CFTC Opens Registration for First FinTech Conference

Registration for the upcoming CFTC Conference: “FinTech Forward 2018: Innovation, Regulation and Education” is now open. The conference, which is scheduled to take place from October 2, 2018 to October 4, 2018, will feature CFTC Chair Christopher J. Giancarlo and U.S. Representative Austin Scott (R-GA), among others.

The conference will focus on significant tech-driven developments in the financial markets. Participants will discuss (i) the impact that new technologies may have on markets and customers, and (ii) what regulators ought to do to help identify emerging opportunities, challenges and risks, as well as to better educate market participants.

Senator Warren Introduces Anti-Corruption Legislation

Senator Elizabeth A. Warren unveiled a wide-ranging bill that seeks to “eliminate the influence of money in our federal government.”

The Anti-Corruption and Public Integrity Act would, among other things:

  • ban “Members of Congress, cabinet secretaries, federal judges, and other senior government officials from owning and trading individual stocks”;
  • institute a lifetime ban on former Member of Congress, Presidents and agency heads from lobbying;
  • require conflicts of interest disclosures in rulemaking comments and studies;
  • prevent certain individuals from the private sector from taking certain government positions, including, in some cases, running for office;
  • livestream audio of federal appellate courts and promote diversity on the federal bench;
  • create a new, independent anti-corruption agency to enforce federal ethics laws; and
  • increase financial and tax information disclosures for elected officials and candidates for federal office.

Lofchie Comment: One effect of Senator Warren’s proposed prohibitions is that the government would be peopled by career government employees or academics. The unspoken theory behind this is that work for a private enterprise is corrupt, yet work for the government itself or in academics is not. This is a false premise. It is commonplace that those in government seek to use their power to bolster their ambitions of running for higher office. Their political or personal ambition does not disqualify them from office, nor should it disqualify them from having a voice. Likewise, those with experience working in private industry often have a good deal to contribute to the government, perhaps more in some cases than those who have worked only in government or academics.

Senator Warren’s bill would ban any individual who had worked for a company that had received any contract from a government agency for working for that agency for the next four years. She would also ban any senior officer of a company that has been the subject of any enforcement action (without regard to its severity) from serving in Congress (shouldn’t voters in each State get to decide whom they wish to elect?) or working in the Executive branch.

These and her other legislative proposals are, of course, political positioning ahead of a possible run for higher office. But they add to her record of discouraging the private sector from commenting on rules that concern them and discouraging those with industry experience from joining the government. See, e.g., Senator Warren Asks CFTC to Withdraw EEMAC Report on Position Limits; Senator Warren Questions ”Good Intentions” behind Study Challenging DOL’s Fiduciary Proposal; Senator Warren’s Study Finds “Dangerous Problem” with Non-Cash Compensations in Annuity Sales.

International Regulators Launch “Global Financial Innovation Network”

Several international regulatory agencies collaborated in the creation of the “Global Financial Innovation Network” (“GFIN”). The new network will focus on regulatory issues related to emerging technologies. There are 11 regulatory agencies in the new network including the Consumer Financial Protection Bureau and the UK’s Financial Conduct Authority.

In a draft consultation document, the agencies explained three major functions of the initiative: (i) information- and knowledge-sharing among regulators, (ii) collaboration in exploring major policy questions and (iii) “cross-border trials” instituted to aid companies as they deal with multi-jurisdictional regulatory challenges. The network is intended to serve as a resource for FinTech companies navigating the complicated web of international regulation. The regulators anticipate that GFIN will increase the speed at which innovative products are able to reach international markets. They also argue that the GFIN will promote transparency and investor protection.

The GFIN proposed the following as its organizational mission statement:

“The GFIN is a collaborative policy and knowledge-sharing initiative aimed at advancing areas including financial integrity, consumer wellbeing and protection, financial inclusion, competition and financial stability through innovation in financial services, by sharing experiences, working jointly on emerging policy issues and facilitating responsible cross-border experimentation of new ideas.”

The GFIN is requesting feedback on its proposed objectives, functions and structure. Comments must be submitted by October 14, 2018.

Fed Balance Sheet Since 1914

Kurt Schuler (CFS senior fellow in financial history) and students of Steve Hanke (CFS special counselor) converted the Fed’s weekly balance sheet from its beginning into spreadsheet form.

The data should prove useful for anyone concerned with the quantitative study of monetary policy in the United States over the last 100+ years.

Our joint Johns Hopkins / CFS working paper, “The Federal Reserve System’s Weekly Balance Sheet since 1914,” is available here.

Accompanying Spreadsheets

Similarly, Bank of England’s Ryland Thomas informs of an improved balance sheet dataset for the Bank and new paper “The Bank of England as lender of last resort: new historical evidence from daily transactional data.”

Fed Weekly Balance Sheet since 1914 Now Available

With several current or former undergraduate students of CFS Special Counselor Steve Hanke, I have converted the Fed’s weekly balance sheet from its beginning into spreadsheet form. The data should prove useful for anyone concerned with the quantitative study of monetary policy in the United States over the last 100+ years. Our working paper, “The Federal Reserve System’s Weekly Balance Sheet since 1914,” is available here.

The working paper is based on three earlier papers that I have previously written about; all are available at the link above:

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1914-1941” by Justin Chen and Andrew Gibson,” January 2017 (post)

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1942-1975” by Cecilia Bao and Emma Paine, May 2018 (post)

“Insights from the Federal Reserve’s Weekly Balance Sheet, 1976-2017” by Nicholas Fries, July 2018 (post)

The Fed’s Weekly Balance Sheet since 1976

Students of CFS Special Counselor Steve Hanke have previously written two papers digitizing the weekly balance sheet of the Federal Reserve System from 1914-1941 and 1942-1975 and analyzing developments in the Fed’s balance sheet. I wrote about them in previous posts. Now a third paper completes the data and the analysis by bringing the story up to the present. The author is Nicholas Fries and the paper is called “Insights from the Federal Reserve’s Weekly Balance Sheet, 1976-2017.”

The most recent paper is no. 114 (currently the latest paper) in this working paper series that Hanke edits. The earlier papers were nos. 70 and 104 in the series. The data files can be viewed from links under the paper.

The Fed has made digitized weekly data of its weekly balance sheet available since 1996, but not earlier, and from 1996-2002 the data were only previously available as individual files on the Fed’s Web site, not in a spreadsheet. From 2002 downloadable spreadsheet data are available. Besides appreciating the service Fries has done making the data available, readers will appreciate his balance sheet analysis, which is simple and to the point.

One more paper is left in the series on the Fed’s balance sheet. I will post about it within the next month.

The Fed’s Balance Sheet, 1942-1975

Two students of CFS Special Counselor Steve Hanke have digitized the Federal Reserve System’s weekly balance sheet from 1942 to 1975, accompanying the data with some basic analysis of how assets and liabilities changed over the period. Particularly noteworthy is the behavior of the Fed’s gold reserves, since the period includes the establishment, operation, and end of the Bretton Woods version of the international gold standard.

Two of Hanke’s previous students digitized the balance sheet from its start in 1914 to 1941. The recent digitization, by Cecilia Bao and Emma Paine, is part of their working paper, “Insights from the Federal Reserve’s Weekly Balance Sheet, 1941-1975,” no. 104 in the Studies in Applied Economics series that Hanke edits. The earlier paper, which I blogged about in a previous post, is no. 73 in the series. Both papers and their accompanying spreadsheet workbooks can be accessed from this page. A third paper to be released later this summer will bring the data and analysis up to the present. I read and commented on drafts of all three papers.

SEC Chief Accountant Recommends Improving the Quality of Financial Reporting

SEC Chief Accountant Wesley Bricker made recommendations to improve the quality of financial reporting for regulatory agencies and firms. He also reviewed developments in non-Generally Accepted Accounting Principles (“non-GAAP”) measures and other areas.

In remarks before the Baruch College Financial Reporting Conference, Mr. Bricker encouraged standard-setting bodies to maintain distinct financial reporting frameworks for general and specific purpose reporting. He explained that general purpose financial reporting should continue to provide crucial business and financial information to shareholders while specific purpose financial reports should remain limited to a “special purpose framework” in order to address more specific needs.

Mr. Bricker identified the means by which firms can improve the quality of interim reviews and annual audits. He stated that firms should implement an “effective firm-wide (enterprise) risk management system” to enhance audit firm governance. He encouraged “independent, diverse thinking” on audit committees in order to improve corporate governance. He emphasized the importance of improving the “tone and culture” of the company in enabling auditors to accomplish their work.

Mr. Bricker mentioned that the SEC is issuing a request for public comment to address compliance challenges related to auditor independence rules. Mr. Bricker promised that amendments to the accounting standards will significantly improve the quality of financial reporting for investors. The amendments include: (i) requiring calendar year-end public companies to report revenue from contracts with customers; (ii) standardized company reporting requirements to help investors compare financial statements across companies; (iii) improving reporting and disclosures of non-GAAP and GAAP to help investors identify how management monitors performance and analysis; and (iv) enhancing the quality of disclosures as to market risk.

FTC Confirms Investigation into Facebook’s Data Privacy Practices

Acting Director Tom Pahl of the Federal Trade Commission (“FTC”) Bureau of Consumer Protection confirmed that the FTC is investigating the data privacy practices of Facebook Inc. (“Facebook”) following reports that Cambridge Analytica, a data collection and analytics firm, may have misappropriated the personal information of over 50 million users. Facebook previously settled charges with the FTC in 2011 for deceiving consumers regarding the privacy of their account information. The conditions of that settlement required Facebook to obtain approval from consumers before changing the way it shares their data, and to periodically review its privacy practices. The 2011 charges alleged that Facebook’s practices violated Section 5(a) of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices in or affecting commerce.

In addition, a group of 37 Attorneys General issued a letter to Facebook CEO Mark Zuckerberg requesting information on Facebook’s policies and procedures for protecting users’ personal information, as well as the social networking platform’s plans for improving privacy controls and disclosures going forward. Watchdog group Common Cause filed complaints with the Department of Justice and the Federal Election Commission accusing Cambridge Analytica of violating federal election laws.

Earlier this month, Facebook stated that a University of Cambridge professor created an application that used Facebook’s platform to gain access to consumers’ information. At the time, Facebook argued that the situation was not a data breach because consumers knowingly gave away their consent when they signed up for the app. Since then, however, Facebook acknowledged that the professor violated Facebook’s Platform Policies by failing to disclose that the data collected was passed onto data collections and analytics firms, Strategic Communication Laboratories and its affiliate corporation, Cambridge Analytica.

SEC Chair Jay Clayton Sets “Near-Term” Regulatory Goals

SEC Chair Jay Clayton laid out near-term narrowly focused regulatory goals and committed the agency over the long term to greater transparency. The set of priorities will be published as part of the federal government’s Unified Agenda.

In remarks at the Practical Law Institute’s 49th Annual Institute on Securities Regulation, Chair Clayton discussed the SEC approach to developing the agency’s five-year strategic plan while articulating short-term narrowly focused efforts. He identified the following immediate efforts:

  • Initial Coin Offerings (“ICOs”): ICOs are vulnerable to price manipulation and other fraudulent actions. The SEC will continue to take steps to warn investors about the enhanced risks presented by ICOs, and to protect market participants from some of these risks. The SEC plans to offer clarification as to (i) how tokens are listed on exchanges (and the standards for listing), (ii) how tokens are valued, and (iii) what protections exist for investors and market integrity.
  • Fee Disclosures: Hidden or inappropriate fees and expenses can harm investors. The SEC will pursue enforcement for fee disclosure-related cases, and look to clarify fee disclosure requirements in order to reduce opportunities for misconduct.
  • Penny Stocks: Reliable information is often unavailable for penny stock issuers. The SEC will seek to expose some of the “opaque aspects” of the penny stock market.
  • Transaction Processing: Transfer agents are “well-positioned” to prevent the distribution of unregistered securities. The SEC will monitor transaction processing, particularly with regard to restricted securities.
  • Investor Education: The SEC is creating a searchable database that will contain information on individuals who have been barred or suspended due to federal securities law violations.

In terms of long-term initiatives, Chair Clayton identified shareholder engagement and the proxy process as an area of focus. He emphasized the importance of proxy rules in providing an avenue for shareholder engagement, and said the SEC will conduct a close examination of whether the current rules are effectively meeting both shareholder and company needs. Chair Clayton explained further that voting power often sits with investment advisers rather than shareholders, thereby limiting shareholder participation rates in the proxy process. He stated that the proxy process may demand a review and corresponding updates to ensure that long-term retail investors are fairly represented in corporate governance. Regarding shareholder proposals, Chair Clayton said the SEC intends to find common ground between the viewpoints held by all stakeholders. This will include an examination of ownership level thresholds for the submission of shareholder proposals and the resubmission process.

Chair Clayton highlighted the importance of transparency in the securities markets. He noted that enforcement plays an important role in ensuring transparency, and stressed that transparency can play a role in deterring, mitigating or eliminating wrongdoing before an enforcement action becomes necessary.

Lofchie Comment: From a financial policy standpoint, the SEC’s renewed focus on its traditional economic missions (good disclosure, investor protection) is an important change in priorities. When combined with a rulemaking agenda that is limited to achievable and announced goals, businesses are better able to prepare.