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.
At the SEC
The top U.S. securities regulator has taken the first of what could be several steps to reform proxy advisory firms, which have divided corporate America for years.
By a 3-2 vote, the SEC approved new guidance Aug. 21 that clarifies how market participants ought to think about the recommendations issued by proxy advisers such as Glass Lewis & Co. LLC and Institutional Shareholder Services Inc. on corporate and shareholder proposals. The move marks the regulatory agency's first official step in reforming the proxy process since it officially began examining it nearly a year ago.
SEC Commissioner Elad Roisman, who was tapped to lead the agency's proxy reforms, said the new guidance represented an "important first step."
"Updating our guidance and providing additional interpretive clarity to address the realities of today's markets is appropriate, and many would say overdue," Roisman said Aug. 21 at an SEC meeting in Washington, D.C.
Both big and small investors tend to rely on proxy advisory firms to research and issue recommendations on proposals that are up for a vote at companies' annual meetings, as investors often lack the resources to dig into each proposal themselves.
But executives and business groups have long bemoaned the increasing prominence of proxy advisers in U.S. capital markets because they say those companies have been able to push their social and political causes onto management teams.
Now, the SEC is likely examining what other reforms it could take to address executives' concerns with proxy advisory companies. The regulator specifically will explore in the "near future" rules that would tweak the thresholds for shareholder proposals and rules to address proxy advisers' reliance on a regulatory exemption that helps them operate as currently structured, Roisman said.
At the regulators
Banking regulators advanced several long-awaited policies governing a host of banking operations, after weeks of minimal activity.
The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency approved major changes to the Volcker rule, a post-financial crisis rule that limits banks' ability to trade with their own funds. The agencies finalized a rule with a new framework for banks, generally freeing them to determine whether certain trades are risky or speculative.
The overhaul also relaxes restrictions for banks investing in hedge funds and private equity funds, but the regulators said they plan to release a new rule later this year clarifying which funds are restricted.
The rule will go into effect Jan. 1, 2020, but compliance will not be required until Jan. 1, 2021. The SEC, the Federal Reserve and the Commodity Futures Trading Commission still need to sign off but are expected to accept the rule as written.
In addition, the regulators released proposed guidance on how they will regulate the current expected credit loss accounting method, known as CECL, when it takes effect for many companies in 2020. The proposal details what bank examiners may review during regular banking examination processes and how examiners ought to approach CECL compliance. The public has 60 days to comment on the proposed guidance.
On the same day regulators rolled out the CECL guidance and the updated Volcker rule, the FDIC also unveiled a simpler calculation to limit deposit rates for less-than-well-capitalized banks. The proposed rule calculates the cap by averaging all rates paid on deposit products by FDIC-insured institutions, weighted by the companies' U.S. market share deposits, rather than by their number of branches.
For the OCC, Comptroller Joseph Otting continued his nationwide bus tour on August 19, listening to local community groups and bankers on how a potential anti-redlining rule may affect the neighborhoods they serve. The regulators, led by Otting, have been working to release a major rewrite of the Community Reinvestment Act, which requires banks to offer services to low-income and minority communities.
Otting said his target date for a CRA rollout is the end of September, capping months of policy discussions and stakeholder meetings.
In Congress
While lawmakers are away from Washington for the annual August recess, Rep. Maxine Waters, D-Calif. and chair of the House Financial Services Committee, laid out her priorities for the rest of 2019. Waters wrote in a news release that she will examine the state of minority depository institutions, review stock buybacks and analyze "innovations in loan instruments."
In addition, the committee will continue its investigation of Facebook Inc.'s planned cryptocurrency and bring in several top financial regulators to provide updates on their respective areas of authority.
At least one member of Congress foresees legislative action on marijuana banking. Rep. Carolyn Maloney, D-N.Y., said this week that she believes the House of Representatives will pass the SAFE Banking Act this year, Forbes reported Aug. 22. The bill would prohibit banking regulators from punishing banks for servicing the legal marijuana industry.

