Legislative Activity

House Lawmakers to Mark-Up FSOC-Related Bills

On Tuesday, November 3, the House Financial Services Committee will hold a mark-up of various bills, including legislation targeting the Financial Stability Oversight Council (FSOC).  Specifically, lawmakers will consider legislation to: (1) bring the FSOC within the normal appropriations process; (2) make Council meetings more open and transparent; and (3) reform the process by which entities are designated as systemically important financial institutions (SIFIs). Other legislation will address issues relating to municipal bonds, business development companies, insurance companies, Federal savings associations, and the Office of Financial Research, among others.

This Week’s Hearings:

• Tuesday, November 3: The Senate Banking Committee will meet in Executive Session to consider the nomination of Mr. Adam J. Szubin, of the District of Columbia, to be Under Secretary for Terrorism and Financial Crimes, U. S. Department of the Treasury.

• Tuesday, November 3: The House Financial Services Committee will hold a markup of various bills.

• Wednesday, November 4: The House Financial Services Committee will hold a hearing titled “Semi-Annual Testimony of the Federal Reserve’s Supervision and Regulation of the Financial System.”

Regulatory Activity

FSOC to Hold Open Meeting on Asset Managers, Cybersecurity

On Monday, November 2, the FSOC will hold both open and closed meetings. The preliminary agenda for the open session includes updates regarding: (1) the Council’s ongoing work on asset management; and (2) Council member agencies’ work related to cybersecurity. The preliminary agenda for the executive session includes a discussion of the annual re-evaluation of the designation of a nonbank financial company.

CFTC to Hold Meeting of Market Risk Advisory Committee

On Monday, November 2, the Commodity Futures Trading Commission (CFTC) will hold a meeting of its Market Risk Advisory Committee (MRAC) to discuss Central Clearing Counterparty (CCP) Risk Management Subcommittee’s recommendations to the MRAC regarding how the CCP default plans that were presented at the April 2, 2015, MRAC meeting can better reflect market conditions in the case of the default of a significant clearing member.

SEC Finalizes Rules on Crowdfunding

On Friday, October 30, the Securities and Exchange Commission (SEC) adopted final rules to permit companies to offer and sell securities through crowdfunding. The SEC also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings. According to the SEC, “[t]he new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections.”

Regulation Crowdfunding: (1) permits individuals to invest in securities-based crowdfunding transactions, subject to certain investment limits; and (2) limits the amount of money an issuer can raise using the crowdfunding exemption, imposes disclosure requirements on issuers for certain information about their business and securities offering, and creates a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions. These new rules and forms will be effective 180 days after publication in the Federal Register. The forms enabling funding portals to register with the SEC will be effective January 29, 2016.

The SEC also proposed amendments to existing Securities Act Rules: (1) 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions; and (2) 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection. The SEC will accept comments on the proposed amendments for 60 days following their publication in the Federal Register.

Federal Reserve Proposes Rule on GSIBs, Five Agencies Finalize Swap Margin Rule

On Friday, October 30, the Board of Governors of the Federal Reserve System proposed a new rule that would “strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance.” The proposed rule would apply to domestic firms identified by the Federal Reserve as global systemically important banks (GSIBs) and to the U.S. operations of foreign GSIBs. Under the rule, these institutions would be required to meet a new long-term debt requirement and a new “total loss-absorbing capacity” (TLAC) requirement to bolster financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers.

Pursuant to the rule, domestic GSIBs would be required to hold at a minimum: (1) a long-term debt amount of the greater of 6-percent plus its GSIB surcharge of risk-weighted assets and 4.5-percent of total leverage exposure; and (2) a TLAC amount of the greater of 18-percent of risk-weighted assets and 9.5-percent of total leverage exposure. To further facilitate an orderly resolution, the proposal would also require the parent holding company of a domestic GSIB to avoid entering into certain financial arrangements that would create obstacles to an orderly resolution.

Furthermore, to mitigate the threats to U.S. financial stability from the failure of a large foreign bank, the rule would require U.S. operations of foreign GSIBs to hold at a minimum: (1) a long-term debt amount of the greater of 7-percent of risk-weighted assets and 3-percent of total leverage exposure and 4-percent of average total consolidated assets; and (2) a TLAC amount of the greater of 16-percent of risk-weighted assets and 6-percent of total leverage exposure and 8-percent of average total consolidated assets.

The Federal Reserve will accept comments on the proposal through February 1, 2016.

Additionally, following consultation with the CFTC and SEC, the Federal Housing Finance Agency (FHFA), the Farm Credit Administration (FCA), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve (together, the Agencies) issued a final rule to establish capital and margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants regulated by one of the Agencies. The final rule establishes minimum margin requirements for swaps and security-based swaps that are not cleared through a clearinghouse in an effort to “ensure the safety and soundness of swap trading in light of the risk to the financial system associated with non-cleared swaps activity.” The final rule will phase in the variation margin requirements between September 1, 2016, and March 1, 2017. Moreover, the initial margin requirements will be phased in over four years, beginning on September 1, 2016.

Additionally, the Agencies issued an interim final rule relating to the rule’s exemption from margin requirements for certain non-cleared swaps and non-cleared security-based swaps used for hedging purposes by commercial end-users and certain other counterparties. The SEC will accept public comments on the interim final rule through January 31, 2016.