On September 13, 2016 the Financial CHOICE Act was approved by the House Financial Services Committee by a vote of 30-26. The bill would overhaul regulation of the financial markets and is an important development for derivatives market participants, including energy companies. For example, the bill would alter the functioning of the Commodity Futures Trading Commission (“CFTC”), by:
- Requiring development of procedures governing no-action and other exemptive relief, including a requirement that the commissioners have the opportunity to review any responses to a request for relief.
- Require notice-and-comment before issuance of policy statements, guidance, interpretive rules, or other procedural rules.
- Allowing for judicial review of CFTC rules, along the lines of that allowed for Securities and Exchange Commission (“SEC”) rules.
The bill would also require that the CFTC adopt a rule addressing the cross-border regulation of derivatives transactions, and such rule, among other things, would not be able to “take into account, for the purposes of determining the applicability” of U.S. swap requirements, the location of personnel responsible for arranging, negotiating or executing the swap. It would also require that the SEC and CFTC harmonize their derivatives rules.
The Financial CHOICE Act also contains a number of other provisions, mostly applicable to banks and other financial institutions. For example, it would contain an “off-ramp” from Dodd-Frank provisions regarding systemically important financial institutions, the Basel III capital and liquidity standards, and other regulatory requirements, for banks that maintain a simple leverage ratio of at least 10% and which have at least a satisfactory examination rating. The bill would also significantly alter the functioning of the Consumer Financial Protection Bureau (“CFPB”) by altering its mission to balance consumer protection with competitive markets, replace the current single-director leadership structure with a five-member commission, and repeal the CFPB’s authority to ban arbitration clauses and abusive products.
The vote to approve the bill was largely along party lines, with all Democrats voting against the bill, and all but one Republican voting in favor. Republicans praised the bill as an “unshackling” of the financial industry from unnecessary and burdensome regulations. Democrats slammed the bill as removing important regulatory protections and undermining consumer financial safety.
While the likelihood of this bill being signed into law is remote, it does provide a perspective that could be debated in any future legislative action during the next Presidential administration.