financial services issues update priya dayananda executive director, federal government affairs may...

Financial services issues update

Priya Dayananda

Executive Director, Federal Government Affairs

May 20, 2015

2© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 372177

Senate banking committee hearings

■ April 21 – 23 – Surface Transportation Reauthorization

■ April 16 – Regulatory Burdens to Obtaining Mortgage Credit

■ March 25 – FSOC Accountability: Nonbank Designations

■ March 24 – Capital Formation and Reducing Small Business Burdens

■ March 24 – Examining the Regulatory Regime for Regional Banks (2/2)

■ March 19 – Examining the Regulatory Regime for Regional Banks (1/2)

■ March 10 – Venture Exchanges and Small-Cap Companies

■ March 3 – Federal Reserve Accountability and Reform

■ February 24 – The Semiannual Monetary Policy Report to the Congress

■ February 12 – Regulatory Relief for Community Banks and Credit Unions (2/2)

■ February 10 – Regulatory Relief for Community Banks and Credit Unions (1/2)

■ January 27 – Perspectives on the Strategic Necessity of Iran Sanctions


Senate banking committee mark-ups

■ February 24 – Mark-up of S.527, a bill to award Congressional Gold Medals to Foot Soldiers

■ January 29 – Mark-up of legislation entitled “Nuclear Weapon Free Iran Act of 2015.”


Upcoming hearings and mark-ups

■ April 28 – The State of the Insurance Industry and Insurance Regulation

■ April 29 – Exploring Opportunities for Private Investment in Public Infrastructure

■ April 30 – Examining Insurance Capital Rules and FSOC Process

■ Tentative – May 14 – Mark-up: Legislation on Regulatory Relief and Other Matters

■ Tentative – June 2 – Export-Import Bank (Government Witnesses)

■ Tentative – June 4 – Export-Import Bank (Outside Witnesses)


House financial services committee hearings

■ April 30 – Examining the Export-Import Bank’s Mandates

■ April 29 – The Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers

■ April 29 – Legislative Proposals to Enhance Capital Formation and Reduce Regulatory Burdens

■ April 23 – Examining Regulatory Burdens – Regulator Perspective

■ April 22 – A Survey of Global Terrorism and Terrorist Financing

■ April 16 – Increasing Private Sector Participation in Affordable Housing

■ April 15 – Examining Regulatory Burdens on Non-Depository Financial Institutions

■ April 15 – Oversight of Efforts to Reform the Export-Import Bank of the United States

■ March 24 – The FDIC’s Role in Operation Choke Point

■ March 24 – Examining the SEC’s Agenda, Operations, and FY 2016 Budget Request

■ March 19 – Oversight of the SEC’s Division of Enforcement


House financial services committee hearings (continued)

■ March 18 – Preserving Consumer Choice and Financial Independence

■ March 17 – The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System

■ March 3 – The Semi-Annual Report of the Bureau of Consumer Financial Protection

■ February 26 – Oversight of the Federal Housing Administration – Part II

■ February 25 – Monetary Policy and the State of the Economy

■ February 11 – Oversight of the Federal Housing Administration

■ February 4 – Exploring Alleged Ethical and Legal Violations at HUD

■ January 27 – Sustainable Housing Finance: An Update from the Director of FHFA


House financial services committee mark-ups

■ March 25 – 26 – Mark-up of:

– H.R. 299, the Capital Access for Small Community Financial Institutions Act of 2015

– H.R. 601, the Eliminate Privacy Notice Confusion Act

– H.R. 650, the Preserving Access to Manufactured Housing Act of 2015

– H.R. 685, the Mortgage Choice Act of 2015

– H.R. 1195, the Bureau of Consumer Financial Protection Advisory Boards Act

– H.R. 1259, the Helping Expand Lending Practices in Rural Communities Act

– H.R. 1265, the Bureau Advisory Commission Transparency Act

– H.R. 1367, to amend the Expedited Funds Availability Act to clarify the application of that Act to American Samoa and the Northern Mariana Islands

– H.R. 1408, the Mortgage Servicing Asset Capital Requirements Act of 2015

– H.R. 1480, the SAFE Act Confidentiality and Privilege Enhancement Act

– H.R. 1529, the Community Institution Mortgage Relief Act of 2015 and a Resolution to establish the Task Force to Investigate Terrorism Financing


House financial services committee mark-ups (continued)

■ February 12 – 13 – Markup to adopt the Committee’s views and estimates on the FY 2016 Budget

■ January 21 – Markup to adopt the Committee’s oversight plan for the 114th Congress.


Volcker rule

■ Legislators, including Senate Banking Committee Chairman Richard Shelby (R-AL), are proposing lighter regulation that includes exempting some banks from the Volcker rule.

■ Rep. Andy Barr (R-KY) and Rep. Michael Fitzpatrick (R-PA) have introduced bills related to amending the Volcker rule.

■ On April 15, FDIC Vice Chairman Thomas M. Hoenig proposed regulatory reforms to provide relief based on the complexity and activities of an institution rather than its size. His proposal did not include a recommendation to exempt traditional banks from the Volcker Rule.

■ “The reality is that the vast majority of community banks have virtually no compliance burden associated with implementing the Volcker Rule,” Hoenig said. “Not only do these banks not have proprietary trading operations, but they generally have no trading positions of any kind.”


Volcker alliance report issued on April 20

■ Former Federal Reserve Chairman Paul Volcker is recommending an overhaul of financial regulation that would create a new agency to supervise banks, combine the SEC and the CFTC, and eliminate the OCC.

■ It would create a new Prudential Supervisory Authority (PSA), led by the vice chairman for supervision at the Federal Reserve, that would take over bank oversight duties performed by the Fed, the OCC, the FDIC, the SEC, and the CFTC.

■ The FDIC would maintain its role overseeing deposit insurance and the liquidation of banks.

■ The PSA would have a special division for oversight of “true” community banks.

■ Volcker and his colleagues acknowledge that changes shaking up the status quo do not come easily. Congress is unlikely to implement the recommendations any time soon.


Non-bank SIFI designations

■ Senate Banking Committee held a hearing on March 25 entitled “FSOC Accountability: Nonbank Designations.”

■ Chairman Shelby raised concerns about FSOC’s ability to determine that it is reducing systemic risk when it has not identified specific activities that create risk and does not have the knowledge of what regulatory steps would be taken to mitigate such risks. He asked how FSOC can designate a company if the Fed has not promulgated rules to regulate such a company.

■ Both parties asked questions related to how a company can reverse designation and if companies are given enough information and opportunity to make changes in their business structure to potentially avoid designation.

■ MetLife is suing FSOC in an effort to have its recent SIFI designation overturned.

■ On February 4, FSOC released supplemental procedures that enhance engagement during the designation process, engagement during its annual reevaluations of designations, and transparency of the process.

■ Rep. Dennis Ross (R-FL) introduced the Financial Stability Oversight Council Improvement Act of 2015 (H.R.1550) on March 23 with Rep. John Delaney (D-MD).


Bank SIFI designation – Adjusting the threshold

■ Senate Banking Committee held two hearings entitled “Examining the Regulatory Regime for Regional Banks” on March 19 and March 24, which heavily discussed the $50 billion threshold.

■ There’s a strong interest in tailoring regulations based on the activities of an institution rather than on an arbitrary asset threshold. Chairman Shelby (R-AL) also has interest in a recent OFR report that took into account a bank’s size, interconnectedness, and complexity. There is also an interest in the possibility of indexing the threshold to economic growth or a similar metric.

■ Regulators claim they have discretion and flexibility and they target their approach to each institution, but Chairman Shelby is concerned that the $50 billion threshold ties regulators’ hands.

■ Treasury Secretary Lew is not convinced that legislation is required right now to raise the $50 billion threshold until it is determined that administrative flexibility is inadequate. Ranking Member Brown (D-OH) and Sen. Warren (D-MA) feel that the Dodd-Frank Act does give the Fed great discretion.

■ The Bipartisan Policy Center has suggested increasing the threshold to $250 billion.


Executive compensation

■ Some Senate Democrats are losing patience with the SEC over the agency's failure to implement a new CEO pay rule.

■ The agency has refused to finalize a rule for more than 18 months – about nine times longer than the standard 60-day comment period.

■ Opposition remains that the SEC’s proposal would be too costly and burdensome, and wouldn’t provide meaningful information to shareholders. Corporate executives from dozens of different industries have pressured the SEC to delay the rule.

■ Fifteen Senate Democrats, including Sen. Franken and Sen. Warren, signed a letter to SEC Chair Mary Jo White in December, calling on the agency to finalize the rule by March 31, 2015. The agency did not bring up the rule for a vote by that deadline.


Proxy access

■ At a House Financial Services Committee hearing on March 24, some Democrats asked SEC Chair Mary Jo White to resurrect SEC efforts to adopt proxy access rules, but White said she had no intention of doing so in the near future.

■ White thinks that the shareholder proposal process is working very effectively, and they are closely monitoring that to see how it goes by way of private ordering.

■ However, she said the SEC is closely tracking the flurry of activity this proxy season, in which activists have had success convincing some companies to change their bylaws to permit proxy access, or to permit shareholder resolutions on the topic to appear on corporate ballots.

■ White has also said that a number of proxy issues have been discussed at the SEC’s Investor Advisory Committee. All of these ideas are currently under study.


Cybersecurity

■ The Senate Intelligence Committee unanimously approved the Cybersecurity Information Sharing Act (S.754) on April 15th. There will be possible floor action this work period, with this bill being the main vehicle.

■ Two complementary House bills – The National Cybersecurity Protection Advancement Act (H.R.1731) and the Protecting Cyber Networks Act (H.R.1560) – passed the House. Both bills provide some level of liability protection for companies sharing threat information with the government.

■ A conference is expected to reconcile the two House bills with the Senate bill.

■ Data breach legislation is less far along due to more controversy. The Data Security and Breach Notification Act of 2015 (H.R.1770) passed the House Energy & Commerce Committee, but it is not yet ready for the floor.

■ S.961, the Carper-Blunt bill, has support from the financial services sector. Senate Commerce Committee Democrats are working on another bill.


GSE reform

■ Rep. Edward Royce (R-CA) reintroduced his bill from last Congress, Pay Back the Taxpayers Act (H.R.574), in January. Rep. Michael Capuano (D-MA) also reintroduced his bill, Let the GSEs Pay Us Back Act (H.R.1036), in February. Sen. Johnny Isakson (R-GA) reintroduced the Mortgage Finance Act (S.495) and Rep. John Delaney (D-MD) reintroduced the Partnership to Strengthen Homeownership Act (H.R.1491). Rep. Marsha Blackburn (R-TN) also introduced a bill entitled the Enterprise Secondary Reserve Taxpayer Protection and Government Accountability Act (H.R.1673).

■ There remains discussion of GSE reform on the Hill, but many do not think it is likely to happen until after the next presidential election.

■ Senate Banking Committee Chairman Richard Shelby (R-AL) said in a speech on March 25 at the U.S. Chamber of Commerce that he did not expect GSE reform to take place for at least the next two years.

■ The FHFA Office of Inspector General issued a white paper in early March stating that the conservatorships would go on indefinitely.


Derivatives

■ In January 2015, as part of the Terrorism Risk Insurance Act that passed the House and Senate (H.R. 26), Congress included a section that would codify a proposal from the Commodity Futures Trading Commission on swaps as they relate to end users, exempting a number of transactions from the requirement to post and collect initial and variation margin.

■ On March 24 and 25, the House Agriculture Subcommittee on Commodity Exchanges, Energy and Credit held two hearings to discuss CEA Reauthorization. Subcommittee Chairman Austin Scott (R-GA) said the task of the Subcommittee was not to repeal Dodd-Frank or weaken the market-wide protections of Title VII, but rather to look to see “where our action can clarify Congressional intent, minimize regulatory burdens, and most importantly, preserve the ability for these necessary risk management markets to serve American farmers, ranchers, and businesses.”


Consumer Financial Protection Bureau (CFPB)

■ The CFPB continues to receive criticism for its lack of transparency and accountability from Congress and industry groups.

■ In March, House Financial Services Committee Chairman Jeb Hensarling (R-TX) called on the CFPB to end its closed-door meeting policy for its advisory groups. Rep. Sean Duffy (R-WI) re-introduced a bill (H.R.1265) that specifies that the Federal Advisory Committee Act applies to all of the CFPB’s advisory groups. It passed the House in April 401-2 and has been received by the Senate Banking Committee.

■ Recently, the Bureau has been focused on mortgages, payday lending, credit cards, arbitration, and indirect auto lending.

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 372177

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financial services issues update priya dayananda executive director, federal government affairs may...

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