Rather than taper off with the arrival of summer, battles over the U.S. regulatory regime are heating up.
Earlier his month, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) unveiled details of the Financial CHOICE Act, a Republican plan “to replace the Dodd-Frank Act.”
Among many other things, the legislation would:
Provide an “off-ramp” from the post-Dodd-Frank supervisory regime and Basel III capital and liquidity standards for banks that choose to maintain high levels of capital
Make all financial regulatory agencies bipartisan commissions and place them on the Congressional appropriations process
Repeal the SEC’s authority to eliminate or restrict securities arbitration
Repeal non-material, specialized disclosures, including environmental disclosures and the SEC’s conflict minerals rule and pay ratio rules.
The latest debates focus on a slate of “economic growth bills,” approved by the Financial Services Committee on Thursday.
Among the bills now on the way to a vote before the full House:
H.R. 4854, Supporting America’s Innovators Act of 2016
The bill raises the limit on the number of individuals, from 100 to 250, who can invest in “qualified venture capital funds” before those funds must register as “investment companies” under the Investment Company Act of 1940. Currently, the Investment Company Act limits the number of investors in an investment company fund to 100 for the fund to be exempt from registration with the SEC.
H.R. 4855, Fix Crowdfunding Act
The bill increases financial thresholds in the federal securities laws so as not to dissuade small businesses from using crowdfunding as a way to raise capital.
H.R. 5421, National Securities Exchange Regulatory Parity Act
The bill amends the Securities Act of 1933, which exempts certain securities from individual state-by-state registration, commonly known as the “blue sky” exemption. It eliminates specific references to enumerated national securities exchanges and instead provides a blue sky exemption for any security listed on any national securities exchange registered with the SEC with approved listing standards.
H.R. 5143, Transparent Insurance Standards Act
The bill seeks to establish a series of requirements to be met before the Federal Insurance Office or the Federal Reserve may agree to adoption of a final international insurance standard.
H.R. 4850, Micro Offering Safe Harbor Act
The bill amends the Securities Act of 1933 to exempt certain micro-offerings from the Act’s registration requirements. It would allow small businesses to operate with confidence that they are not in violation of the law when making a non-public securities offering if each purchaser has a substantive pre-existing relationship with an owner, there are 35 or fewer purchasers, and the amount does not exceed $500,000.
H.R. 4852, the Private Placement Improvement Act
The bill directs the SEC to revise Regulation D to facilitate capital formation in Regulation D offerings.
Two bills, in particular, are drawing heightened concern and scrutiny. H.R. 5311, the Corporate Governance Reform & Transparency Act, would require SEC registration for proxy advisory firms, the disclosure of potential conflicts of interest, a code of ethics, and the public availability of proxy advisory firms methodologies used to formulate proxy recommendations and analyses.
H.R. 5429, the SEC Regulatory Accountability Act, requires the SEC to follow the President’s Executive Order 13579, which outlined enhanced cost-benefit analysis requirements and a review of existing regulations.
Those last two pieces of legislation were singled out by the Council of Institutional Investors, a nonprofit association of employee benefit plans, foundations and endowments with combined assets under management exceeding $3 trillion.
It “is deeply disappointed that the House Financial Services Committee approved legislation that would undermine critical U.S. investor protections,” CII Executive Director Ken Bertsch said in a statement.
HR 5311, Bertsch said, “would impose onerous requirements on proxy advisors that could weaken public company corporate governance and the fiduciary duty of proxy advisors to investor clients. In particular, he noted, “giving companies the right to review and seek changes in proxy advisor reports could chill the independence of proxy advisors and unduly delay their reports.”
HR 5429 “would shackle the SEC by requiring it to review thousands of rules on a regular basis,” he added. “While such reviews sound reasonable they would soak up resources the SEC needs to ensure fair, transparent and healthy financial markets, and paralyze the SEC’s rulemaking capacity,” he said.
Also this week, Speaker of the House Paul Ryan (R-Minn.) unveilled a Republican framework for reforming the nation’s regulatory regime. “The federal government has taken very few outdated regulations off the books, while constantly adding new ones: 3,408 in 2015 alone. The American people now spend $1.89 trillion every year just to comply with Washington’s rules—approximately $15,000 per household,” it says. “Every step in the process needs to be revamped: whether to regulate, how to regulate, and follow-up review of regulations. Agencies should write regulations only when necessary, make them minimally intrusive, stay within the legal mandate, and avoid creating barriers for new and small businesses.”
Congressional approval should be required for major new regulations, the “A Better Way” plan adds. Congress, it says, should also consider a first-ever regulatory budget that would place limits on the amount of regulatory costs federal agencies can impose each year, allocate to each regulatory agency a limit on the amount of regulatory costs that can be imposed each fiscal year.
Among the proposals:
Reforming the Administrative Procedure Act.
Regulate only when states are not better suited, or there is an identifiable market or major policy failure.
A federal agency should not issue a regulation unless it can identify a failure of markets or policy that requires an intervention.
Pursue non-regulatory approaches.
Sunsetting of regulatory programs (not just existing regulations) through the reauthorization process.
All agencies should use cost-benefit analysis and take the cumulative impact of rules into account.
Allow adequate public comment periods for complex rules.
The proposal also advocates expanding the SEC’s and Department of Justice’s authority to obtain monetary penalties for the most serious securities law violations. It calls for significantly increase the cap for the most serious securities law violations and increase the maximum civil penalty amounts that can be assessed for violations involving financial institutions.