THE BIG PICTURE

The massive Equifax data breach continued to be a focal point of conversation last week, with a hearing being scheduled in the Senate Banking Committee for October 4. Richard Smith, Chairman and CEO of Equifax, will testify. Speaking on the Senate Floor on September 19, Senator Elizabeth Warren (D-MA) called for bipartisan action against Equifax, criticizing the company for waiting to tell the public of its data breach and saying “Equifax gave criminals a 40-day head start to use the information they had stolen while the rest of us were left in the dark.” Compounding Equifax’s problems, the U.S. Justice Department has opened an investigation into whether officials at Equifax violated insider trading laws by selling stock prior to the company announcing that it had been hacked. Additionally, it came to light that Equifax suffered a separate data breach in March, five months before publicly disclosing the massive data breach.

On top of Equifax, we found out last week that the Securities and Exchange Commission’s (SEC) electronic database of corporate announcements, EDGAR, was hacked in 2016. This was revealed as part of a statement issued by SEC Chairman Jay Clayton highlighting the importance of cybersecurity to the agency. According to the statement, the hackers could have gained access to information needed to make illegal trades. Clayton said that the hack resulted from “software vulnerability” in the system’s test-filing component. The breach will likely come up this week when Clayton testifies before the Senate Banking Committee.

On the healthcare front, efforts have been renewed to repeal Obamacare, with a strong last-ditch push from Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA). The Republican-led effort has ended a negotiation aimed to reach a bipartisan agreement, with Senate Health Committee Chairman Lamar Alexander (R-TN) saying that they “have not found the necessary consensus among Republicans and Democrats to put a bill in the Senate leaders’ hands that could be enacted.” Senators Graham and Cassidy are working hard to win over key Republicans like Lisa Murkowski (R-AK). The Senate is expected to vote on the bill this week. House Speaker Paul Ryan (R-IN) said that the House would vote on the bill if the Senate passes it. The Chairman of the House Freedom Caucus, Mark Meadows (R-NC) said that conservatives would get on board and pass the bill if it clears the Senate. Senator John McCain (R-AZ) announced on September 22 that he would not support the bill, which will make passing the bill significantly more difficult.

President Trump signed an executive order on September 21 targeting North Korea’s trading partners. The President called the executive order a powerful tool that would help to isolate the regime and pressure it to de-nuclearize. According to the President, “foreign banks will face a clear choice: do business with the United States or facilitate trade with the lawless regime in North Korea.” Congress continues to focus on North Korea, with another Senate Banking Committee hearing to be held next week.

LAST WEEK ON THE HILL

Democrats Issue Statement on Report Regarding Disparities in Asset Management: On September 20, Congresswoman Maxine Waters (D-CA), Ranking Member of the House Committee on Financial Services, Senator Cory Booker (D-NJ), and Congressman Gregory Meeks (D-NY) released a statement on a new Government Accountability Office (GAO) report titled, “Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers” (GAO-17-726), which was requested by the lawmakers. “This report confirms that minority- and women-owned (MWO) asset managers disproportionately manage only 1 percent of the US$70T managed by asset management firms in the United States,” Ranking Member Waters said.

Senate Passes Financial Stability Oversight Council Insurance Member Continuity Act: On September 20, the Senate passed the FSOC Insurance Member Continuity Act. United States Senate Committee on Banking, Housing and Urban Affairs Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio) lauded the passage of the bill. “This simple fix will allow the FSOC to continue to benefit from the important insight and contributions of the independent member with insurance expertise if their replacement has not been confirmed,” said Crapo. “I thank Senator Brown for working with me to ensure its passage.” The bill passed the House on September 5 and will now go to the President for his signature.

Senators Warren and Brown Urge Consumer Financial Protection Bureau Chairman Cordray to Continue Protecting Students Despite Roadblocks: In a letter sent on September 18, United States Senator Elizabeth Warren (D-Mass.) and Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) urged Consumer Financial Protection Bureau (CFPB) Director Rich Cordray to continue the CFPB’s work to protect students from “unfair, deceptive, and abusive acts” by federal student loan servicers and debt collectors. The letter followed an announcement by Education Department (ED) Secretary Betsy DeVos that ED has terminated information sharing agreements with the CFPB, an effort that has aided oversight of servicers and helped protect borrowers.

NEXT WEEK ON THE HILL

Tuesday, September 26

Senate Banking Committee, Hearing, “Oversight of the U.S. Securities and Exchange Commission,” 10:00AM, 538 Dirksen Senate Office Building

  • The Honorable Jay Clayton, Chairman, U.S. Securities and Exchange Commission.

Wednesday, September 27

House Financial Services Subcommittee on Housing and Insurance, Hearing, “Overview of the Family Self-Sufficiency Program,” 10:30AM, 2128 Rayburn House Office Building

House Agriculture Committee, Hearing, "Examining the 2017 Agenda for the Commodity Futures Trading Commission," 10:00 AM, 1300 Longworth House Office Building

Thursday, September 28

Senate Banking Committee, Hearing, “Evaluating Sanctions Enforcement and Policy Options on North Korea: Administration Perspective,” 9:30AM, 538 Dirksen Senate Office Building

  • The Honorable Sigal Mandelker, Under Secretary for Terrorism and Financial Crimes, U.S. Department of the Treasury; and
  • Ms. Susan A. Thornton, Acting Assistant Secretary, Bureau of East Asian and Pacific Affairs, U.S. Department of State.

House Financial Services Subcommittee on Housing and Insurance, Hearing, “Examining Insurance for Nonprofit Organizations,” 9:30AM, 2128 Rayburn House Office Building

THE REGULATORS

Federal Reserve Issues Federal Open Market Committee (FOMC) Statement: Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.

Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo Speaks about Clearinghouse Oversight in Brexit Talks: Speaking at an International Swaps and Derivatives Association conference, CFTC Chairman Chris Giancarlo reiterated concerns regarding the European Commission’s proposal for oversight of central counterparties, saying that they should not become pawns in a showdown between the EU and the U.K. He said that “deference” is the right approach, which means that “every CCP should be subject to a comprehensive supervisory framework in its home jurisdiction that ensures an appropriate amount of oversight.”

Banking Associations Send Letter to Federal Deposit Insurance Corporation (FDIC) Regarding Deposit Insurance for Industrial Loan Companies: The National Association of Industrial Banks and the Utah Bankers Association sent a letter to the FDIC urging the regulator to reject a request from the Independent Community Bankers of America to issue a temporary moratorium on deposit insurance for industrial loan companies (ILCs). According to the association, the ICBA’s request was a “red herring” and unnecessary because Dodd-Frank imposed a three-year moratorium and instructed the Government Accountability Office to study ILCs. A number of fintech companies have filed applications for ILCs, in order to get into the business of banking.

Department of Labor’s Fiduciary Duty Rule Delay Brings in 131 Comments: On September 22, the comment period on the U.S. Department of Labor’s proposal to delay parts of its Fiduciary Duty Rule closed. 131 comments were received from financial groups, politicians, and other individuals. The proposal is to delay key provisions of the rule until July 2019.

SEC Adopts Interpretive Guidance on Pay Ratio Rule: The Securities and Exchange Commission has approved interpretive guidance to assist companies in their efforts to comply with the pay ratio disclosure requirement mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the Commission’s rule implementing the pay ratio requirement, companies are required to begin making pay ratio disclosures in early 2018.

CFPB Takes Action Regarding Student Loan Debt Collection: The Consumer Financial Protection Bureau on September 18 took action against the National Collegiate Student Loan Trusts and their debt collector, Transworld Systems, Inc., for illegal student loan debt collection lawsuits. Consumers were sued for private student loan debt that the companies couldn’t prove was owed or was too old to sue over. These lawsuits relied on the filing of false or misleading legal documents.

United States and EU Issue Joint Statement on Prudential Measures Regarding Insurance and Reinsurance: The U.S. and the EU issued a joint statement on the signing of the bilateral agreement between the EU and the U.S. on prudential measures regarding insurance and reinsurance. According to the statement, “The Agreement represents a major step forward in U.S. - EU cooperation on insurance and reinsurance, conveying benefits to EU and U.S. insurers and reinsurers operating across the Atlantic, by offering them enhanced regulatory certainty, while maintaining robust consumer protections.”

Treasury, United States Trade Representative Sign Covered Agreement on Prudential Insurance and Reinsurance Measures with the European Union: The U.S. Department of the Treasury (Treasury) and the Office of the U.S. Trade Representative (USTR) today signed a covered agreement (the Agreement) on prudential insurance and reinsurance measures with the European Union (EU). Treasury and USTR also jointly issued a policy statement clarifying how the United States views implementation of certain provisions of the Agreement. The Agreement addresses three areas of prudential insurance supervision: group supervision, reinsurance, and exchange of information between supervisory authorities. The Agreement affirms the U.S. system of insurance regulation, including the role of state insurance regulators as the primary supervisors of the business of insurance in the United States.

NOMINATIONS, COMINGS AND GOINGS AT THE AGENCIES

Former Lobbyist Matthew Kulkin to Join Commodity Futures Trading Commission: Matthew Kulkin has been named the Director of the division of Swap Dealer and Intermediary Oversight. He was most recently a partner at law firm Steptoe & Johnson.

Catherine McGuire to Retire After More Than 40 Years at the SEC: The Securities and Exchange Commission today announced that Catherine McGuire, Counsel in the Division of Trading and Markets, is retiring after 44 years at the SEC. She began her SEC career in 1973 in what was then the Division of Market Regulation and was promoted to positions of increasing responsibility, including serving as Counsel to Commissioner Bevis Longstreth from 1982 to 1983. She was named Chief Counsel and Associate Director of the division in 1993 and has advised the division as Counsel since 2008. Ms. McGuire has received more than a dozen awards for her service, including the Distinguished Service Award, the SEC’s highest award, in 1992, and the Presidential Meritorious Executive Award, in 2000.

Financial Disclosure Shows that SEC Nominee Made US$1.21M as Professor and Consultant: Robert Jackson, the Democratic nominee for an open SEC seat, made about US$1.21M in 18 months as a consultant and a Columbia Law School professor. Mr. Jackson is Director of the Program on Corporate Law and Policy at Columbia.

OTHER NOTEWORTHY ITEMS

China Shuts Down Cryptocurrency: Regulators in China have instructed all domestic currency exchanges to shut down by the end of the month. Four major exchanges have already announced their shutdown. The Chinese government has had a strained relationship with bitcoin for years now, and some speculated that a ban may have been coming down the pike. There is a strong possibility that China will formally regulate cryptocurrency.

Arizona Announces Plans to Develop Fintech “Sandbox”: Arizona is the first state to announce plans to develop a “sandbox” for fintech, which will allow companies to experiment with products and services in a controlled environment while being exempt from certain regulatory requirements. The concept of regulatory sandboxes has gained traction internationally, though U.S. federal regulators have been slow to embrace the idea. Despite the fact that the federal government doesn’t seem to be interested in the sandbox concept, the idea is gaining traction with states.