THE BIG PICTURE
Tensions between the President and House Democrats escalated as the impeachment inquiry continued over the course of last week. The President called the effort “illegitimate,” “dangerous,” and, in a letter from White House Counsel Don Cipollone, indicated the White House would not cooperate. The Committees issued subpoenas for documents to the Pentagon, OMB, and Energy Secretary Rick Perry in an effort to identify information surrounding the decision to freeze military aid to Ukraine in July, and the President’s phone call with the Ukrainian President. On Friday, former U.S. ambassador to Ukraine, Marie Yovanovitch testified in a closed session, in defiance of the State Department’s attempt to block officials from participating.
On Monday, a federal judge in Manhattan ruled against the President in his efforts to block a subpoena for his tax returns. In the opinion Judge Marrero wrote that the Court could not “endorse such a categorical and limitless assertion of presidential immunity from judicial process.” The decision was appealed on an emergency basis to the Second Circuit to prevent the release of the documents. In a separate proceeding before the D.C. Circuit on Friday, a panel ruled that the President’s accounting firm must comply with a House Oversight Committee subpoena for eight years of his financial records which they deemed “valid and enforceable.”
Following two days of high level negotiations, the United States and China reached “phase one” of a trade deal. The two sides agreed on concessions related to opening the financial services market, as well as China agreeing to import US$40–US$50B in U.S. agricultural products. As part of the deal, the President called off a round of tariff increases that had been set to go into effect Tuesday on US$250B worth of Chinese goods. The President described the deal as “a tremendous thing for banks and financial services companies,” and said, “We are very close to ending the trade war.”
Other highlights of last week include:
- The President signed two executive orders on Wednesday, aimed at reining in the use of informal guidance in enforcement by the regulatory agencies. The President described such guidance as too often a “back door for regulators to change the laws and vastly expand their scope and reach.”
- House Appropriations Chairwoman, Rep. Nita Lowey (D-NY) announced she would retire at the end of this term.
- On Friday, the President announced via Twitter that Acting Homeland Security Secretary Kevin McAleenan would be leaving the administration to “spend more time with his family and go to the private sector.”
LAST WEEK ON THE HILL
Both chambers were in recess.
Legislation Introduced and Proposed
H.R. 4604: Rep. Neal Dunn (R-FL) introduced H.R. 4604, the “Small Financial Institution Certainty Act,” which would clarify the clearing exemption for small financial institutions under the Commodity Exchange Act.
THIS WEEK ON THE HILL
Wednesday, October 16
House Financial Services Committee Hearing on “Who Is Standing Up for Consumers? A Semi-Annual Review of the Consumer Financial Protection Bureau”: 10:00 AM in 2128 Rayburn House Office Building.
House Financial Services Committee Hearing on “Protecting America: The Reauthorization of the Terrorism Risk Insurance Program”: 2:00 PM in 2128 Rayburn House Office Building.
Thursday, October 17
House Financial Services Committee (Subcommittee on Investor Protection, Entrepreneurship and Capital Markets) Hearing on “Examining Corporate Priorities: The Impact of Stock Buybacks on Workers, Communities, and Investors”: 10:00 AM in Rayburn House Office Building.
Senate Banking Committee Hearing on “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress”: 10:00 AM in 538 Dirksen Senate Office Building.
House Financial Services Committee (Subcommittee on Oversight & Investigations) Hearing on “Promoting Inclusion: Examining the Need for Diversity Practices for America’s Changing Workforce”: 2:00 PM in 2128 Rayburn House Office Building.
Friday, October 18
House Financial Services Committee (Task Force on Artificial Intelligence) “AI and the Evolution of Cloud Computing: Evaluating How Financial Data is Stored, Protected, and Maintained by Cloud Providers”: 9:30 AM in 2128 Rayburn House Office Building.
Agencies Finalize Changes to Simplify Volcker Rule: On Tuesday, the Federal Reserve, CFTC, FDIC, OCC, and SEC announced that they had finalized revisions to simplify compliance requirements relating to the “Volcker rule.” By statute, the Volcker rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds. Under the revised rule, firms that do not have significant trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have more stringent compliance requirements. The revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law.
Federal Reserve Announces Plan to of Balance Sheets: On Tuesday, Federal Reserve Chairman Jay Powell said that the “time is now upon us” to resume buying Treasury bonds and increase holdings, adding that the Fed will “soon announce measures to add to the supply of reserves over time.” He cautioned however that, “growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis.” On Friday, the Fed announced “plans to purchase Treasury bills at an initial pace of approximately $60B per month, starting with the period from mid-October to mid-November.”
Federal Reserve Board Finalizes Tailoring Rules: On Thursday, the Federal Reserve finalized rules that tailor its regulations for domestic and foreign banks to more closely match their risk profiles. The rules reduce compliance requirements for firms with less risk while maintaining the most stringent requirements for the largest and most complex banks. The rules establish a framework that sorts banks with US$100B or more in total assets into four different categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. “Our rules keep the toughest requirements on the largest and most complex firms,” Chair Powell said. “In this way, the rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade.”
Job Gains Could Be Overstated According to Fed Chair: Federal Reserve Chairman Jay Powell told an audience that “the currently reported job gains of 157,000 per month on average over the past three months may well be revised somewhat lower.” He also discussed the Fed’s collaboration with a payroll company to develop a faster and more accurate method to gather market data.
Dallas Fed President Supports More Permanent Solution to Repo Markets: The President of the Federal Reserve Bank of Dallas, Robert Kaplan, published an essay on Thursday in which he expressed his support for “more permanent steps to ensure the proper functioning of repo and other short-term funding markets.”
SEC Announces the Formation of Asset Management Advisory Committee: On Wednesday, the SEC announced the formation of its Asset Management Advisory Committee. The committee was formed to provide the Commission with diverse perspectives on asset management and related advice and recommendations. Topics the committee may address include trends and developments affecting investors and market participants, the effects of globalization, and changes in the role of technology and service providers. The committee is comprised of a group of outside experts, including individuals representing the views of retail and institutional investors, small and large funds, intermediaries, and other market participants. The committee will be formally established on Nov. 1, 2019 for an initial two-year term, which can be renewed by the Commission.
SEC Denies Bid to Launch Bitcoin ETF: On Wednesday, the SEC denied the bid of a company to launch a bitcoin exchange-traded fund. The Commission noted they were skeptical that the “real bitcoin market” was capable of resisting manipulation and fraud.
SEC Releases Educational Videos Aimed to Help Investors Spot and Avoid Fraud: On Friday, the SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force released new videos and Investor Alerts to help show investors what fraud looks like. “One way to protect your hard-earned money is to learn how to spot investment scams and to stay clear of them,” said SEC Chairman Jay Clayton. “These videos will help investors identify and avoid actual fraudulent schemes that we have recently charged.”
Leaders of the CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets: On Friday, the leaders of the CFTC, FinCEN, and SEC issued a joint statement to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). The leaders noted that the nature of the digital asset-related activities a person engages in is a key factor in determining whether and how that person must register with the agencies.
CFTC Chairman Classifies Ether as a Commodity: Speaking at a Yahoo Finance event on Thursday, CFTC Chairman Heath Tarbert noted that while the agency hadn’t “said anything about ether until now,” in his “view as chairman of the CFTC … ether is a commodity, and therefore it will be regulated under the CEA.” He continued on to say that “ether-related futures contracts and other derivatives” could be coming in the “near future” perhaps even by the close of this year.
Treasury and IRS Announce Regulatory Relief for Taxpayers Related to LIBOR Transition: On Tuesday, the Treasury Department and IRS proposed regulations allowing taxpayers to avoid adverse tax consequences from changing the terms of debt, derivatives, and other financial contracts to replace reference rates based on interbank offered rates (IBORs) with certain alternative reference rates. “A smooth and successful transition away from LIBOR and towards an alternative rate, such as SOFR, is important for the stability of global financial markets,” said Treasury Secretary Steven Mnuchin. “These proposed regulations provide certainty and clarity to taxpayers as they make the critical transition away from LIBOR.”
IRS to Add Cryptocurrency Disclosure to Tax Return: According to a draft version of the latest tax return form, the IRS is planning to add a question to “Schedule 1” of the return asking individuals to report if they bought or sold cryptocurrency.
IRS Issues Additional Guidance on Tax Treatment of Virtual Currencies and Reminds Taxpayers of Reporting Obligations: On Wednesday, as part of a wider effort to assist taxpayers and to enforce the tax laws in a rapidly changing area, the IRS issued two new pieces of guidance for taxpayers who engage in transactions involving virtual currency. “The IRS is committed to helping taxpayers understand their tax obligations in this emerging area,” said IRS Commissioner Chuck Rettig. “The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don't follow the rules.”
IRS Releases 2020 Audit Plan: On Monday, the Treasury Inspector General for Tax Administration released its annual audit plan revealing their priorities and detailing plans to review the agency’s treatment of legal marijuana operations and virtual currency exchanges, among a variety of other topics.
CFPB Announces Taskforce on Federal Consumer Financial Law: On Friday, the CFPB announced that it will establish a taskforce to examine ways to harmonize and modernize federal consumer financial laws. The Taskforce on Federal Consumer Financial Law will examine the existing legal and regulatory environment facing consumers and financial services providers and report to Director Kraninger its recommendations for ways to improve and strengthen consumer financial laws and regulations. “An objective and independent evaluation of our current regulatory framework to identify where there may be gaps or where regulation should be simplified or modernized is needed to help us more effectively carry out our mission of protecting consumers,” said Director Kathy Kraninger.
CFPB Issues Final HMDA Rule to Provide Relief to Smaller Institutions: On Thursday, the CFPB issued a rule which finalizes certain aspects of its May 2019 Notice of Proposed Rulemaking under the Home Mortgage Disclosure Act (HMDA). It extends for two years the current temporary threshold for collecting and reporting data about open-end lines of credit under HMDA. The rule also clarifies partial exemptions from certain HMDA requirements, which Congress added in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).
FDIC Announces Meeting of Advisory Committee on Community Banking: On Wednesday, the FDIC announced that it will hold a meeting of the Advisory Committee on Community Banking on Thursday, October 10. FDIC senior staff will provide an update on various supervisory policy issues, insurance, and research matters; brief Committee members on the FDIC Subcommittee on Supervision Modernization; and discuss tools and resources related to Opportunity Zones. The Committee and FDIC senior staff will also discuss local banking conditions.
FDIC Announces New Paid Parental Leave Benefit for Employees: On Wednesday, the FDIC announced a new paid parental leave program for its employees, providing six workweeks of paid leave per year for the birth, adoption, or foster placement of a new child. The program will be available to mothers and fathers equally and to both parents if both are FDIC employees.
Treasury Developing New Authorities to Target Turkey for Any Potential Human Rights Abuses or Destabilizing Actions in Syria: On Friday, the Treasury Department announced that given Turkey’s ongoing military offensive in northeastern Syria, President Trump intends to sign an Executive Order to dissuade Turkey from any further offensive military action in northeast Syria, including, but not limited, to indiscriminate targeting of civilians, targeting of civilian infrastructure, targeting of ethnic or religious minorities, or targeting or other actions that undermine the continued counterterrorism activities of the Syrian Democratic Forces.
Treasury Sanctions Businessmen in South Sudan for Corrupt Dealings with Government Officials and Sanctions Evasion: On Friday, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Ashraf Seed Ahmed Al-Cardinal (Al-Cardinal) and Kur Ajing Ater (Ajing) for their involvement in bribery, kickbacks, and procurement fraud with senior government officials. OFAC also designated five companies determined to be owned or controlled by Al-Cardinal and one company owned or controlled by Ajing. “These South Sudanese elites and corrupt government officials have drained state coffers and usurped the country’s resources with impunity. Al-Cardinal and Ajing leverage their businesses and political connections to engage in corruption at great expense to the South Sudanese people,” said Sigal Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence.
Democrats Write to Agencies with “Grave Concern” over Community Reinvestment Act Revamp: A group of 29 Democratic lawmakers led by Sen. Sherrod Brown (D-OH) and Rep. Gregory Meeks (D-NY) wrote to the heads of the Federal Reserve, FDIC, and OCC warning the agencies against plans to revamp the Community Reinvestment Act unless they have buy-in from community and civil rights groups. The lawmakers wrote, “Any updates to this vital rule must be consistent with its original purpose of bringing financial services and credit access to low- and moderate-income and underserved communities that continue to bear the legacy of redlining and blatant discrimination.” They urged the agencies to “strengthen, not weaken, the CRA.”
COMINGS AND GOINGS AT THE AGENCIES
SEC Appoints Rebekah Goshorn Jurata to PCAOB: On Friday, the SEC announced the appointment of Rebekah Goshorn Jurata as a Board member of the Public Company Accounting Oversight Board (PCAOB) for a term ending October 24, 2024. Ms. Jurata currently serves as Special Assistant to the President for Financial Policy. In addition to Ms. Jurata’s appointment, SEC Chairman Clayton announced that Commissioner Hester Peirce has agreed to lead the Commission’s coordination efforts with the Board of the PCAOB, in coordination with the SEC’s Chief Accountant Sagar Teotia and the Office of the Chief Accountant.
Federal Reserve Director of Division of International Finance to Step Down: The Federal Reserve Board on Friday announced that Steven Kamin would be stepping down as director of the Division of International Finance, effective early next year. Kamin will serve as a senior adviser to the division and will retire after a successor has transitioned into the role.
CFTC Announced Head of Fintech Innovation Hub: On Thursday, Commission Chairman Heath Tarbert announced the appointment of Melissa Netram, to serve as Director of LabCFTC. In her role, Ms. Netram will be responsible for coordinating closely with international and U.S. regulators and Capitol Hill to facilitate market-enhancing innovation, inform public policy, and ensure the CFTC has the understanding to keep pace with the ever changing financial services industry.
OTHER NOTEWORTHY ITEMS
California Governor Signs Installment Loan Rate Cap into Law: On Thursday, California Governor Gavin Newsom signed A.B. 539, legislation that will cap the interest rate on certain installment loans, into law. In a statement, Newsom said “defaulting on high-cost, high-interest rate installment loans push families further into poverty instead of pulling them out. These families deserve better, and this industry must be held to account.”
Senator and Presidential Contender Elizabeth Warren Plans to Hold Private Equity Firms to Account: Sen. Elizabeth Warren (D-MA) took to Twitter to discuss her plan to hold private equity firms accountable, writing that they “are sucking value out of our companies, putting people out of work, and wiping out newspapers and digital news outlets.”