On Capitol Hill
Amid a busy week in regulatory news, some senators turned their attention to regulators' efforts to streamline how they implement the Volcker rule, a prominent part of the Dodd-Frank framework.
The first bit of news came Oct. 1, when Sen. Mike Crapo and six other Republicans wrote to the five agencies in charge of enforcing the Volcker rule, commending them for their efforts to revise the rule and asking them to go further. Crapo, R-Idaho, chairs the Senate Committee on Banking, Housing and Urban Affairs.
The rule bans proprietary trading at U.S. banks and restricts their investments in hedge funds, private equity firms and other funds. Regulators have said their changes are meant to simplify what they have learned is an overly complex framework.
Crapo and his GOP colleagues lauded the five agencies' efforts but encouraged them to seek additional changes.
In their plan, the regulators held off on proposing major adjustments to the provision limiting banks' relationships with hedge funds, private equity firms and other companies that fall under the definition of "covered funds." Regulators instead sought comments from the public on the issue, leaving any potential changes for a later date.
But the Republican senators asked them to revise their "overly broad" definition of the firms subject to the limitations, saying venture capital firms and other long-term investments should be excluded from the restrictions.
"As a general matter, any activity permissible for a banking entity to do directly, especially those that provide stable capital and encourage economic growth, should be permissible through a fund structure as well," they wrote.
But Sen. Jeff Merkley, D-Ore., who co-authored the Volcker rule provision in Dodd-Frank, slammed regulators for their proposal. He wrote a letter to regulators saying the proposal is a "naked attempt to once again allow risky trading practices at federally insured institutions while taxpayers are at risk for footing the bill for another massive bailout."
"We should be going the other direction and making sure the rule is strongly enforced," Merkley said in an Oct. 3 conference call with reporters, dinging regulators for only enforcing one penalty so far for Volcker rule violations. He also highlighted two new reports from liberal-leaning groups criticizing the proposed changes.
Crapo's committee held a hearing Oct. 2 with the top banking regulators on their progress in implementing Congress' revisions this year to the Dodd-Frank law.
Regulators said they were underway with several aspects and pledged quick action on others, such as an exemption for some community banks from Basel III capital requirements.
Fed Vice Chairman for Supervision Randal Quarles said the Fed is looking at easing liquidity requirements for banks with assets of $250 billion or more that are not deemed systemically important. He also said the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. will work together to try to develop a joint proposal aimed at modernizing how they enforce the Community Reinvestment Act.
Meanwhile, OCC head Joseph Otting told the Senate panel he is "not comfortable" with Wells Fargo & Co.'s progress on refunding customers who were forced into unnecessary auto insurance policies.
Two days later, Democrats on the committee called on Crapo to schedule a hearing with Wells Fargo CEO Tim Sloan and Elizabeth Duke, who chairs the company's board. Sen. Jon Tester, D-Mont., was the only one of the panel's 12 Democrats who did not sign onto the letter.
A Crapo spokeswoman declined to comment.
At the SEC
Top enforcement officials at the Securities and Exchange Commission expect enforcement actions and fines for fiscal year 2018 to be comparable to prior years.
Speaking at an Oct. 3 event in New York, Stephanie Avakian, the SEC's co-director of enforcement, said that it is "too soon to tell" what trends will exist within the agency's enforcement statistics for fiscal year 2018, which ended Sept. 28. She added that figures for the last 12 months will be on par with prior years.
The SEC has continually downplayed the importance of its enforcement statistics, which are usually released in October or November. Officials at the agency have said the quality, not the quantity, of those actions is more indicative of the Enforcement Division's work.
As Wall Street's securities markets regulator, the SEC is tasked with overseeing trading and operations for a host of different asset classes and companies. But the agency has been criticized since Chairman Jay Clayton took over in early 2017, as enforcement penalties and fines have dropped drastically from prior years during Clayton's tenure.
The SEC plans to continue focusing on a variety of frauds in the coming year. The SEC's other co-director of enforcement, Steven Peikin, said he expects cyber and share-class selection to be at the center of a handful of cases in the coming year, along with the SEC's pursuits of individual bad actors.
A group of U.S. investors, industry groups and securities law professors is pressing regulators to bolster reporting requirements around environment, social and governance, or ESG, disclosures.
As investors continue to funnel money into ESG-conscious companies, a swelling number of publicly traded institutions are creating and releasing sustainability reports that are detailing their efforts to create long-term value. But the group found that many of those reports lack consistency, saying there are "substantial problems with the nature, timing and extent of these voluntary disclosures."
The group is asking the SEC to create a rule-making proceeding that will help clarify the framework for such disclosures, which as a result will help promote "relevant, auditable and decision-useful information to investors."
At the CFTC
Enforcement actions issued by the primary U.S. derivatives and swaps regulator jumped over the last 12 months, despite a broad push for deregulation in Washington, D.C.
In an Oct. 2 speech, U.S. Commodity Futures Trading Commission Chairman Christopher Giancarlo said the agency filed 83 enforcement actions during the fiscal year of 2018, marking a 25% jump from each of the last three years. Civil monetary penalties imposed by the CFTC during the year totaled approximately $900 million, which Giancarlo said was higher than the total penalties imposed in five years between 2009 and 2016.
"Some have asserted that regulatory agencies under this administration have gone soft on regulatory enforcement," Giancarlo said in the speech. "Even on its own terms, this criticism is unfounded. In fact, by any measure, enforcement during this past year has been among the most vigorous in the history of the CFTC."
A day earlier, Giancarlo spoke at the Securities Industry and Financial Markets Association's annual meeting in Washington, D.C., where he said that companies and regulators need to be focusing on their cyber defenses.
Cybersecurity has been a mounting concern for financial institutions and regulators in recent years, as hackers continue to find new ways to break into systems. Lisa Kidd Hunt, an executive at Charles Schwab Corp. and chair of SIFMA, said at the conference that cyber threats are one of most concerning threats to the industry.
"Hackers and cybercriminals continue to get smarter and better," she said. "It's one of the things we worry about the most."
The FDIC announced a transparency initiative that will include displaying performance metrics such as the turnaround times for bank de novo applications. FDIC Chair Jelena McWilliams said she is also taking a nationwide listening tour to hear from stakeholders.
Meanwhile, the Fed is seeking comments on ways it can improve the speed of the U.S. payment system, following the work of a task force that called on the Fed to develop a 24/7 settlement system.