THE BIG PICTURE

All is quiet on Capitol Hill now that both chambers of Congress have adjourned through the midterm elections following a deal struck by Senate leadership on Thursday. While the House has been in recess since late September, the Senate had remained in session to handle confirmations. The deal allows vulnerable incumbent red-state Senators to return home and bolster their campaigns; in exchange Democrats agreed to confirm three Circuit Court judges and 12 District Court judges. The confirmation of these nominees brought the total number of judicial confirmations under President Trump to 84, including two Supreme Court nominees.

United Nations Ambassador and former South Carolina Governor Nikki Haley announced on Tuesday that she planned to resign her position, effective the end of this year. In an Oval Office meeting with the President, where he praised her for doing a “fantastic job,” she cited her need to “take a break” from public service, adding, “I’m a big believer in term limits. I think you have to be selfless enough to know when [to] step aside and allow someone else to do the job.” The move surprised many and set off rampant speculation over who could be tapped as her replacement. The President told reporters that his daughter Ivanka would be an excellent candidate, but lamented claims of nepotism prevented him from selecting her. Ivanka later confirmed via Twitter that she would not be nominated. Former Deputy National Security Adviser Dina Powell’s name was also floated as a possibility, but she reportedly has taken herself out of consideration.

On Wednesday, a federal judge in California issued the longest sentence yet for charges brought by Special Counsel Robert Mueller’s investigation. Richard Pinedo was sentenced to six months in prison and six months home confinement after pleading guilty to identity fraud charges. The charges stemmed from his role selling stolen bank account information, albeit unwittingly, to Russian internet trolls who then used the stolen data to purchase ad campaigns during the election. Mr. Pinedo took “full responsibility” for his actions, and cooperated with Mueller’s investigation, but ultimately the information he provided “was not significant enough” to assist them.

Other highlights of last week include:

  • Treasury Secretary Steven Mnuchin announced on Friday that he still plans to attend an investor conference in Saudi Arabia despite the controversy surrounding the disappearance of journalist Jamal Khashoggi.
  • Following a sharp decline in the stock market on Wednesday, President Trump seemed to lay blame at the feet of the Federal Reserve following their decision to raise interest rates, and claimed that the Fed was “out of control.”

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

No hearings held during the recess period.

SENATE BANKING COMMITTEE

Hearing entitled “Exploring the Cryptocurrency and Blockchain Ecosystem”: On Thursday, the full committee held a hearing to explore the opportunities and challenges surrounding the cryptocurrency and blockchain ecosystem. The Senators heard from two witnesses with diametrically opposed visions of the potential for cryptocurrencies and blockchain. Dr. Nouriel Roubini spoke critically of the market in his testimony, saying “crypto is the mother or father of all scams and bubbles—a bubble that has finally gone bust this year,” adding “the entire asset class is literally imploding now” and claiming that blockchain was “the most overhyped technology ever.” His views were countered by Peter Van Valkenburgh who argued that in the long-term, digital currency has the potential to increase access to financial services and “be as significant for freedom, prosperity and human flourishing as was the birth of the internet.”

  • Dr. Nouriel Roubini, Professor of Economics and International Business, New York University Stern School of Business
  • Mr. Peter Van Valkenburgh, Director of Research, Coin Center

THIS WEEK ON THE HILL

No hearings scheduled during the recess period.

THE REGULATORS

CFTC Proposes to Streamline Regulations for Commodity Pool Operators and Commodity Trading Advisors: The CFTC unanimously approved proposed rules as a part of CFTC’s KISS Initiative to simplify regulations for commodity pool operators (CPOs) and commodity trading advisors (CTAs). The proposed rules would simplify the regulatory obligations for CPOs and CTAs by codifying long-standing staff advisories and no-action letter relief in the Part 4 regulations. These rules would enhance consumer protection, as well as boost confidence in the commodity markets, by banning individuals who are legally disqualified to operate investment pools from doing so. Additionally, the CFTC proposes streamlining registration requirements for CPOs that operate in multiple jurisdictions. “I’m pleased my fellow Commissioners supported today’s proposal, which I hope is the first of a series of long overdue simplifications to Part 4 regulations,” said CFTC Chairman Giancarlo.

SEC Chair Says Quarterly Reporting Changes Not on Horizon: In August, President Trump tweeted that he planned to ask the SEC to study whether switching to a six-month schedule would “allow greater flexibility & save money.” However, speaking on Thursday, SEC Chair Jay Clayton confirmed that, at least for larger companies, he did not think “quarterly reporting is going to change . . . anytime soon.”

SEC Commissioner Calls for More Focus on Competition: On Thursday, SEC Commissioner Robert Jackson called for the agency to “bring competition economics back to the SEC,” and called for the creation of an office to focus on competition economics. He expressed his view that the SEC has lost sight of part of its original purpose, namely ensuring that markets are competitive enough to benefit investors.

SEC Reopens Comment Period for Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants: The SEC voted on Thursday 4-1 to reopen the comment period and request additional comment (including potential modifications to proposed rule language) on the proposed rules and amendments for capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants and capital requirements for broker-dealers. “Reopening the comment period is an important step forward in standing up the security-based swap regime,” said Chairman Jay Clayton. “We strongly encourage interested persons to submit comments and data for the Commission to consider as the rulemaking process moves forward.”

CFPB Acting Director Rebuffs Calls to Fire Associate Director: In an all staff email, Acting Director Mick Mulvaney said that he would not “let any outside group dictate who works here or how I structure or manage the bureau,” alluding to the controversy that has dogged the agency since the revelation of old racially charged blog posts published by Eric Blankenstein, a political appointee who serves as associate director in charge of supervision, enforcement and fair lending.

Consumer Groups Oppose CFPB’s Regulatory Sandbox Proposal: A group of 50 public interest groups led by the National Consumer Law Center published a letter criticizing the CFPB’s proposal to create a regulatory sandbox for fintech firms, calling the idea “unsound” and “unlawful,” arguing that the move exceeds the Bureau’s statutory authority.

FinCEN Issues Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System: On Thursday, FinCEN issued an advisory to help financial institutions better detect and report potentially illicit transactions related to the Islamic Republic of Iran. The advisory is also intended to help foreign financial institutions better understand the obligations of their U.S. correspondents, to avoid exposure to U.S. sanctions, and to address the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) risks that Iranian activity poses to the international financial system.

Treasury Official Supports Data Breach Bill: Speaking at a conference, Craig Phillips, who serves as a counselor to Treasury Secretary Steven Mnuchin, endorsed the idea of a data breach notification bill. In his remarks he “strongly” recommended that Congress pass a bill, saying that it “would be one major building block [for] the future” of Fintech. One such bill was introduced by Sen. Bill Nelson (D-FL) last year, but it failed to advance.

Treasury Releases Interim Regulations for FIRRMA Pilot Program: The Treasury on Wednesday issued temporary regulations to protect critical American technology and intellectual property from potentially harmful foreign acquisitions. These regulations put to use tools enacted as part of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which Congress passed on an overwhelmingly bipartisan basis and that President Trump signed into law in August. The pilot program implements authorities that expand the scope of transactions subject to CFIUS review to include certain non-controlling investments in U.S. businesses involved in critical technologies related to specific industries. “We are pleased to implement this first step of the important and bipartisan FIRRMA legislation,” said Treasury Secretary Steven Mnuchin. “These temporary regulations address specific risks to U.S. critical technology while informing the development of final regulations that will fully implement FIRRMA.”

OCC to Press Ahead with Special Purpose Fintech Charters: Grovetta Gardineer, who serves as a senior deputy comptroller for compliance and community affairs at the OCC, said in a speech at an Online Lending Policy Institute event that “we have made the decision to take application [for special purpose fintech charters].” The decision comes amid threatened litigation from state regulators to sue over the agency’s authority to issue these special purpose charters.

COMINGS AND GOINGS AT THE AGENCIES

Gary Goldsholle, Former Deputy Director, Current Senior Policy Adviser in the Division of Trading and Markets, to Leave the SEC: On Wednesday, the SEC announced that Gary Goldsholle, a senior policy adviser in the Division of Trading and Markets, will leave the agency effective Oct. 12. Mr. Goldsholle joined the SEC staff in 2015 as a deputy director in the Division of Trading and Markets with responsibility for its Offices of Market Supervision, Chief Counsel, and Clearance and Settlement. More recently, Mr. Goldsholle served as a key member of the SEC’s Fintech Working Group, where he worked closely with other SEC divisions on cryptocurrency and digital asset security issues, including registration, custody, trading practices, and compliance for market participants seeking to conduct initial coin offerings and trade in digital asset securities.

THE COURTS

SEC Files Suit Alleging ICO Faked Regulatory Approval: The SEC filed suit in the Southern District of California to block an upcoming initial coin offering, arguing in its complaint that “Blockvest and Ringgold [the founder] claim their ICO has been 'registered' and 'approved' by the SEC and other regulators, even going so far as to use the SEC's seal to promote their offering. None of that is true.”

OTHER NOTEWORTHY ITEMS

Gary Cohn Joins Blockchain Firm: Gary Cohn, who previously served as director of the National Economic Council at the White House, has joined blockchain firm Spring Labs Inc. as an advisor. Spring Labs touts its mission of “building a decentralized network for identity and credit to serve as the foundation for a more transparent, secure, and efficient delivery of financial services.” The company also counts former FDIC chief Sheila Bair among its advisers.

Global Regulator Warns Cryptocurrencies Could Threaten Future Financial Stability: The Financial Stability Board, chaired by Bank of England Governor Mark Carney, warned that “vigilant monitoring is needed in light of the speed of market development,” adding that “should the use of crypto-assets continue to evolve, it could have implications for financial stability in the future.”