934; (2) discuss whether to propose amendments to rules under the Securities Exchange Act of 1934 regarding disclosure of order handling information; (3) discuss whether to propose amendments to address redundant, duplicative, overlapping, outdated, or superseded disclosure requirements; and (4) vote on amendments to its Rules of Practice regarding administrative proceedings.
Additionally, the SEC Investor Advisory Committee will hold an open meeting on Thursday, July 14, to discuss: (1) the state of sustainability reporting; and (2) investment company reporting modernization.