Congress and the Trump Administration may be embarking on making far-reaching changes that will recalibrate the manner in which financial services are regulated in the United States, including amending the Dodd-Frank Act and its implementing rules. We expect to see vigorous debate regarding the appropriate approach to financial services regulation, leading to rewrites of the structures and goals of federal banking and securities agencies and other government agencies.

Legislation

Date

1/29/2018

Actions

Senior Safe Act (H.R. 2255)

Sponsor: Rep. Trott (R-MI) (2 Co-Sponsors – 2 D)

House of Representatives: passed by voice vote on January 29, 2018

Key Provisions

This Act would provide immunity from any civil or administrative proceeding to covered financial institutions and their covered employees for disclosing the suspected financial exploitation of seniors to appropriate agencies, as long as the disclosure is made in good faith and with reasonable care. The covered financial institutions have to train their covered employees and keep relevant records as specified in the Act for the immunity to apply.

Potential Impact

The Act would encourage financial Institutions covered under the Act to report suspected financial exploitation of seniors by providing greater protection against liability.

Important Links

House Bill Link

Date

1/18/2018

Action

Mutual Fund Litigation Reform Act (H.R. 4738)

Sponsor: Rep. Emmer (R-MN)

House Committee on Financial Services: passed 31-25 on January 18, 2018

Key Provisions

This Act would revise Section 36(b) of the Investment Company Act of 1940 to heighten the pleading standards and burden of proof in cases brought by mutual fund shareholders against investment advisers alleging breaches of fiduciary duty. Plaintiffs would be required to plead with particularity all facts establishing a breach of fiduciary duty and would be required to prove such a breach of fiduciary duty by clear and convincing evidence.

The language in the bill is also a provision of the Financial CHOICE Act of 2017.

Potential Impact

If passed, the Act would make it more difficult for plaintiffs to meet the pleading standards and burden of proof in Section 36(b) cases.

Important Links

House Bill Text

Date

1/17/2018

Action

Expanding Investment Opportunities Act (H.R. 4279)

Sponsor: Rep. Hollingsworth (R-IN) (3 Co-Sponsors – 2 D, 1 R)

House of Representatives: passed 418-2 on January 17, 2018

Key Provisions

This Act would direct the SEC to revise any rules necessary to permit a registered closed-end fund to use the SEC’s securities offering and proxy rules currently available to other issuers (i.e., operating companies) that are required to file reports under the Securities Exchange Act of 1934.

Under the Act, if the SEC failed to complete the mandated rule revisions within one year of the date of enactment of the Act, closed-end funds would be deemed eligible to rely on the existing rules available to operating companies.

Potential Impact

If passed, the Act would permit a closed-end fund to qualify as a “well-known seasoned issuer” and to sell additional shares in follow-on offerings through an “automatic shelf registration,” provided that applicable conditions are met. The Act would provide eligible closed-end funds with increased flexibility and would permit them to offer their shares in a more cost-efficient manner.

Important Links

House Bill Text

House Report 115-517 (amended version)

Date

10/6/2017

Action

Fair Access to Investment Research Act of 2017 (S. 327)

Senate: passed by unanimous consent on September 11, 2017

House of Representatives: passed by voice vote on September 27, 2017

Signed by the President on October 6, 2017

Key Provisions

The Act directs the SEC to amend Securities Act Rule 139 to expand the safe harbor from treatment as an offer to sell a security to research reports that are published or distributed by a broker-dealer in regard to a covered investment fund (i.e., certain registered investment companies, including exchange-traded funds, or publicly traded commodity pools that invest primarily in commodities, currencies, or derivative instruments that reference commodities or currencies).

Potential Impact

This amendment to Rule 139 will permit broker-dealers to publish research reports on investment funds that are not excepted securities for purposes of Rule 101 of Regulation M, and is intended to encourage broker-dealers to initiate research coverage on these non-excepted funds.

Important Links

Final Bill Text

Date

10/4/2017

Action

Protection of Source Code Act (H.R. 3948)

Sponsor: Rep. Duffy (R-WI) (2 Co-Sponsors – 1 D, 1 R)

Introduced in House of Representatives on October 4, 2017

Key Provisions

This Bill would amend the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940 to require the SEC to obtain a subpoena before compelling production of algorithmic trading code and other similar intellectual property from registrants.

Language similar to that of the Bill was included in the Financial CHOICE Act of 2017. Additionally, earlier this year the full House approved similar language as it applies to limitations on the CFTC.

Potential Impact

If passed, this Bill would aid in formalizing the SEC’s process for requests for source code. Limiting SEC access to source code to only when the SEC has obtained a subpoena may aid in protecting registrants’ intellectual property and may also provide registrants with a better-defined process for raising concerns with an SEC request for certain intellectual property, including the scope of the request and the SEC’s ability to protect such intellectual property, while in its possession, from cybersecurity attacks.

Important Links

House Bill Text

Date

5/3/2017

Action

Consumer Financial Choice and Capital Markets Protection Act of 2017 (H.R. 2319)

Sponsor: Rep. Keith Rothfus (R-PA) (62 Co-Sponsors – 38 D, 24 R)

Introduced in House of Representatives on May 3, 2017

House Committee on Financial Services: passed 34-21, January 18, 2018

Consumer Financial Choice and Capital Markets Protection Act of 2017 (S. 1117)

Sponsor: Sen. Toomey (R-PA) (3 Co-Sponsors – 2 D, 1 R)

Introduced in Senate on May 11, 2017

Key Provisions

The Bills would allow a money market fund (MMF), under certain conditions, to elect not to be subject to the requirement under Rule 2a-7 under the Investment Company Act that a MMF available to institutional investors must operate using a floating net asset value. The Bills would also provide that a MMF that makes such an election would not be subject to the default liquidity fee provision of Rule 2a-7, which requires a fund to impose a liquidity fee under certain circumstances unless its board has determined that doing so would not be in the best interests of the fund.

The House Bill would also allow a MMF that writes a stable value election to elect to be subject to the default liquidity fee. It would also allow a MMF that has not made a stable value election to elect to not be subject to the default liquidity fee.

In addition, the Bills would prohibit any MMF from receiving “federal assistance,” as defined therein, and would require MMFs to provide disclosures to that effect.

Potential Impact

The Bills would allow all MMFs to opt into the use of a stable net asset value, notwithstanding amendments to Rule 2a-7 which became effective in October 2016 and, for funds that make such an election, would eliminate the mandatory liquidity fee requirement.

Important Links

House Bill Text

Amended House Bill

Senate Bill Text

Date

3/30/2017

Action

Stronger Enforcement of Civil Penalties Act of 2017 (S. 779)

Sponsor: Sen. Reed (D-RI) (3 Co-Sponsors – 2 D, 1 R)

Introduced in Senate on March 30, 2017

Key Provisions

This Act would increase the maximum dollar amount of penalties permitted for administrative and civil actions under the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, and Investment Advisers Act of 1940 (collectively, the “Federal Securities Laws”). In addition, the Act would add a fourth tier of penalties for recidivists who previously have been criminally convicted for securities fraud or who, within the past five years, were the subject of a Securities and Exchange Commission judgment or order alleging fraud. Finally, the Act would impose new penalties under the Federal Securities Laws upon persons that violate a Federal court injunction or a bar obtained or entered by the SEC.

Potential Impact

If passed, the Act would impose a higher level of penalties pursuant to the Federal Securities Laws and would seek to discourage future violations by recidivists.

Important Links

Senate Bill Text

Date

3/22/2017

Action

Financial Institution Bankruptcy Act of 2017 (H.R. 1667)

Sponsor: Rep. Marino (R-PA) (4 Co-Sponsors – 2 R, 2 D)

House of Representatives passed by voice vote on April 5, 2017

Key Provisions

The Bill would establish a special resolution regime under a new subchapter of Chapter 11 of the Bankruptcy Code for bank holding companies and nonbank financial companies with at least $50 billion of assets (excluding stock brokers, commodity dealers, insurance companies and a range of depository institutions). It would authorize the formation of a bridge company to which certain assets and liabilities of the debtor could be transferred if a court found, among other things, that it was necessary to prevent serious adverse effects on financial stability in the U.S. The equity of the debtor would not be transferred to the bridge company and generally, the bridge company would not assume the debtor’s liabilities. The equity securities of the bridge company would be held by a special trustee and the proceeds of any sale of such securities would be held in trust pending distribution under an approved plan. The Act would entitle the FRB, SEC, OCC, CFTC and FDIC to be heard on any issue arising in a proceeding under the subchapter.

Potential Impact

The Bill would create an alternative to the Orderly Liquidation Authority provisions contained in Title II of the Dodd-Frank Act, which authorize the Secretary of the Treasury under extraordinary circumstances to appoint the FDIC as receiver for certain nonbank financial institutions under rules and procedures similar to the ones that apply to the receivership of an FDIC-insured depository institution. The Financial CHOICE Act, which was approved by the House Financial Services Committee in September 2016, contained provisions substantially identical to the Bill, but would have taken the additional step of repealing Title II.

Important Links

House Bill Text

Date

3/2/2017

Action

Encouraging Employee Ownership Act of 2017 (H.R. 1343)

Sponsor: Rep. Hultgren (R-NV) (7 Co-Sponsors – 4 D, 3 R)

House of Representatives: passed 331-87 on April 4, 2017

Key Provisions

The Act would direct the SEC to amend Rule 701 under the Securities Act to increase from $5,000,000 to $10,000,000 the aggregate sales price or amount of securities that may be offered pursuant to that rule during any consecutive 12-month period above which issuers must provide investors with certain additional disclosure relating to compensatory benefit plans.

Potential Impact

The Act would expand the scope of offerings that are exempted from satisfying certain enhanced disclosure requirements when relying on Rule 701 under the Securities Act.

Rule 701 exempts from registration certain offers and sales of securities pursuant to compensatory benefit plans and contracts relating to compensation, subject to certain limitations. In cases in which the total price or amount of securities offered within a 12-month period exceeds $5,000,000, in addition to providing each investor with a copy of the relevant compensatory benefit plan or the contract, as applicable, issuers must also provide investors with a variety of additional disclosure, including financial reports.

The Act would direct the SEC to increase the threshold for providing additional disclosure to $10,000,000 and would require the SEC to index the threshold to inflation every five years.

Important Links

House Bill Text

House Report 115-71

Date

2/7/2017

Action

Fair Access to Investment Research Act of 2017 (S. 327)

Sponsor: Sen. Heller (R-NV) (2 Co-Sponsors – 1 D, 1 R)

Reported by Senate Committee on Banking, Housing and Urban Affairs, March 13, 2017

House version H.R. 910 (companion bill)Sponsor: Rep. French (R-AR) (6 Co-Sponsors – 4 D, 2 R)

House of Representatives: passed 405-2 on May 1, 2017

Key Provisions

The Act would direct the SEC to amend Securities Act Rule 139 to expand a safe harbor from treatment as an offer to sell a security to research reports that are published or distributed by a broker-dealer in regard to a covered investment fund (i.e., certain registered investment companies or publicly traded commodity pools or exchange-traded funds that invest primarily in commodities, currencies, or derivative instruments that reference commodities or currencies).

Potential Impact

This amendment to Rule 139 would permit broker-dealers to publish research reports on investment funds that are not excepted securities for purposes of Rule 101 of Regulation M, and may encourage broker-dealers to initiate research coverage on these non-excepted funds.

Important Links

House Bill Text

House Report 115-102

Senate Bill Text

Date

1/30/2017

Action

H.J. Res. 41

Sponsor: Rep. Huizenga (R-MI)

House of Representatives: passed 235-187 on February 1, 2017

Senate: passed 52-47 on February 3, 2017

Signed by the President on February 14, 2017

Key Provisions

The resolution disapproves SEC Rule 13q-1 under Section 1504 of the Dodd-Frank Act.

Rule 13q-1 requires energy companies to annually report payments made to foreign governments for the commercial development of oil, natural gas, or minerals. The rule became effective in its current form in September 2016.

Congress exercised its authority under the Congressional Review Act (CRA) to disapprove the rule. The CRA generally allows Congress to disapprove a rule by simple majority votes within a specified period of time.

Potential Impact

Rule 13q-1 is no longer in effect. In addition, pursuant to the CRA, a rule that is substantially the same cannot be adopted in the future unless it is specifically authorized by subsequently enacted legislation.This action marks one of the first times that a rule has been disapproved under the CRA. It is likely that Congress will be considering a series of further disapproval actions in the near future.

Important Links

Resolution Text

Date

1/3/2017

Action

SEC Regulatory Accountability Act, H.R. 78

Sponsor: Rep. Ann Wagner (R-MO)

House of Representatives passed 243-184: on January 12, 2017

Key Provisions

The Act would require the SEC, prior to issuing a regulation under the securities laws (i.e., the Securities Act of 1933, Securities Exchange Act of 1934, Sarbanes-Oxley Act of 2002, Trust Indenture Act of 1939, Investment Company Act of 1940, Investment Advisers Act of 1940, and Securities Investor Protection Act of 1970) to: (i) identify the nature and source of the problem that the proposed regulation is intended to address; (ii) assess the costs and benefits of the proposed regulation and make a determination that the benefits justify the costs; and (iii) identify and assess available alternatives.

The SEC would also be required, when issuing any regulation that qualifies as a “major rule” (a rule that the Office of Management and Budget determines is likely to result: (i) an annual effect on the economy of $100 million or more, (ii) a major increase in costs or prices for consumers, individual industries, governments, or geographic regions, or (iii) significant adverse impacts on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic and export markets) to set forth quantitative and qualitative metrics to measure the economic impact of the regulation and to measure the extent to which the regulation has accomplished the stated purposes and the assessment plan the agency will use. An assessment plan must consider the costs, benefits, and intended and unintended consequences of the regulation.

The SEC would generally be required to publish an assessment report on a regulation within two years after its adoption. The agency would be required to seek public comment on the assessment report. No later than 180 days after publication of the assessment report the SEC would be required to issue for notice and comment a proposal to amend or rescind the regulation, or publish a notice that no action will be taken in regard to the regulation.

The Act would also require the SEC to periodically review its existing regulations to determine whether any regulations are outmoded, ineffective, or excessively burdensome and make modifications, expansions or repeals of based on its review.

Potential Impact

Under current law, in adopting a rule, the SEC is required to consider, in addition to the protection of investors, whether the rule will promote efficiency, competition, and capital formation. The U.S. Court of Appeals for the D.C. Circuit, in applying these requirements, has vacated an SEC regulation based on a finding that the agency had failed adequately to assess the economic effects of the regulation. Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011). The Act would expressly require the SEC to make a determination that the benefits of a rule justify its costs.

A requirement that the benefits of a rule justify the costs would appear to be a lower standard than the Supreme Court applied in Michigan v. EPA, 576 U.S. ___, (2015), where, in the context of rulemaking authority that required a rule to be “necessary and appropriate,” the Supreme Court found that an agency had to show that the benefits of the rule outweighed its costs.

The Act would significantly impact the SEC’s rulemaking process both in regard to an enhanced cost-benefit requirement at the time of adoption of a rule as well as a rigorous post-adoption assessment process. These requirements would likely provide opponents of a regulation with expanded opportunities to challenge a proposed or existing regulation either before the SEC or in court.

The Act would likely divert SEC staff resources to rulemaking and review of existing rules and away from other functions.

Important Links

Bill Text

Regulations

Date

2/6/2017

Action

Public Statement from Acting SEC Chairman Michael S. Piwowar regarding Reconsideration of Pay Ratio Rule Implementation

Key Provisions

The SEC adopted the Pay Ratio Rule in August 2015 to implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The rule requires a public company to disclose the ratio of the median of the annual total compensation of all employees to the annual total CEO compensation. Companies must comply with the rule their first fiscal year beginning on or after January 1, 2017. This compliance date reflects a one-year additional delay as compared to the proposed rule.

Piwowar stated that companies are experiencing difficulties in preparing to comply with the rule, and he requested further public comment on whether relief is needed. The comment period will last 45 days.

Potential Impact

This action could signal a further delay in the implementation of the rule, and may mark the first step towards additional SEC action to amend or rescind the rule (which would require notice and a public-comment period). See Dechert Newsflash, Trump Administration Discloses Another Rule in Doubt – SEC Questions the "Pay Ratio" Regulation.

Important Links

SEC's Public Statement

Pay Ratio Final Rule

Albert Jung contributed to this update.