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.
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.