Legislative Activity

Financial Services Committee Organizes as Hensarling Set to Move CHOICE Act 2.0

Last Tuesday, February 7, the House Financial Services Committee held a meeting to approve its Authorization and Oversight Plan (Plan) for the 115th Congress. The meeting featured partisan debate related to transparency within the Trump Administration and how the Committee should organize its priorities. Despite the clear divide between Republicans and Democrats, the Committee ultimately adopted several amendments to the Plan, including amendments related to illicit financing, housing, and flood insurance. Specifically, this Congress the Committee will: (1) pay special attention to anonymous shell companies when monitoring potential terrorist financing; (2) examine progress towards the nation’s goals to end homelessness; and (3) examine proposals to improve efficiency and transparency associated with the processing of National Flood Insurance Program (NFIP) claims.

Separately, with the Committee officially organized for the 115th Congress, Chairman Jeb Hensarling (R-TX) is set to move on a revised version of the Financial CHOICE Act (CHOICE Act 2.0), a bill he introduced last year that would make significant changes to the U.S. financial regulatory landscape. Though the text of the revised bill has not been introduced, a leaked Committee staff memorandum highlights several of the changes that have been made to the legislation since last Congress. Pursuant to the memorandum, CHOICE Act 2.0 will, among other things: (1) eliminate the CAMELS requirement from the capital election; (2) exempt banking organizations that make the capital election from stress tests; (3) make targeted “improvements” to stress tests and CCAR; (4) restructure the CFPB as a civil law enforcement agency with additional restrictions on its authority; (5) make numerous SEC-related reforms to improve capital markets; (6) impose additional requirements on financial regulators to hold them accountable, including by designating a “Lead Banking Investigator”; and (7) expand the JOBS Act to improve the atmosphere for small businesses and encourage capital formation. The bill will also likely include a technical corrections section to conform the current legislation with Dodd-Frank.

Lawmakers to Review U.S.-EU Covered Agreement

This Thursday, the House Financial Services Subcommittee on Housing and Insurance has scheduled a hearing titled “Assessing the U.S.-EU Covered Agreement.” Last month, the U.S. Department of the Treasury and the Office of the U.S. Trade Representative (USTR) announced the successful completion of negotiations for a covered agreement with the European Union, which was drafted to address the current difference between the insurance regulation in the EU and U.S. In particular, the agreement will address the application of EU rules under its “Solvency II” regulations and the oversight of reinsurers. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the covered agreement, which was negotiated on the U.S. side by the Treasury Department and U.S. Trade Representative (USTR), will come into force 90 calendar days after it has been submitted to Congress. Of course, EU governments will have to approve the agreement as well, after which it would need to be approved by the European Commission as well as the European Parliament.

Senate Republicans Ask for Briefing on CFTC Data Security

Last week, Senate Agriculture Committee Chairman Pat Roberts (R-KS) and Senate Judiciary Committee Chairman Chuck Grassley (R-IA) asked Acting Chairman of the Commodity Futures Trading Commission (CFTC) Christopher Giancarlo for a briefing about the agency’s efforts to eliminate data security deficiencies identified in an Inspector General’s report. Specifically, the Senators asked for more information related to a findings that the agency had weak internal data security policies and that a whistleblower might have been ignored. The letter requested a formal update on the CFTC’s response to the report, including information on whether the agency is taking steps to bolster agency integrity through staff training and how the agency is addressing the issue of whistleblower reprisal.

This Week’s Hearings:

• On Tuesday, February 14, the Senate Banking, Housing, and Urban Affairs Committee has scheduled a hearing titled “The Semiannual Monetary Policy Report to the Congress.”

• On Wednesday, February 15, the House Financial Services Committee has scheduled a hearing titled “Monetary Policy and the State of the Economy.”

• On Thursday, February 16, the House Financial Services Subcommittee on Housing and Insurance has scheduled a hearing titled “Assessing the U.S.-EU Covered Agreement.”

• On Thursday, February 16, the Senate Health, Education, Labor, and Pensions Committee has scheduled a hearing to consider the Nomination of Andrew Puzder to serve as Secretary of Labor.

Regulatory Activity

Department of Labor May Delay of Fiduciary Rule

Following President Trump’s February 3 Executive Memorandum (further discussed here) calling on the Department of Labor (DOL) to conduct a legal and economic review concerning the potential impact of the Fiduciary Rule – and despite a recent District Court ruling that the subject matter was within DOL’s jurisdiction – it appears that DOL may still move forward with efforts to delay the rule. Specifically, it is rumored that DOL is set to issue a notice delaying the Fiduciary Rule for 180 days. The rule, which requires financial advisers to act exclusively in their clients’ best financial interest when offering retirement advice, is presently set to take effect on April 10, 2017. Note too, this expected move comes as DOL Secretary Nominee Andrew Puzder is set to participate in his confirmation hearing this week before the Senate Health, Education, Labor, and Pensions (HELP) Committee.

SEC  to Review CEO Pay Ratio Rule

Last week, Acting Chairman of the Securities and Exchange Commission (SEC) Michael Piwowar requested a review of CEO Pay Ratio and indicated that he plans to reopen the window for public comment. As required by the Dodd-Frank Act, the rule would amend existing executive compensation disclosure rules, requiring certain additional disclosures with respect to the first fiscal year beginning on or after January 1, 2017. This announcement follows last week’s announcement that the SEC also plans to review its Conflict Minerals Rule. Notably, last month, President Trump nominated lawyer Jay Clayton to be the next chairman of the SEC; however, a confirmation hearing before the Senate Banking Committee has not yet been scheduled.

Tarullo to Step Down from Fed

In an unexpected move, Federal Reserve Board Governor Daniel Tarullo announced that he plans to resign from his position in April. Governor Tarullo, who has lead much of the Fed’s post-crisis banking oversight efforts, has been on the Board since 2009. His resignation now adds to the two already vacant positions at the Fed – vacancies that have yet to receive attention from the Trump Administration.

Patrick Kirby is co-author of this article.