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Washington Wrap — House passes cannabis banking bill, SEC green-lights ETF rule

The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.

In Congress

An overwhelming majority in the House of Representatives passed a landmark bill that would provide regulatory relief to financial services companies looking to service the cannabis industry.

The bill passed the House 321-103, with 91 Republicans voting in favor. Under the rules of the bill, it needed at least 292 votes, or two-thirds of the chamber, to pass.

The measure would provide a safe harbor for financial services companies that provide products or services to cannabis-related businesses in states that have legalized marijuana.

"Our bill is focused solely on taking cash off the streets and making our communities safer," Rep. Ed Perlmutter, D-Colo. and co-author of the bill, said in a floor speech before the bill was passed. "Only Congress can take these steps to provide this certainty for businesses, employees and financial institutions across the country."

The bill moves to the Senate, where Sen. Mike Crapo, R-Idaho and chairman of the Senate Banking Committee, said he is open to considering the Senate version of the measure in his committee.

Also this week, Congress held hearings on the Federal Reserve's planned real-time payments system. Speaking to the Senate Banking Committee and the House Financial Services Committee this week, Kansas City Fed President Esther George declined to offer details on how the central bank plans to price its proposed real-time payments network, causing some debate among legislators.

The Clearing House, which offers the only existing real-time payments network in the U.S., charges the same price to all banks regardless of their volume on its real-time payments network. When the Fed launched its automated clearinghouse, or ACH, payments network decades ago, it offered a discount to banks with higher volume, and it could do the same with its FedNow real-time system.

At the SEC

All five members of the SEC's commission took to Capitol Hill this week, testifying together in front of the House Financial Services Committee on Sept. 24 for the first time in 12 years.

Lawmakers on the House panel did not have a unifying theme behind their questioning of SEC Chairman Jay Clayton and commissioners Robert Jackson Jr., Hester Peirce, Elad Roisman and Allison Herren Lee. But their inquiries largely centered around a number of issues the SEC is examining or plans to examine soon, including cryptocurrencies, the private markets and insider trading laws. The commissioners notably split on several issues during the hearing, including on the push to standardize environmental, social and governance disclosures in the U.S.

The hearing kicked off what would become an eventful week for the regulatory agency.

Two days after testifying in the House, the SEC's commissioners unanimously approved new regulations for the nearly $4 trillion exchange-traded fund marketplace.

These products, which trade on an exchange and are made up of a basket of securities, have become key tools for many retail and institutional investors who use ETFs to gain broader market exposure with their investments. But the SEC has largely relied on mutual fund rules to govern ETFs over their 26-year history.

Now, the SEC has started establishing a unique regulatory framework for ETFs, one that many industry experts have said could result in a bump in ETF launches. The rule will specifically allow issuers to launch ETFs without having to first receive the SEC's approval, so long as they file the proper paperwork with investors and the regulator. Previously, ETF issuers had to work their way through what could often be a costly and lengthy regulatory system before they were able to launch a new fund product.

The SEC also expanded its "testing-the-waters" program to all issuers, rather than just emerging-growth companies. The program allows companies to hold conversations with prospective investors about certain securities offerings, including initial public offerings, before filing any paperwork with the regulator.

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