October 15, 2019

October 14, 2019

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Full Steam Ahead with Financial Services Regulatory Reform

Legislative Activity

House Financial Services Committee Chooses CHOICE Act as President Trump Signs Financial Services Executive Orders

After a two-week recess, the House Financial Services Committee is wasting no time getting back to work as it plans to hold a hearing on the Financial CHOICE Act this Wednesday. The bill, an acronym standing for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, is set to be re-introduced soon by House Financial Services Committee Chairman Jeb Hensarling (R-TX), who has released a discussion draft of the legislative text, available here. No doubt a wish list item of many House Republicans, the bill would overhaul the country’s financial regulatory system and overturn many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Among several provisions, the legislation aims to: (1) end taxpayer-funded bailouts; (2) hold Wall Street and Washington accountable; (3) promote strongly capitalized banks; and (4) empower Americans. The sweeping reform bill would also convert the Consumer Financial Protection Bureau (CFPB) into the “Consumer Law Enforcement Agency.” This new agency would not have the regulatory powers that the CFPB currently does, and instead would only have authority to enforce certain consumer finance laws. Moreover, the bill proposes changes to the new consumer finance watchdog’s leadership structure and funding mechanisms so that Congress would have control over the agency’s budget. Looking ahead, Chairman Hensarling has pledged to work with President Trump to follow through on the President’s promise to do a “big number” on Dodd-Frank; something that the CHOICE Act no doubt seeks to accomplish.

While the Financial Services Committee appears set to focus on the CHOICE Act in the near-term, the Trump Administration also made important strides in its effort to review the current regulatory framework. Last Friday, April 21, President Trump signed two executive orders directing a review of key components of Dodd-Frank. One of the orders directed Treasury Secretary Steven Mnuchin to examine the orderly liquidation authority (OLA) – a Dodd-Frank provision that allows the government to wind down failing megabanks outside of bankruptcy court and which would be eliminated by the CHOICE Act. While OLA has never been used, opponents say it institutionalizes taxpayer-funded bailouts for financial institutions that become insolvent. This will likely be a key focus of the financial services reform discussion going forward. The other executive order directs the Treasury Department to examine the risks of placing “systemically important” nonbank financial firms under the oversight of the Federal Reserve, which subjects them to stricter regulation. Here, too, the CHOICE Act would eliminate the government’s authority to anoint large financial institutions as “too big to fail” by repealing the Financial Stability Oversight Council’s (FSOC) discretion to designate firms as “systemically important financial institutions” (SIFIs).

Both of these actions by the White House follow President Trump’s February 3, 2017 executive order (further discussed here), which instructed the Treasury Department to report to the President within 120 days (due by June 3, 2017) on the extent to which existing laws, regulations, and guidance promote certain “Core Principles” of financial regulation, as enumerated in the order.

 This Week’s Hearings:

  • On Wednesday, April 26, the House Financial Services Committee has scheduled a hearing titled “A Legislative Proposal to Create Hope and Opportunity for Investors, Consumers, and Entrepreneurs.”

  • On Thursday, April 27, the House Financial Services Subcommittee on Terrorism and Illicit Finance has scheduled a hearing titled “Safeguarding the Financial System from Terrorist Financing.”

  • On Thursday, April 27, the Senate Banking, Housing, and Urban Affairs Committee has scheduled a hearing titled “Countering Russia: Furthering Assessing Options for Sanctions.”

Regulatory Activity

CFPB Community Bank Advisory Council to Meet on Tuesday

On Tuesday, April 25, the CFPB’s Community Bank Advisory Council (CBAC) has scheduled a meeting to discuss the CFPB’s requests for information on alternative data and consumer access to financial records. The meeting will feature remarks from Acting Deputy Director David Silberman and discussion with CBAC members.

CFTC Market Risk Advisory Committee to Meet on Tuesday

Also on Tuesday, April 25, the Commodity Futures Trading Commission’s (CFTC) Market Risk Advisory Committee (MRAC) will hold a meeting to discuss, among other items: (1) how Central Counterparties (CCPs) can further enhance their efforts in preparing for the default of a significant clearing member; (2) cybersecurity trends; and (3) how well the derivatives markets are currently functioning, including the impact and implications of the evolving structure of these markets on the movement of risk across market participants. Commissioner Sharon Bowen sponsors the MRAC, which includes representatives of clearinghouses, exchanges, intermediaries, market makers, end-users, academia, and regulators.

Patrick Kirby is co-author of this article. 

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Brandon Roman, Corporate Attorney, Squire Patton Boggs Law Firm
Associate

Brandon Román advises domestic and international clients on a range of legal, legislative, and regulatory issues. Mr. Román helps clients develop comprehensive strategies to address legislative and regulatory interests as well as legal concerns. His work includes identifying client needs and helping them navigate the legal, legislative, and regulatory landscape, focusing primarily on government investigations, financial services and products, tax, and real estate. 

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