THE BIG PICTURE

President Trump and North Korean leader Kim Jung Un held their summit in Singapore on Tuesday, after a tumultuous lead up, which caused some to question whether the event would actually occur. Following a one-on-one meeting, the two signed an agreement that pledged to “join their efforts to build a lasting and stable peace regime on the Korean Peninsula” with Un “reaffirming” a commitment to “complete denuclearization.” In return, President Trump agreed to suspend the United States and South Korea’s joint military exercises on the peninsula, adopting North Korea’s view that they are “provocative.” Critics were quick to point out that the agreement was light on specifics, and lacked any provisions for verification or a timeline for when these items were to be completed. Following the summit, Trump praised Kim Jung Un, in contrast to the tense aftermath of his meeting with key U.S. allies at the G7 meeting.

New York Attorney General Barbara Underwood announced a suit against the Donald J. Trump Foundation and its Board of Directors on Thursday citing “extensive and persistent violations of federal law” and characterizing the Foundation as “little more than a checkbook for payments from Mr. Trump or his businesses to nonprofits.” The suit includes allegations of “self-dealing” with President Trump’s businesses and “unlawful political coordination” with his campaign during the 2016 election. The President was quick to respond via Twitter, labeling the NY AG’s office “sleazy” and vowing not to settle the case as he did the suit involving Trump University.

President Trump announced a 25% tariff on Chinese technology imports, which will amount to US$50B. The first round will begin on July 6th and will target “industrially significant technologies.” U.S. Trade Representative Robert Lighthizer sought to downplay the risk of a trade war, saying of the move that “our hope is it doesn't lead to a rash reaction from China. We're just trying to get back to even.” China, for its part, announced a reciprocal set of tariffs that primarily target agricultural imports such as soybeans.

The Department of Justice Inspector General’s report on the FBI’s handling of the 2016 investigation into Hillary Clinton’s emails was released last week. IG Michael Horowitz was critical of former FBI Director James Comey’s handling of the investigation and his decision to deviate from Department protocol. The report also criticized FBI officials Peter Stzrok and Lisa Page for their personal text messages, which “cast a cloud over the entire FBI investigation” but ultimately found that there was no evidence that political bias impacted the handling of the probe.

Another round of primaries were held in the run-up to the November midterms. In South Carolina, incumbent Republican Representative and former Governor Mark Sanford was defeated by State Rep. Katie Arrington in a race that centered around Rep. Sanford’s criticism of President Trump.

Other highlights of last week include:

  • In a blow to the Justice Department, U.S. District Judge Richard Leon approved a merger between AT&T and Time Warner on Tuesday, saying that “the parties waged an epic battle,” but that “the court has now spoken [and] the defendants have won.” The Justice Department had sought to block the major deal, valued at US$85B.
  • Paul Manafort will await his trial behind bars after having his bail revoked following additional witness tampering and obstruction of justice charges.
  • Marc Short, who serves as the White House’s Legislative Affairs Director, announced to colleagues last week that he plans to leave his post this summer.
  • Larry Kudlow, who leads President Trump’s National Economic Council, suffered what was described as a “mild” heart attack last week; it was announced via Twitter, while the President was in Singapore. Mr. Kudlow was released from Walter Reed Medical Center on Wednesday to continue his recovery and plans to return to the White House soon.

LAST WEEK ON THE HILL

HOUSE FINANCIAL SERVICES COMMITTEE

Hearing entitledFinancial Industry Regulation: the Office of the Comptroller of the Currency”: On Wednesday, the full Committee held a hearing entitled “Financial Industry Regulation: the Office of the Comptroller of the Currency.” The purpose of the hearing was to receive the testimony of Comptroller Joseph Otting on prudential regulation and supervision of national banks, including the efforts, activities, objectives, and plans the OCC will undertake to fulfill its mission during Comptroller Otting’s tenure. As part of his remarks, Comptroller Otting reported that following the “horizontal review” of national banks, “we did not find pervasive or systemic issues in regards to improper account openings.” Comptroller Otting also told members that “some [fintech startups] have sufficient capital and liquidity” to become banks, but did not reveal what the agency planned regarding a special purpose charter for such entities, saying “we have not concluded a decision.”

  • The Honorable Joseph Otting, Comptroller, Office of the Comptroller of the Currency

Hearing entitledEnsuring Effectiveness, Fairness, and Transparency in Securities Law Enforcement”: On Wednesday, the Capital Markets, Securities, and Investment Subcommittee held a hearing entitled “Ensuring Effectiveness, Fairness, and Transparency in Securities Law Enforcement.” The purpose of the hearing was to comment on the U.S. Securities and Exchange Commissions’ (SEC) approach to enforcing the Federal securities laws, and whether its activities and initiatives are complimentary to all three prongs of its statutory mission to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. The hearing also considered H.R. 2128, the “Due Process Restoration Act of 2017,” and H.R. 5037, the "Securities Fraud Act of 2018.” Subcommittee Chairman Bill Huizenga (R-MI) emphasized that “It is up to Congress to ensure that the SEC has the necessary tools to protect shareholders, deter and punish wrongdoing, and when appropriate, help compensate harmed investors.”

  • Mr. Bradley J. Bondi, Partner, Cahill Gordon & Reindel LLP
  • Mr. Joseph P. Borg, Director, Alabama Securities Commission
  • Mr. Thomas Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
  • Professor Andrew N. Vollmer, Professor of Law and Director, John W. Glynn Jr. Law & Business Program, University of Virginia School of Law

Markup of H.R. 5749, H.R. 5953, H.R. 6035, and H.R. 6069: On Thursday, the Committee met in open session to consider the below measures, ultimately advancing all four. While the panel had originally been set to consider the embattled “Counter Terrorism and Illicit Finance Act,” that bill was sidelined and postponed for a later date.

  • H.R. 5749, the “Options Markets Stability Act”
  • H.R. 5953, the “Building Up Independent Lives and Dreams Act”
  • H.R. 6035, the “Streamlining Communications for Investors Act”
  • H.R. 6069, the “Fight Illicit Networks and Detect Trafficking Act”

SENATE BANKING COMMITTEE

Hearing entitledNominations”: On Tuesday, the Committee met to consider the nominations of The Honorable Richard Clarida, of Connecticut, to be a Member and Vice Chairman of the Board of Governors of the Federal Reserve System and Ms. Michelle Bowman, of Kansas, to be a Member of the Board of Governors of the Federal Reserve System. Mr. Clarida was advanced by a vote of 20-5, and Ms. Bowman was advanced by a vote of 18-7.

Hearing entitled Update from the Comptroller of the Currency”: On Thursday, the Committee met to receive the testimony of Comptroller Joseph Otting, from the OCC. In his opening statement, Chairman Mike Crapo (R-ID) spoke about the recently passed banking regulation relief bill, saying “I look forward to engaging with the OCC, and with other agencies charged with implementing S. 2155” and that “positive effects … are just starting to be felt.” Ranking Member Sherrod Brown (D-OH), in his statement took issue with Mr. Otting’s characterization of banks as the agency’s “customers” and “partners” saying instead that “the real customers of the OCC are the Ohio families, and people across the country, who suffer when the people they pay to ensure the stability of our financial system don’t do their jobs.” Sen. Brown also had some tough questions for the Comptroller, questioning whether the “old boys’ club” in the banking industry harmed minorities, in response Mr. Otting said he was “not aware” of such a network existing, but that if it did he would “not support it.”

  • The Honorable Joseph Otting, Comptroller, Office of the Comptroller of the Currency

ON THE FLOOR

H.R. 5735 Passes the House: On Thursday, the House passed the Transitional Housing for Recovery in Viable Environments (THRIVE) Act, originally introduced by Congressman Andy Barr (R-KY), by a vote of 230-173. The bill is intended to “expand evidence-based models of transitional housing to help those in recovery maintain sobriety, gain valuable skills and job training, and obtain employment to eventually transition back into society to lead independent lives.” Rep. Maxine Waters (D-CA) advocated against the bill, taking issue with its lack of additional funding, saying she was “not so pleased that [Republicans were] not willing to spend any resources on it.”

LEGISLATION INTRODUCED AND PROPOSED

S.3040 - Credit Access and Inclusion Act of 2018: On Monday, Senators Tim Scott (R-SC) and Joe Manchin (D-WV) introduced the Credit Access and Inclusion Act of 2018, which is intended to “allow utility and telecom companies and landlords to report on-time payment data to credit reporting agencies, helping those with little to no credit build their credit scores based on a full picture of their payment history.”

THIS WEEK ON THE HILL

Wednesday, June 20

House Financial Services Committee Hearing entitled “Empowering a Pro-Growth Economy by Cutting Taxes and Regulatory Red Tape”: 10:00 AM in 2128 Rayburn House Office Building

House Financial Services Committee (Terrorism and Illicit Finance Subcommittee) Hearing entitled “Illicit Use of Virtual Currency and the Law Enforcement Response”: 2:00 PM in 2128 Rayburn House Office Building

Senate Banking Committee Hearing entitled “Combating Money Laundering and Other Forms of Illicit Finance: How Criminal Organizations Launder Money and Innovative Techniques for Fighting Them”: 2:30 PM in 538 Dirksen Senate Office Building

Thursday, June 21

House Financial Services Committee Hearing entitled “Oversight of the U.S. Securities and Exchange Commission”: 10:00 AM in 2128 Rayburn House Office Building

THE REGULATORS

SEC Commissioner Jackson Calls for Rule Change on Buybacks: In a speech focused on stock buybacks and corporate cashouts, Democratic Commissioner Robert Jackson called for the SEC to revisit its rules governing buybacks, saying “there are no limits on boards and executives using the buyback—and the safe harbor—as an opportunity to cash out. I cannot see why a safe harbor to the securities laws should subsidize this behavior.”

SEC Chairman Discusses Future of Dodd-Frank: Speaking at The Wall Street Journal’s CFO Network annual meeting, Chairman Jay Clayton explained that, “I don’t think [the core of] Dodd-Frank is changing a great deal,” and that any changes would be to address issues around the margins of the bill.

Federal Reserve Raises Interest Rates and Announced Press Conferences: For the second time this year, the Federal Reserve raised interest rates, with the main borrowing rate between 1.75 and 2 percent. It also increased its projection for GDP growth, increasing the estimate from 2.7 to 2.8 percent. Chairman Jerome Powell also announced that he plans to conduct a press conference following every Federal Open Market Committee meeting beginning in January of 2019, instead of after just half of them, though he noted “having twice as many press conferences does not signal anything about the timing and pace of our interest rate decisions.”

Rule to Prevent Risk Concentration Approved by Federal Reserve: On Thursday, the Federal Reserve approved a rule to prevent concentrations of risk between large banking organizations and their counterparties from undermining financial stability. The final rule, which implements part of the Dodd-Frank Act, is generally similar to the proposal, and applies credit limits that increase in stringency as the systemic footprint of a firm increases. Like the proposed rule, a global systemically important bank holding company, or GSIB, would be limited to a credit exposure of no more than 15 percent of the GSIB's tier 1 capital to another systemically important financial firm, reflecting Board staff's analysis of the increased systemic risk posed when the largest firms have significant exposure to one another. “This final rule is another step in sustaining an effective and efficient regulatory regime that keeps our financial system strong and protects our economy while imposing no more burden than is necessary to get the job done,” Chairman Jerome Powell said.

Treasury Sanctions Russian Federal Security Service Enablers: On Monday, Treasury’s Office of Foreign Assets Control designated five Russian entities and three Russian individuals under Executive Order (E.O.) 13694, “Blocking the Property of Certain Persons Engaging in Significant Malicious Cyber-Enabled Activities,” as amended, and Section 224 of the Countering America’s Adversaries Through Sanctions Act (CAATSA). One of the designated entities is controlled by and has provided material and technological support to Russia’s Federal Security Service, while two others have provided the FSB with material and technological support. Secretary Mnuchin said in a statement, “the entities designated today have directly contributed to improving Russia’s cyber and underwater capabilities through their work with the FSB and therefore jeopardize the safety and security of the United States and our allies.”

Treasury Sanctions Six Migrant Smugglers for Threatening Libya’s Peace, Security, or Stability: Treasury’s Office of Foreign Assets Control, concurrently with the United Nations, sanctioned six individuals for threatening the peace, security, or stability of Libya through their involvement in the smuggling of migrants. “Treasury is taking action to combat migrant smuggling and abuse by rogue militias and criminal networks in Libya who are exploiting vulnerable populations for their own personal financial gain,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence. “These brutal smuggling groups have tortured, robbed, and enslaved migrants seeking a better life. The United States is isolating these callous individuals from the U.S. financial system.”

Treasury Sanctions Fourteen Entities Affiliated with Corrupt Businessman Under Global Magnitsky: Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 14 entities pursuant to Executive Order (E.O.) 13818, which targets serious human rights abuse and corruption, for being affiliated with designated Israeli businessman and billionaire Dan Gertler. Gertler is an international businessman and billionaire who has amassed his fortune through hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the Democratic Republic of the Congo (DRC). “Treasury is sanctioning companies that have enabled Dan Gertler to access the international financial system and profit from corruption and misconduct. We are using our tools to change the behavior of those engaged in the looting of natural resources and the humanitarian consequences that follow,” said Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence.

CFPB Acting Director Mulvaney Draws Plans for Budget Cuts: Speaking to reporters on Tuesday, Acting Director Mick Mulvaney announced that he had asked his staff to “run through the experiment of reducing spending by 20%,” adding that “We’ll be focusing almost exclusively on non-personnel spending.” This reduction would bring the agency’s funding back to 2015 levels.

FINRA Announces Initiative to Transform CRD, Other Registration Systems: FINRA announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD)—the central licensing and registration system that FINRA operates for the U.S. securities industry and its regulators and that provides the backbone of BrokerCheck. The first phase of the transformation—a new WebCRD interface that highlights important information or activities requiring immediate attention of firms, branches and individuals—goes into effect June 30.

COMINGS AND GOINGS AT THE AGENCIES

Kathy Kraninger Selected to Lead CFPB: On Saturday, the White House announced President Trump has selected Kathy Kraninger as his nominee to succeed Acting Director Mick Mulvaney at the Consumer Financial Protection Bureau. Ms. Kraninger’s name had not been among those thought to be under consideration, and surprised many. She currently works under Acting Director Mulvaney at the Office of Management and Budget and was described in a statement, “As a staunch supporter of free enterprise, [who] will continue the reforms of the Bureau initiated by Acting Director Mick Mulvaney.” She is sure to face a contentious hearing, with tough questions from progressive Democrats such as Sen. Elizabeth Warren (D-MA).

OTHER NOTEWORTHY ITEMS

NYCHA Commits US$1.2B in Consent Decree to Resolve Public Housing Health Issues: New York City’s Housing Authority reached a consent decree with HUD, the DOJ and EPA on Monday, with the NYCHA agreeing to invest US$1.2B into addressing health hazards in public housing units, including issues surrounding lead paint. In a statement, U.S. Attorney Geoffrey Berman said, “NYCHA's failure to provide decent, safe, and sanitary housing is simply unacceptable, and illegal. Children must be protected from toxic lead paint, apartments must be free of mold and pest infestations, and developments must provide adequate heat in winter and elevator service.”