Measures include bill to eliminate Dodd-Frank's $50 billion threshold for 'SIFI' banks; repeal of Labor Department's fiduciary rule for advisers; new controls for stock market's consolidated audit trail; new definition of 'accredited investor'

The House Financial Services Committee on October 12, 2017, approved a group of 23 bills that the panel had debated over the course of two days. These included a measure (HR 3312) that would repeal the Dodd-Frank Act's $50 billion asset threshold, above which banks are regulated as systemically important financial institutions ("SIFIs"). Several of the bills were included as provisions of HR 10, Chairman Jeb Hensarling's (R-TX) Financial CHOICE Act, a comprehensive bill targeting the Dodd-Frank Act that passed the House in June but is not expected to see action in the Senate.

Attached with this alert please find a PDF of the committee's background memo on the bills considered at the markup, along with the text s of HR 3312, HR 3857 and HR 3793. The Financial Services Committee has posted information about the markup results here.

In an opening statement on October 11, Chairman Hensarling said the committee so far this year has already reported 18 bills, nine of which have passed the House, "and three committee-referred measures have been signed into law." Hensarling said the majority of bills considered at the markup had bipartisan support: "Most of these bills are aimed at helping smaller banks, credit unions and early growth companies. These are goals that every Democrat and Republican on this committee has said they support … We must continue providing community financial institutions with desperately needed regulatory relief, as we know we are still regrettably losing one a day in America."

Among bills of particular interest, the committee:

— Approved HR 3312, the Systemic Risk Designation Improvement Act, sponsored by Blaine Luetkemeyer (R-MO), by a vote of 47-12. The bill would repeal the Dodd-Frank Act's $50 billion threshold for enhanced prudential supervision of a bank by the Federal Reserve as a SIFI. In its place, the bill would require automatic SIFI status only for the largest U.S. banks — those that have been identified as global systemically important banks (G-SIBs). Other banks would be subject to enhanced supervision if the Fed decides to designate them as SIFIs after a review process to consider the bank's "systemic indicator scores," such as its size, interconnectedness, uniqueness, global presence and complexity. The committee approved, by voice vote, an amendment by Bill Foster (D-IL) that changed the bill's effective date from one year following enactment to 18 months. Democratic Reps. Beatty (OH), Crist (FL), Delaney (MD), Foster (IL), Gonzalez (TX), Gottheimer (NJ), Heck (WA), Himes (CT), Kihuen (NV), Meeks (NY), Scott (GA), Sherman (CA) and Sinema (AZ) voted for the bill.

The $50 billion asset threshold is likely to be addressed in the Senate by a forthcoming bipartisan regulatory relief package being assembled by Banking Committee Chairman Mike Crapo (R-IN) and Ranking Member Sherrod Brown (D-OH).

— Approved HR 3857, the PASS Act, sponsored by Ann Wagner (R-MO), by a straight party-line vote of 34-26. The bill would repeal the Labor Department's 2016 fiduciary rule for advisers to retirement plans. It would require broker-dealers to act in a retail customer's best interest when providing advice, reflecting "reasonable diligence and the reasonable care, skill and prudence that a broker would exercise based on the customer's investment profile." Brokers would also have to provide certain increased disclosures to customers in advance of any investments.

— Approved HR 3793, the Market Data Protection Act, sponsored by Warren Davidson (R-OH) and Brad Sherman (D-CA), by a vote of 59-1. The bill would require that the SEC, FINRA and the operator of the Consolidated Audit Trail (CAT), in consultation with the SEC's chief economist, develop "comprehensive internal risk control mechanisms to safeguard and govern the storage of market data, all market data-sharing agreements, and all academic research using market data." The bill would also stop any reporting of market data to the CAT until its contractor completes those controls.

— Approved HR 3072, sponsored by William Lacy Clay (D-MO), by a vote of 39-21. The bill would raise the examination threshold that brings a bank or credit union under the supervision of the Consumer Financial Protection Bureau (CFPB) from $10 billion in assets to $50 billion or more. The same raised threshold would apply to CFPB reporting requirements. Democratic Reps. Clay (MO), Cleaver (MO), Gonzalez (TX), Gottheimer (NJ) and Sinema (AZ) voted for the bill.

— Approved HR 1585, the Fair Investment Opportunities for Professional Experts Act, sponsored by David Schweikert (R-AZ), by a vote of 58-2. The bill would change the SEC's definition of an "accredited investor" to include: (1) people whose net worth (including their spouse's) exceeds $1 million, excluding the value of their primary residence; (2) people with an individual income greater than $200,000, or joint income with one's spouse greater than $300,000; (3) anyone with a current securities-related license; and (4) anyone whom the SEC determines to have demonstrable "professional subject-matter knowledge" about a particular investment.

— HR 1116, the TAILOR Act, sponsored by Scott Tipton (R-CO), by a vote of 39-21. The bill would direct financial regulators to tailor their rules in consideration of the risk profiles and business models of institutions that are subject to such rules. The bill also directs such agencies to appear annually before Congress regarding their actions to tailor regulations. Democratic Reps. Gonzalez (TX), Gottheimer (NJ), Heck (WA), Perlmutter (CO) and Scott (GA) voted for the bill.

The committee also:

— Approved HR 2706, the Financial Institution Customer Protection Act, sponsored by Rep. Luetkemeyer, by a vote of 59-1. The bill would prohibit a federal banking agency from directing a depository institution to terminate a customer's account unless there is a material reason.

— Approved HR 2121, the Pension, Endowment, and Mutual Fund Access to Banking Act, sponsored by Keith Rothfus (R-PA), by a vote of 60-0. The bill specifies that a custodial bank must exclude central bank placements from the calculations to determine the applicable supplementary leverage ratio.

— Approved HR 3758, the Senior Safe Act of 2017, sponsored by Kyrsten Sinema (D-AZ) and Bruce Poliquin (R-ME), by a vote of 60-0. The bill provides that certain bank supervisors, compliance officers and legal advisers will not be liable for disclosing the suspected exploitation of senior citizens if the disclosure is made in good faith with reasonable care. The financial institution also would not be liable for such disclosure if it had employed and trained that individual.

— Approved HR 2148, Clarifying Commercial Real Estate Loans, sponsored by Robert Pittenger (R-NC), by a vote of 59-1. The bill would permit the appraised value of real property to count toward a 15% equity threshold in order to be exempted from the Basel III regime's High Volatility Commercial Real Estate (HVCRE) designation.

— Approved HR 2954, the Home Mortgage Disclosure Adjustment Act, sponsored by Tom Emmer (R-MN), by a vote of 36-24. The bill would exempt banks and credit unions from elements of the 1975 Home Mortgage Disclosure Act if they have originated fewer than 500 closed-end mortgages and fewer than 500 open-end lines of credit in the previous two years.

— Approved HR 477, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act, sponsored by Bill Huizenga (R-MI), by a vote of 37-23. The bill would exempt M&A brokers from SEC registration requirements if they perform ownership-transfer services for smaller private companies.

— Approved HR 1645, the Fostering Innovation Act, sponsored by Reps. Sinema and Trey Hollingsworth (R-IN), by a vote of 46-14. The bill would extend an exemption from Sarbanes-Oxley Act compliance for emerging growth companies (EGCs) that would otherwise lose their exemption at the end of the current law's five-year period.

— Approved HR 1699, the Preserving Access to Manufactured Housing Act, sponsored by Andy Barr (R-KY), by a vote of 42-18. The bill would modify the Truth in Lending Act's (TILA) definitions of a "mortgage originator" and a high-cost mortgage to provide relief for consumers of small-balance mortgage loans.

— Approved HR 2201, the Micro Offering Safe Harbor Act, sponsored by Rep. Emmer, by a vote of 34-26. The bill would exempt certain "micro-offerings" from the 1933 Securities Act's registration requirements.

— Approved HR 2396, the Privacy Notification Technical Clarification Act, sponsored by David Trott (R-MI), by a vote of 40-20. The bill would clarify that financial institutions are not required to provide an annual privacy notice disclosure if they make their current policy available to consumers online or at the consumer's request.

— Approved HR 3898, the Impeding North Korea's Access to Finance Act, sponsored by Rep. Barr (R-KY), by a vote of 56-0. The bill would impose secondary financial sanctions with respect on North Korea and encourage stricter sanctions enforcement by foreign countries.

— Approved HR 3903, the Encouraging Public Offerings Act, sponsored by Ted Budd (R-NC) and Gregory Meeks (D-NY), by a vote of 60-0. The bill would expand to all public companies certain provisions of the 2012 JOBS Act that currently apply only to an emerging growth company (EGC), such as the ability to submit draft registration statements to the SEC for confidential review.

— Approved HR 3911, the Risk-Based Credit Examinations Act, sponsored by Rep. Wagner and Bill Foster (D-IL), by a vote of 60-0. The bill would allow the SEC to perform risk-based examinations of "NRSRO" credit ratings organizations.

— Approved HR 3498, the Protection of Source Code Act, sponsored by Sean Duffy (R-WI) and David Scott (D-GA), by a vote of 46-14. The bill would require the SEC to first issue a subpoena before compelling a person to produce or furnish to the SEC algorithmic trading source code or similar intellectual property.

— Approved HR 3971, the Community Institution Mortgage Relief Act, sponsored by Claudia Tenney (R-TN), by a vote of 41-19. The bill would direct the CFPB to exempt mortgages secured by smaller financial institutions from certain escrow or impound requirements, as well as loan servicing and escrow administration requirements.

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ATTACHMENTS

Markup background memo

H.R. 3312 Text

H.R. 3793 Text

H.R. 3857 Text