The Securities and Exchange Commission (“SEC”) has made further progress in its efforts to oversee the newly emerging world of digital assets. On June 4, the SEC announced the creation of a new advisory role within the Division of Corporation Finance that will focus on digital assets. Valerie A. Szczepanik was named to take on this new role as Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation. This new position is responsible for coordinating efforts across all SEC divisions and offices regarding the application of U.S. securities laws to emerging digital asset technologies and innovations, including initial coin offerings and cryptocurrencies.
Described by some media outlets as a “crypto czar” or “crypto quarterback”, this new position represents a step by the SEC toward developing a clear and practical regulatory framework. Perhaps because the regulatory status of an instrument in this highly diverse and rapidly evolving marketplace is dependent on the specific facts and circumstances related to that instrument, the SEC has been criticized recently for notifying the industry of individual practices that may be suspect, but not clearly defining what is allowed. Ms. Szczepanik, who has an engineering degree and serves as head of the SEC’s Distributed Ledger Technology Working Group, co-head of its Dark Web Working Group, and a member of its FinTech Working Group, likely has the knowledge and experience to take on this challenge
Feature: Federal Financial Regulatory Agencies Seek Public Comment on Volcker Rule Amendments
Regulators appointed by President Trump are getting closer to dissolving the Volcker Rule, which limits banking entities from engaging in prohibited proprietary trading and from owning or controlling hedge funds or private equity funds. On June 5, 2018, the Federal Reserve Board, the Commodity Futures Trading Commission (“CFTC”), the Federal Deposit Insurance Corporation (“FDIC”), the Office of the Comptroller of the Currency (“OCC”), and the SEC announced that they are jointly requesting public comment on proposed amendments to the Rule. The Federal Reserve was the first agency to pursue public comment on the Volcker overhaul last week, followed by the FDIC in a unanimous vote, the OCC, the CFTC, and finally the SEC, in a 3-2 vote.
While the proposal preserves the Rule’s ban on proprietary trading, in which banks invest for their own profits instead of on their customers’ behalf, it would eliminate a significant assumption that positions held by lenders for under 60 days are proprietary and will make it easier for banks to determine whether trades are prohibited. Also, regulators would no longer ask traders to verify their intent on a transaction.
Lael Brainard, a Volcker Rule advocate who was appointed to the Federal Reserve Board of Governors by President Obama, supports the proposed amendments. Additionally, OCC chief Joseph Otting said that the proposed changes “reduce burden by substituting bright lines for ambiguous concepts while still allowing regulators to better assure compliance and to continue to safeguard the financial system from the risky behaviors that the statute was intended to prevent.” And CFTC Chairman Chris Giancarlo cited Former Federal Reserve Chairman Paul Volcker’s support as part of his justification for backing the proposal. Giancarlo revealed that “Chairman Volcker said that he was proud of the rule that bears his name,” but added that Volcker also told him “that regulators should have come up with something more straightforward than what is currently in place, especially for smaller banks.”
Conversely, Rostin Behnam, the CFTC’s only Democratic commissioner, was the first regulator to announce his dissent on the proposed changes, suggesting that the CFTC must “think very carefully about how the definition of hedging activity in the proposal compares to our definitions of hedging activity in the context of other critical rules like the de minimis threshold or position limits.”
SEC Chairman Jay Clayton said at an open meeting that the proposal “seeks to simplify and tailor the 2013 final rule,” and added that he “strongly encourage[s] all interested parties to comment on the many questions posed in the release, and look[s] forward to commenter input about implementing the Volcker Rule in a more efficient way.” SEC Commissioner Kara M. Stein expressed her dislike for the proposal, saying that it “is antithetical to what the law was written to accomplish.” And SEC Commissioner Robert Jackson wondered why regulators were already amending regulations that were so recently adopted, while additional Dodd-Frank-mandated executive compensation reform that has been required by law for several years remains incomplete. Referencing the Volcker proposal, Jackson said that “full compliance with the Volcker Rule was not required until July 2015, and now, less than three years later, we are pulling it back – before finishing rules Congress required us to complete years ago.”
Comments on the proposal will be accepted for 60 days after the proposal’s publication in the Federal Register. After receiving and considering comments from financial institutions, legislators, and Wall Street critics, the regulators are expected to hold a second round of votes on whether to finalize the amendments. A final rule could be published at the end of this year or the beginning of 2019.
Banking Agency Developments
New OCC Comptroller Is Seeking to Reverse Several Major Obama-Era Initiatives
On June 8th, The Wall Street Journal reported that Joseph Otting, a banker who was sworn in as Comptroller of the Currency in November 2017, is attempting to rewrite expensive requirements for banks to have anti-money laundering and community-development programs. Otting is also encouraging those banks to expand businesses that had been previously constrained by regulators.
Final Rule: T+2 Securities Transaction Settlement Cycle
On June 7th, the OCC announced that it has published a final rule in the Federal Register, issued jointly with the FDIC, to shorten the standard settlement cycle for securities purchased or sold by national banks, federal savings associations, and federal branches and agencies. The effective date of the final rule is October 1, 2018.
Jelena McWilliams Sworn in as the 21st Chairman of the FDIC
On June 5th, the FDIC announced that Jelena McWilliams has been sworn in as its 21st Chairman. She succeeds Martin J. Gruenberg.
Board Announces Schedule for Results From Dodd-Frank Act Stress Tests and CCAR