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Washington Wrap — FSOC to shift focus to risky activities after Prudential move


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Washington Wrap — FSOC to shift focus to risky activities after Prudential move

The Washington Wrap is a weekly look at regulation, news and chatter from the Capitol. Send tips and ideas to and

At the FSOC

The last of the nonbank companies that regulators initially deemed too big to fail will no longer face enhanced supervision, marking a significant turning point in the Financial Stability Oversight Council's trajectory.

The FSOC, an interagency regulatory body that arose from the financial crisis, deemed this week that Prudential Financial Inc. is no longer a systemically important financial institution and therefore should not be subject to the stricter regulations such firms face under the Dodd-Frank Act.

The widely expected move makes Prudential the last of the four nonbanks to shed the SIFI label that regulators had initially placed on them.

Now, the FSOC is turning to finding ways of designating certain activities as systemically risky, rather than deeming individual nonbank companies as too risky. The U.S. Treasury Department has recommended shifting to that new approach, saying the FSOC should only use the SIFI label as a last resort. Treasury Secretary Steven Mnuchin, an appointee of President Donald Trump, is the FSOC chair.

Large banks deemed systemically important are still subject to enhanced oversight from the Federal Reserve, but other nonbank companies appear to be safe for now from the SIFI designation, Capital Alpha analyst Ian Katz wrote in a note to clients. "Unless a non-bank blatantly does something to spur a financial crisis, company designations are dead until a Democrat or a Socialist running as a Democrat is elected president," Katz wrote.

At the SEC

A debate spanning across Wall Street over trading data will land at the SEC's headquarters Oct. 25 when the regulator hosts dozens of executives, advocates and academics to weigh in on the topic.

The two-day market data event will come roughly a week after the SEC said that the Intercontinental Exchange Inc.-owned New York Stock Exchange and Nasdaq Inc. had not justified prior fee increases to particular market data products. The price hikes were challenged several years ago by a financial industry trade group known as the Securities Industry and Financial Markets Association, which represents banks, broker/dealers and asset managers.

The SEC hopes to bring together the financial community in an attempt to tackle Wall Street's concerns around exchanges' market data products.

Exchange operators like ICE, Nasdaq and Cboe Global Markets Inc. have made it big business over the last 20 years to repackage and sell trading data to market participants. Those clients say they need that high-speed information to stay competitive, but also claim that the exchanges are marking up the prices for their feeds unfairly.

SEC Commissioner Robert Jackson Jr., a noted critic of certain exchange practices, said in a statement after the agency's unanimous decision in favor of SIFMA that each of the three major U.S. stock exchange operators "has a virtual monopoly over their own data — data that is essential for participating in modern stock markets."

While the SEC's decision was largely viewed as a landmark win for the trading community, the regulator's ruling was issued within the narrow scope of the case. The SEC's event will focus on exchanges' proprietary data feeds, such as those at the heart of the SIFMA case, as well as the public data feeds.

In addition to the exchanges, the SEC's event will feature executives from T. Rowe Price Group Inc., Morgan Stanley and Virtu Financial Inc., among others.

At the CFPB

A top Consumer Financial Protection Bureau official is facing an inspector general investigation into his past writings, where he used racial slurs and raised questions about hate crime reports.

Eric Blankenstein, who leads the CFPB's anti-discrimination unit, has come under fire following a Sept. 26 Washington Post report on blog posts he wrote in 2004 under a pen name. The blog posts included him asking whether using the N-word is racist in each instance, along with him writing that "hate-crime hoaxes are about three times as prevalent as actual hate crimes."

Following an outcry among CFPB staff, including top subordinates, Blankenstein apologized for the blog posts and said the "tone and framing of my statements reflected poor judgment," according to the Post.

CFPB Acting Director Mick Mulvaney, who has called it an internal issue, this week requested that the Federal Reserve's Inspector General Office look into the matter, according to the Associated Press. The CFPB is an independent agency within the Fed system.

Also this week, the CFPB released its fall 2018 rule-making agenda, including updates on issues such as debt collection and payday and small-dollar lending.

Other news

The head of the U.S. Commodity Futures Trading Commission issued a stark warning over a plan to extend the clearing authority of the European Securities and Markets Authority.

In an Oct. 17 speech, Chris Giancarlo, the CFTC's chairman, said European lenders could be prohibited from accessing U.S. futures markets, if European regulators move to push all clearing activity of euro currencies inside the EU after Brexit. The European regulator's proposed reforms would potentially put U.S. clearinghouses' board composition and corporate governance under the regulator's purview. That overseas interference would be "unprecedented and wholly unacceptable," Giancarlo said.

"The proposed amendments to [the European market infrastructure regulation], when understood alongside comments from some European officials, raise serious doubts about the European commitment to a policy of deference," Giancarlo said. "[Deference] is the basis for any realistic chance to preserve functioning global markets."

During the speech, Giancarlo also said he does not plan to advance a two-year-old regulation package known as "Regulation AT" that was designed to require algorithmic trading companies to provide the regulator with information about their internal, proprietary systems.

Sen. Elizabeth Warren, D-Mass., took another shot at Wells Fargo & Co. Oct. 18, calling for the removal of CEO Tim Sloan.

Warren wrote a letter to Federal Reserve Chairman Jerome Powell, asking him to hold off on removing the regulator's growth restrictions on Wells Fargo until the company's board replaces Sloan as the CEO. The company needs a CEO "who has not contributed to the very problems the Federal Reserve is seeking to fix," she wrote.

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