The Big Picture

Special Counsel Robert Mueller filed an indictment against a dozen Russian intelligence officers for offenses related to the hacking and releasing emails and documents from the DNC and DCCC during the 2016 election, and targeting state election systems. The indictment describes how the stolen material was disseminated via DC Leaks and Guccifer 2.0 with the intent to influence voters. It is unknown what impact the indictment will have on the President’s summit with Russian President Vladimir Putin on Monday in Helsinki. Just hours prior to the announcement the President said the investigation “hurts our relationship with Russia” and expressed his hope for a “good relationship with Putin” during a joint press conference with British Prime Minister Theresa May.

President Trump attended the NATO summit in Brussels, where he clashed with allies over defense spending. He kicked off a meeting by characterizing Germany as “captive to Russia” due to energy imports and decried that “many countries are not paying what they should,” labeling them “delinquent.” Ultimately, NATO Secretary-General Jens Stoltenberg called an emergency session to address President Trump’s concerns. During a closing press conference, the President shifted tone and declared “the United States’ commitment to NATO is very strong.”

President Trump announced on Monday evening that he had selected Brett Kavanaugh to fill Anthony Kennedy’s seat on the Supreme Court. Mr. Kavanaugh has served as a judge on the D.C. Circuit Court of Appeals since 2006. He previously worked as a key aide to Ken Starr during the investigation of Bill Clinton, and served as Staff Secretary to President George W. Bush. All eyes are on a handful of red state Democrats and Republican Senators Lisa Murkowski and Susan Collins, who may end up being the decisive votes in what will be a contentious hearing process.

The Commerce Department announced that it was lifting the ban on Chinese telecommunication firm ZTE after the company placed US$400M in escrow, and paid a US$1B penalty. Secretary Wilbur Ross said that “the Department will remain vigilant as we closely monitor ZTE’s actions to ensure compliance with all U.S. laws and regulations.” The decision was controversial among many legislators who continue to express national security concerns, with Sen. Marco Rubio (R-FL) declaring “ZTE should be put out of business.”

Other highlights of last week include:

  • The Administration published a list of US$200B worth of Chinese products that are under consideration for a new 10% tariff, with Trade Representative Robert Lighthizer criticizing the Chinese for not “address[ing] our legitimate concerns.”

Last Week on the Hill

House Financial Services Committee

Hearing entitledThe Annual Testimony of the Secretary of the Treasury on the State of the International Financial System”: On Thursday, the full committee held a hearing to receive the annual testimony of the Secretary of the Treasury on “The State of the International Financial System.” In his opening remarks, Chairman Jeb Hensarling spoke of the negative effect of tariffs and called for the Administration to “unit[e] with our traditional allies to confront China” and to ”drop any effort to unilaterally impose auto tariffs under section 232.”

  • The Honorable Steven T. Mnuchin, Secretary, U.S. Department of the Treasury

Hearing entitledCountering the Financial Networks of Weapons Proliferation”: On Thursday, the Terrorism and Illicit Finance Subcommittee held a hearing to examine strategies to disrupt both the financing and procurement of weapons of mass destruction, how financial institutions can identify the financing of proliferation activities, and the scope and effectiveness of relevant enforcement actions brought by various Cabinet Departments to counter proliferation financing including the Departments of Justice, Treasury, Commerce, and Homeland Security.

  • Mr. David Albright, Founder and President, Institute for Science and International Security
  • Mr. Tom Keatinge, Director, Center for Financial Crime and Securities Studies, Royal United Services Institute
  • Dr. Emanuele Ottolenghi, Senior Fellow, Foundation for Defense of Democracies
  • Ms. Elizabeth Rosenberg, Senior Fellow, Center for a New American Security

Markup: On Wednesday, the full committee met to mark up several pieces of legislation, ultimately advancing eight measures.

  • H.R. 3555, the “Exchange Regulatory Improvement Act”
  • H.R. 6177, the “Developing and Empowering our Aspiring Leaders Act”
  • H.R. 6319, the “Expanding Investment in Small Businesses Act”
  • H.R. 6320, the “Promoting Transparent Standards for Corporate Insiders Act”
  • H.R. 6321, the “Investment Adviser Regulatory Flexibility Improvement Act”
  • H.R. 6322, the “Enhancing Multi-Class Stock Disclosures Act”
  • H.R. 6323, the “National Senior Investor Initiative Act of 2018”
  • H.R. 6324, the “Middle-Market IPO Underwriting Fee Act”

Senate Banking Committee

Hearing entitledAn Overview of the Credit Bureaus and the Fair Credit Reporting Act”: On Thursday, the full committee held a hearing to “learn[] more … about: the scope of the Fair Credit Reporting Act and other relevant laws and regulations as they pertain to credit bureaus; the extent to which the Bureau of Consumer Financial Protection and the FTC, whom the two witnesses represent, oversee credit bureau data security and accuracy; the current state of data security, data accuracy, data breach policy, and dispute resolution processes at the credit bureaus; and what, if any, improvements could be made.” Ranking Member Sherrod Brown (D-OH) noted that “the Fair Credit Reporting Act is almost 50 years old. The amount and type of information being collected today would have been unthinkable when it was created. It’s time for a serious overhaul that puts Americans in control of their own data.”

  • Ms. Peggy L. Twohig, Assistant Director of Supervision Policy in the Division of Supervision and of Enforcement and Fair Lending, CFPB
  • Ms. Maneesha Mithal, Associate Director, Division of Privacy and Identity Protection, FTC

On the Floor

House Passes 8 Financial Services Bills: The House passed eight bipartisan bills from the Financial Services Committee on Tuesday.

  • H.R. 1861, the “Larry Doby Congressional Gold Medal Act,” sponsored by James Renacci (R-OH), directs the Speaker of the House of Representatives and the President pro tempore of the Senate to arrange for the presentation of a Congressional Gold Medal in honor of Larry Doby in recognition of his achievements and contributions to American major league athletics, civil rights, and the Armed Forces during World War II. This bill passed by voice vote.
  • H.R. 4537, the “International Insurance Standards Act of 2018,” sponsored by Sean Duffy (R-WI), preserves the State-based system of insurance regulation and provides greater Congressional oversight and transparency on international insurance standard negotiations. This bill passed by voice vote.
  • H.R. 5793, the “Housing Choice Voucher Mobility Demonstration Act of 2018,” sponsored by Rep. Sean Duffy (R-WI), authorizes the Secretary of Housing and Urban Development to carry out a housing choice voucher mobility demonstration to encourage families receiving such voucher assistance to move to lower-poverty areas and expand access to opportunity areas. This bill passed 368-19.
  • H.R. 5749, the “Options Markets Stability Act,” sponsored by Rep. Randy Hultgren (R-IL), requires the prudential regulators to implement a risk-adjusted approach to value centrally-cleared exchange-listed derivatives as it relates to capital rules to better and more accurately reflect exposure and promote market-making activity. This bill passed 385-0.
  • H.R. 5877, the “Main Street Growth Act,” sponsored by Rep. Tom Emmer (R-MN), amends the Securities Exchange Act of 1934 to allow for the registration of venture exchanges with the Securities and Exchange Commission to provide a venue that is tailored to the needs of small and emerging growth companies and allow these w qualifying companies one venue in which their securities can trade. This bill passed by voice vote.
  • H.R. 5953, the “Building Up Independent Lives and Dreams (BUILD) Act,” sponsored by Rep. Barry Loudermilk (R-GA), addresses the challenges that certain charities face with the Bureau of Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosure (TRID) rule. This bill allows certain charitable mortgage loan transactions to qualify for use of the truth in lending (TIL), good faith estimate (GFE), and HUD-1 forms instead of those required under the TRID rule. This bill passed by voice vote.
  • H.R. 6139, the “Improving Investment Research for Small and Emerging Issuers Act,” sponsored by Rep. Bill Huizenga (R-MI) , requires the Securities and Exchange Commission to carry out a study to evaluate the issues affecting the provision of and reliance upon investment research into small issuers, including emerging growth companies and pre-IPO companies. This bill passed by voice vote.

Senate Signals Support for Flood Insurance: By a vote of 95-4, the Senate passed a motion that instructs lawmakers to reauthorize the program through January. It is increasingly unlikely that the reauthorization of the program will be completed by the deadline, but Sen. John Kennedy (R-LA) continues to raise awareness, saying “We must preserve this program through hurricane season while working on a long-term reauthorization and reform that ensures the program is affordable and sustainable. By instructing conferees to include this six-month extension of the NFIP, we are another step closer to accomplishing this goal.”

Legislation Introduced and Proposed

S.3040: Sen. Tim Scott (R-SC) introduced S.3040, the Credit Access and Inclusion Act of 2018, which would amend the Fair Credit Reporting Act to clarify federal law with respect to reporting certain positive consumer credit information to consumer reporting agencies.

This week on the Hill

Tuesday, July 17

House Financial Services Committee (Financial Institutions and Consumer Credit Subcommittee) Hearing Entitled “Examining Capital Regimes for Financial Institutions”: 2:00 PM in 2128 Rayburn House Office Building

Senate Banking Committee Hearing Entitled “The Semiannual Monetary Policy Report to Congress”: 10:00 AM in 216 Hart Senate Office Building

Wednesday, July 18

House Financial Services Committee Hearing Entitled “Monetary Policy and the State of the Economy”: 10:00 AM in 2128 Rayburn House Office Building

House Financial Services Committee (Monetary Policy and Trade Subcomittee) Hearing Entitled “The Future of Money: Digital Currency”: 2:00 PM in 2128 Rayburn House Office Building

House Energy Committee (Digital Commerce and Consumer Protection Subcommittee) Hearing Entitled “Oversight of the Federal Trade Commission”: 9:15 AM in 2123 Rayburn House Office Building

Thursday, July 19

Senate Banking Committee Hearing on “Nominations of Kathleen Kraninger and Kimberly Reed”: 10:00 AM in 538 Dirksen Senate Office Building

The Regulators

Federal Reserve and FDIC Release Public Sections of Living Wills: On Monday, the Federal Reserve Board and the Federal Deposit Insurance Corporation released the public portions of four foreign banking organizations’ resolution plans, which are required by the Dodd-Frank Act and commonly known as living wills. By regulation, resolution plans must be divided into public and confidential sections. To foster transparency, the agencies have required each firm’s public section to summarize certain elements of the resolution plan and information explaining how the resolution plan would be executed.

Additionally, the FDIC received and posted on the FDIC website the public sections of separate resolution plans submitted on July 1 by 41 large insured depository institutions. These plans are required by FDIC regulation and are designed to enable the FDIC, as receiver, to resolve the institution under the FDI Act in a way that provides customers with timely access to deposits, maximizes returns, and minimizes creditor losses.

Federal Reserve Chair Unconcerned About Rate Setting Pressure: During an interview on Thursday, Fed Chair Jerome Powell explained why he was not concerned about the potential of external pressure to keep interest rates low, saying “we have a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns” adding that “no one in the administration has said anything to me that really gives me concern on this front.”

DOJ, CFPB, SEC, and FTC Announce Task Force on Market Integrity and Consumer Fraud: Deputy Attorney General Rod Rosenstein announced on Wednesday the establishment of a new Task Force on Market Integrity and Consumer Fraud. The Task Force, which is formed pursuant to Presidential Executive Order, will provide guidance for the investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers, including cyber-fraud and other fraud targeting the elderly, service members and veterans, and other members of the public; procurement and grant fraud; securities and commodities fraud, as well as other corporate fraud, with particular attention to fraud affecting the general public; digital currency fraud; money laundering, including the recovery of proceeds; health care fraud; tax fraud; and other financial crimes.

CFTC Orders Commodity Trading Firm to Pay US$3.4M Penalty for Attempted Manipulation of Agricultural Markets: The CFTC on Thursday issued an Order filing and settling charges against Lansing Trade Group, LLC, a commodity merchandising firm with headquarters in Overland Park, Kansas, for the attempted manipulation of the price of certain wheat futures and options contracts that were traded on the Chicago Board of Trade and for aiding and abetting the attempted manipulation of the cash price for yellow corn from Columbus, Ohio. The CFTC Order requires Lansing to pay a $3.4 million civil monetary penalty, to undertake remedial measures to implement and strengthen its internal controls and procedures relating to compliance with the anti-manipulation provisions of the Commodity Exchange Act (CEA) and CFTC Regulations.

CFTC Announces Its Largest Ever Whistleblower Award: The CFTC on Thursday announced an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action. The award is the largest award made by the CFTC’s Whistleblower Program to date and is the fifth award made by the program.

Office of Financial Research Requests Comment on Proposed Data Collection Rule: The Treasury Department’s Office of Financial Research is requesting comment on a proposed rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market. The proposed data collection would enhance the ability of the Financial Stability Oversight Council to identify and monitor potential risks to U.S. financial stability by closing the data gap on centrally cleared repo transactions. In addition, the proposed collection would support the calculation of certain reference rates, particularly alternatives to the LIBOR, which has been used as a benchmark to set interest rates on trillions of dollars of retail mortgages, private student loans, corporate loans, derivatives, and other financial products. In the wake of LIBOR-related misconduct, LIBOR participation has declined, leaving a need by industry and regulators for an alternative reference rate.

Comings and Goings at the Agencies

CFPB Names Acting Deputy Director: Following the resignation of Leandra English, CFPB Acting Director Mick Mulvaney announced his selection of Brian Johnson, who currently serves as Principal Policy Director at the Bureau, to assume the responsibilities of Acting Deputy Director. Before joining the CFPB last year, Mr. Johnson served as an aide to House Financial Services Chairman Jeb Hensarling.

Shahira Knight to Replace Marc Short as Legislative Affairs Director: Shahira Knight, who was set to depart her role at the National Economic Council to join the Clearing House, will instead replace Marc Short as the White House’s legislative affairs director.

McConnell Files Cloture for Full Fed Term for Quarles: Senate Majority Leader Mitch McConnell filed cloture on Randal Quarles’ nomination for a term ending in 2032. Quarles was confirmed as Vice Chairman for Supervision last year, but his board term expired in January.