Committee on Rules for U.S. House of Representatives to Consider Regulatory Reform

The Committee on Rules for the U.S. House of Representatives announced that it would convene on January 12, 2015 to consider two proposals for regulatory reform: (i) H.R. 37, the Promoting Job Creation and Reducing Small Business Burdens Act (the “Economy Act”); and (ii) H.R. 37, the Regulatory Accountability Act of 2015 (the “Accountability Act”).

The Economy Act was first considered by the U.S. House of Representatives on January 7 but failed to secure the necessary two-thirds vote required for passage under House rules applicable at the time. The Economy Act is being re-proposed under House rules requiring only a simple majority vote. President Obama’s threat to veto the Economy Act means that a two-thirds’ vote by the House may be necessary to override the veto.

The Economy Act would, among other things:

  • extend the period for bringing collateralized loan obligation holdings into conformance with the Volcker Rule until July 21, 2019;
  • exempt certain uncleared swaps and security-based swaps (“uncleared swaps”) from impending initial and variation margin regulations, including uncleared swaps between affiliates and uncleared swaps entered into by end users;
  • exempt “M&A brokers” from certain registration requirements under the Securities Exchange Act;
  • harmonize disclosure obligations for emerging growth companies under the Jumpstart Our Business Startups Act; and
  • direct the Securities and Exchange Commission to carry out a study regarding the “modernization and simplification” of Regulation S-K.

The Accountability Act would reform procedural requirements relating to administrative rules and guidance that have a significant impact on the economy. In particular, the Accountability Act would subject economically significant agency “guidance” – such as the cross-border swaps guidance issued by the Commodity Futures Trading Commission – to cost-benefit analysis requirements similar to those that apply to formal rulemakings.

The Economy Act is available here; the Accountability Act is available here.

Lofchie Comment:  Neither the Economy Act nor the Accountability Act represents a material rollback of existing regulations. 

Regarding the Economy Act, there are several concerns. First, to force banks to sell off their existing holdings of collateralized loan obligations is a questionable requirement from a policy standpoint; massive forced sell-offs tend to crash the value of the assets that are required to be sold and, thus, introduce the problem they were supposed to avoid. Second, the existing Dodd-Frank language on exempting end-user swaps from clearing is problematic.  Third, the exemption for M&A brokers would serve to codify an existing SEC no-action letter. Finally, seeking the harmonization of obligations and directing a study are not big-picture changes to regulation.

With regard to the Accountability Act, cross-border “guidance” issued by the CFTC is, for all purposes, a “rule”. The CFTC acted inappropriately in not complying with the requirements applicable to rulemakings by issuing it as “guidance”. Though a lower court “ratified” the CFTC’s actions, the decision is unpersuasive. The CFTC should vitiate the impetus for the Accountability Act by announcing the withdrawal of the cross-border guidance while considering the adoption of a rule that would be subject to the ordinary and appropriate rulemaking process already mandated by law.

 

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