October 12, 2017

House Financial Services Committee Markup

Key Takeaways

  • Final Passage: All 22 bills were voted favorably to the House for consideration.
  • Unanimous Votes: Several bills received unanimous votes, to include – H.R. 2121, the “Pension, Endowment, and Mutual Fund Access to Banking Act;” H.R. 3758, the “Senior Safe Act of 2017;” H.R. 3898, the “Impeding North Korea’s Access to Finance Act of 2017;” H.R. 3903, the “Encouraging Public Offerings Act of 2017;” H.R. 3911, the “Risk-Based Credit Examination Act;” and H.R. 3972, the “Family Office Technical Correction Act of 2017.”

Bills Considered

  • H.R. 477, the “Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2017”
  • H.R. 1116, the “Taking Account of Institutions with Low Operation Risk Act of 2017”
  • H.R. 1585, the Fair Investment Opportunities for Professional Experts Act.
  • H.R. 1645, the “Fostering Innovation Act of 2017”
  • H.R. 1699, the “Preserving Access to Manufactured Housing Act of 2017”
  • H.R. 2121, the “Pension, Endowment, and Mutual Fund Access to Banking Act”
  • H.R. 2148, the “Clarifying Commercial Real Estate Loans”
  • H.R. 2201, the “Micro Offering Safe Harbor Act”
  • H.R. 2396, the “Privacy Notification Technical Clarification Act”
  • H.R. 2706, the “Financial Institution Customer Protection Act of 2017”
  • H.R. 2954, the “Home Mortgage Disclosure Adjustment Act”
  • H.R. 3072, the “Bureau of Consumer Financial Protection Examination and Reporting Threshold Act of 2017”
  • H.R. 3312, the “Systemic Risk Designation Improvement Act of 2017”
  • H.R. 3758, the “Senior Safe Act of 2017”
  • H.R. 3857, the Protecting Advice for Small Savers Act of 2017”
  • H.R. 3898, the “Impeding North Korea’s Access to Finance Act of 2017”
  • H.R. 3903, the “Encouraging Public Offerings Act of 2017”
  • H.R. 3911, the “Risk-Based Credit Examination Act”
  • H.R. 3948, the “Protection of Source Code Act”
  • H.R. 3971, the “Community Institution Mortgage Relief Act of 2017”
  • H.R. 3972, the “Family Office Technical Correction Act of 2017”
  • H.R. 3973, the “Market Data Protection Act of 2017” 

Opening Statements

Rep. Jeb Hensarling (R-Texas), Committee Chairman

In his opening statement, Chairman Hensarling commended the committee for its productivity thus far, noting that the committee would be considering 23 bills in its fifth markup. Hensarling said that America deserves an economy that meets its potential, and the bills before the committee were “designed to build a healthier, more robust economy.” Hensarling noted the committee must continue promoting access to capital, especially for small businesses, creating jobs, providing community financial institutions with regulatory relief, and thwarting North Korea with sanctions. Hensarling concluded by thanking the committee for its hard work, continually bringing forth good ideas, and working across the aisle.

Rep. Maxine Waters (D-Calif.), Ranking Member

In her opening statement, Ranking Member Waters expressed her concern for the large volume of bills being considered in the markup, noting that Democrats on the committee have worked to achieve bipartisan compromises and creative solutions to provide relief and close loopholes. Waters stated that the committee should turn its attention to Puerto Rico and the U.S. Virgin Islands in the wake of Hurricane Maria, noting that three weeks later, many Americans still lack food, water, and electricity. Waters expressed her desire for the committee to gather testimony on how to address the situation.

H.R. 477, the “Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2017”

Rep. Bill Huizenga (R-Mich.) introduced his legislation, which would exempt brokers performing services related to the transfer of ownership of small, privately held companies from registration, saying that the change will reduce transaction costs and facilitate mergers and acquisitions of small businesses. Rep. Bill Posey (R-Fla.) supported the bill, noting that the provision was included in the Financial CHOICE Act that previously passed the House.

Waters opposed the bill, saying it expands exemptions without “providing protections” for businesses or investors. Waters expressed concern that the bill could allow a broker to represent both a buyer and a seller in a sale, without being required to disclose the conflict of interest. Rep. Al Green (D-Texas) also expressed opposition, stating that the bill put investors and small businesses at risk. 

Final Vote

The bill was voted favorably to the House in a 37-23 vote. 

H.R. 1585, To amend the Securities Act of 1933 to codify certain qualifications of individuals as accredited investors for purposes of the securities laws.

Amendment Offered by Rep. Hill

An Amendment in the Nature of a Substitute was offered by Rep. French Hill (R-Ark.), who explained that currently only wealthy, accredited investors can participate in private offerings, and that this bill would revise rules to allow investors with subject matter expertise and investment knowledge to qualify as accredited investors, regardless of income or assets. Hill stated the bill would grant more Americans access to investment opportunities and grow the economy by increasing the ability of companies to raise capital in private markets. Rep. Carolyn Maloney (D-N.Y.) expressed strong support for the bill, saying it “modernizes outdated rules” about who qualifies as an accredited investor. Reps. Bill Foster (D-Ill.), Trey Hollingsworth (R-Ind.), Hensarling, and Kyrsten Sinema (D-Ariz.) also voiced their support for the legislation. 

Final Vote

The bill was voted favorably to the House in a 58-2 vote. 

H.R. 1645, the “Fostering Innovation Act of 2017”

Sinema and Hollingsworth introduced their bill, which would grant a five-year exemption from the auditor attestation requirements found in Section 404(b) of the Sarbanes-Oxley Act to emerging growth companies and companies with less than $50 million in annual gross revenues. They described the bill as a “narrowly tailored” fix that would provide targeted relief to those small business. They also noted that the bill was approved in the previous Congress. Reps. Randy Hultgren (R-Ill.), Huizenga, Steve Stivers (R-Ohio), and Maloney also voiced support for the bill. 

Final Vote

The bill was voted favorably to the House in a 46-14 vote.

H.R. 2121, the “Pension, Endowment, and Mutual Fund Access to Banking Act”

Amendment Offered by Rep. Rothfus

An Amendment in the Nature of a Substitute was offered by Rep. Keith Rothfus (R-Pa.) who noted the amendment was a bipartisan effort. He said that this bill will ensure custody bank funds deposited at a central bank are not taken into account when computing the supplemental leverage ratio (SLR), adding that the Treasury Department’s recent report on bank and credit union regulation recommended changes to both the SLR and enhanced SLR to address the “unfavorable impacts on market liquidity and low-risk assets.” Reps. Hensarling, Waters, and Barry Loudermilk (R-Ga.) voiced their support for the bill.

Amendment Offered by Rep. Foster

Foster introduced an amendment that would provide a balance between a custody bank’s ability to accept cash deposits while ensuring the safety and soundness of the institution, by directing the appropriate banking regulator to provide exemptions from the SLR through established standards. Other members who supported the amendment and bill included Reps. Rothfus, Nydia Velazquez (D-N.Y.), Hultgren, Waters, and Blaine Luetkemeyer (R-Mo.). The amendment was agreed to by voice vote.

Final Vote

The bill was voted favorably to the House in a 60-0 vote. 

H.R. 3312, the “Systemic Risk Designation Improvement Act of 2017”

Luetkemeyer introduced his bill that would eliminate the current automatic designation of financial institutions with more than $50 billion in assets as systemically important financial institutions (SIFIs) and replace it with a system where the Financial Stability Oversight Council (FSOC) designated SIFIs on a case-by-case basis. Rep. David Scott (D-Ga.), a co-sponsor of the legislation, stressed that the SIFI designation should not be based purely on an institution’s size, and that the bill is one of the most important pieces of financial services legislation that can be passed. Reps. Rothfus, Hensarling, Sinema, Joyce Beatty (D-Ohio), Robert Pittenger (R-N.C.), Nydia Velazquez (D-N.Y.), and Andy Barr (R-Ky.) also voiced their support for the bill.

Waters opposed to the bill, explaining that it will be harmful to banks with less than $50 billion in assets, as it “ignores” the difference between a $6 billion bank and a $600 billion bank, and will “accelerate” the trend of larger banks buying community banks. Rep. Gwen Moore (D-Wis.) stated that she is “unready” to vote for the bill, as she wishes to engage with the Senate Banking Committee first before making a decision. 

Amendment Offered by Rep. Foster

Foster introduced an amendment that would extend the time the Federal Reserve has to determine if an institution should be subject to enhanced prudential standards from one-year to 18 months. Reps. Luetkemeyer and Hensarling stated that while they believe the one-year timeline is sufficient, they do not oppose the additional six months and supported the amendment. The amendment was adopted by voice vote. 

Final Vote

The bill was voted favorably to the House in a 47-12 vote. 

H.R. 3758, the “Senior Safe Act of 2017”

Sinema introduced her bill by noting that one in five seniors are the victim of financial abuse. Sinema highlighted the importance of detecting and identifying suspicious activity to detect abuse, and said it is critical that Americans are able to communicate with authorities about suspected fraud. Sinema explained the legislation shields advisors and firms from legal liability for disclosing fraud to authorities. Reps. Bruce Poliquin (R-Maine), Waters, Huizenga, and Hensarling also supported the bill. 

Final Vote

The bill was voted favorably to the House in a 60-0 vote. 

H.R. 3857, the Protecting Advice for Small Savers Act of 2017”

Rep. Ann Wagner (R-Mo.) introduced her bill, saying it repeals the Department of Labor’s (DOL’s) fiduciary rule and re-establishes the Securities and Exchange Commission (SEC) as the “rightful” regulator and promulgator of a best-interest standard for broker-dealers She continued that while SEC Chairman Jay Clayton noted that there will be changes to the fiduciary rule, she believes Congress should “reassert their authority in the space.” Wagner cited several studies that show access to investor products have decreased due to the fiduciary rule, and that clients have been forced to robo advisors, stressing the need for Congress to pass legislation that gives investors access to affordable products. Other Republicans that voiced their support for the bill included Huizenga, Ted Budd (R-N.C.), Hultgren, Rothfus, Hensarling, Thomas MacArthur (R-N.J.), and Dave Trott (R-Mich.).

Waters opposed the bill, explaining that the current DOL fiduciary rule protects investors from conflicted advice and that this bill would replace it with a “less protected” suitability standard. She stated that many registered advisors are already abiding by the fiduciary standard, as the first phase of the rule rolled out in June of this year, and that “it didn’t send the financial services industry into a tailspin,” and saying the rule’s implementation “went very smoothly.” Waters warned that if the bill is passed, she will introduce a bill that says if the SEC establishes a fiduciary rule, it can be “no less stringent” than the DOL’s fiduciary rule. Rep. Keith Ellison (D-Minn.) also opposed the bill.   

Final Vote

The bill was voted favorably to the House in a 34-26 vote. 

H.R. 3898, the “Impeding North Korea’s Access to Finance Act of 2017”

Amendment Offered by Rep. Barr

An Amendment in the Nature of a Substitute was offered by Barr, who stated there is “no more immediate threat” to the United States than North Korea’s development of nuclear weapons and ballistic missiles. Barr said this bill would establish the most far-reaching financial sanctions ever contemplated, and even contains secondary sanctions on entities doing business with anyone involved with North Korea, restrictions on North Koreans repatriating earnings, and several enforcement provisions. Barr said that entities can choose to do business with North Korea or with the United States, but cannot do both. The amendment was adopted by voice vote.

The legislation received bipartisan support by Reps. Waters, Pittenger, Maloney, Stevan Pearce (R-N.M.), Moore, Roger Williams (R-Texas), Denny Heck (D-Wash.), Hill, Hensarling, Perlmutter, and Rothfus. 

Final Vote

The bill was voted favorably to the House in a 56-0 vote. 

H.R. 3903, the “Encouraging Public Offerings Act of 2017”

Budd introduced his bill, explaining it was a bipartisan effort that will allow companies to file their initial public offering (IPO) paperwork with the SEC confidentially, allowing them to correct errors without exposing information to competitors or the public. Budd said the bill allows companies to “test the waters” by talking to investors at qualified institutions before announcing publicly, which will help ensure preparations for IPOs are complete and companies are not publicly damaged by any mistakes on the first try. Budd offered an amendment that added “guardrails,” which was supported by Waters. 

Final Vote

The bill was voted favorably to the House in a 60-0 vote.

H.R. 3973, the “Market Data Protection Act of 2017”

Rep. Warren Davidson (R-Ohio) discussed the SEC’s recent cyber breach of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, and said that such incidents raise questions about the internal cyber controls for the SEC and the in-development Consolidated Audit Trail (CAT). He continued that CAT will collect information on all trades and orders in the U.S. financial markets, making it a “prime” target for cyber attacks. Davidson explained that his bill will require SEC controls to market data, require the SEC, FINRA, and CAT operator to create risk controls to protect data that is stored by entities, and prohibit the CAT operator from accepting any data until such controls are developed. Reps. Waters, Hultgren, Hensarling, and Huizenga all supported the bill.  

Final Vote

The bill was voted favorably to the House in a 59-1 vote. 

Other Bills

H.R. 1116, the “Taking Account of Institutions with Low Operation Risk Act of 2017,” was voted favorably to the House in a 39-21 vote.

H.R. 1699, the “Preserving Access to Manufactured Housing Act of 2017,” was voted favorably to the House in a 42-18 vote. Rep. Keith Ellison (D-Minn.) offered two amendments, both of which were not adopted by voice vote.

H.R. 2148, the “Clarifying Commercial Real Estate Loans,” was voted favorably to the House in a 59-1 vote. An amendment offered by Rep. Carolyn Maloney (D-N.Y.) was adopted by voice vote.

H.R. 2201, the “Micro Offering Safe Harbor Act,” was voted favorably to the House in a 34-26 vote.

H.R. 2396, the “Privacy Notification Technical Clarification Act,” was voted favorably to the House in a 40-20 vote. An amendment offered by Rep. Maxine Waters (D-Calif.) was not adopted by voice vote.

H.R. 2706, the “Financial Institution Customer Protection Act of 2017,” was voted favorably to the House in a 59-1 vote. An amendment offered by Rep. Denny Heck (D-Wash.) was adopted by voice vote.

H.R. 2954, the “Home Mortgage Disclosure Adjustment Act,” was voted favorably to the House in a 36-24 vote. An amendment offered by Rep. Tom Emmer (R-Minn.) was adopted by voice vote.

H.R. 3072, the “Bureau of Consumer Financial Protection Examination and Reporting Threshold Act of 2017,” was voted favorably to the House in a 39-21 vote.

H.R. 3911, the “Risk-Based Credit Examination Act,” was voted favorably to the House in a 60-0 vote.

H.R. 3948, the “Protection of Source Code Act,” was voted favorably to the House in a 46-14 vote.
An amendment offered by Rep. Bill Foster (D-Ill.) was adopted by voice vote.

H.R. 3971, the “Community Institution Mortgage Relief Act of 2017,” was voted favorably to the House in a 41-19 vote.

H.R. 3972, the “Family Office Technical Correction Act of 2017,” was voted favorably to the House in a 60-0 vote. An amendment offered by Rep. Carolyn Maloney (D-N.Y.) was adopted by voice vote.

For more information on this markup, please click here.