The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.
On Capitol Hill
The House Financial Services Committee passed a bill that would provide regulatory relief for banks and insurers offering services to the cannabis industry.
After six years of introducing similar measures, Rep. Ed Perlmutter, D-Colo., finally garnered enough co-sponsors and momentum to get his bill voted favorably out of committee.
His bill, co-authored by Rep. Denny Heck, D-Wash., along with Ohio Republicans Steve Stivers and Warren Davidson, cleared the committee 45-15 with 11 Republicans voting in support.
Stivers successfully added an amendment that would provide the same protections intended for banks to insurance companies looking to insure any aspect of cannabis-related business.
In the same markup, the committee also passed a bill that would return the operations of the Consumer Financial Protection Bureau to its state under former director Richard Cordray.
The bill would require the CFPB to maintain minimum staffing levels, reestablish a dedicated student loan officer, restore the supervisory and enforcement power of the bureau's fair lending and equal opportunity division, and codify the commonly used name Consumer Financial Protection Bureau.
It cleared the committee along party lines, 34-26. Both measures now move to the full House floor for consideration.
In the Senate, Sen. Mike Crapo, R-Idaho, and chairman of the Senate Banking Committee, held a pair of hearings to gather input from industry and consumer groups about his broad outline for reforming the housing finance system.
While no substantive proposal was released, Crapo and his fellow senators on the panel said they gained valuable input on the outline, which was published in early February.
Also this week, the White House said it is directing the U.S. Treasury Department to drum up a plan to reform government-sponsored enterprises Freddie Mac and Fannie Mae that would end their conservatorship. The administration also called on the Department of Housing and Urban Development to reform the housing finance agencies it oversees.
The administration intends to work with Congress to pass a broad reform plan, according to the memorandum President Donald Trump signed.
At the SEC
In a March 28 filing, the SEC said it was staying its Transaction Fee Pilot until a series of lawsuits brought by the Intercontinental Exchange Inc.-owned New York Stock Exchange, Nasdaq Inc. and Cboe Global Markets Inc. was resolved in the court system. The pilot was approved by the SEC's commissioners in December 2018 after years of market participants saying brokers may be routing their clients' orders to the exchange that offers the highest rebate, rather than to the one with the best price.
The trading practices at the heart of the pilot are commonly known as "maker-taker," through which an exchange provides market participants that bring liquidity to the exchange with a rebate while charging a fee to those market participants who remove liquidity from the exchange's order book. The three exchange operators, which control 12 of the 13 U.S. stock exchanges, have protested the experiment as a form of government price control.
The SEC will still require the exchanges to gather key data points that could eventually factor into the pilot's implementation, if and when that does happen.
The SEC is facing new pressure to replicate the broker/dealer research reforms that swept through Europe early in 2018.
In a March 21 letter, the Securities Industry and Financial Markets Association urged the SEC to introduce rules or exemptions that would permit U.S. broker/dealers to charge their clients separately for research reports and trading commissions. The move would mimic a change introduced in the European securities industry under the financial reform package known as the second Markets in Financial Instruments Directive, or MiFID II.
Wall Street brokerages have become more receptive to the concept of unbundling research from trading as they look to streamline their operations globally. Currently, U.S. brokerages are operating under a temporary exemption provided in late 2017, but the industry is hoping the SEC will allow them to separate those costs without having to register as investment advisers.
At the OCC
Most firms that initially expressed interest in applying for a financial technology charter decided against it after learning about the regulatory regime for banks, Comptroller of the Currency Joseph Otting said March 27.
At a George Mason University event, Otting said 250 firms were interested in the charter when former comptroller Thomas Curry initially floated the special-purpose banking charter. But 80% to 90% of them "left skid marks leaving the OCC" when they heard about the regulatory oversight on banks, Otting said.
The OCC expected preliminary submissions for the charter by the end of 2018 or early 2019, but no company has yet formally filed.
Still, the OCC is in talks with 25 to 50 firms that believe a national banking charter is "critical" to their business plan because they operate across state lines and would benefit from having a single regulator, Otting said.
Curry has previously suggested that payments companies, not digital lenders, will apply for the charter. The charter still faces lawsuits from the New York State Department of Financial Services and the Conference of State Bank Supervisors, but Otting said he hopes to work through those cases in the first half of 2019.
