Middle-Market Public Policy Roundup
Congress announced it will hold a hearing to address leveraged lending risks, and the Office of Management and Budget released its biannual agenda.
This week, the House Financial Services Subcommittee on Consumer Protection and Financial Institutions announced a hearing to address the potential risks of leveraged lending. This is the first hearing on leveraged lending hosted by the current Congress, and participating lawmakers are expected to be divided along party lines.
Meanwhile, the Office of Management and Budget released its biannual agenda, which outlines the current and future activities of most federal government agencies over the next year. ACG has followed many of these agenda items closely, and they will remain a focus of public policy efforts in the months to come.
House to Hold Hearing on Leveraged Lending and Systemic Risk
The House Financial Services Subcommittee on Consumer Protection and Financial Institutions will hold the first hearing of the 116th Congress focused solely on the issue of leveraged lending.
The Democrat-controlled committee will hold the hearing, titled “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending,” on June 4.
Leveraged lending has come under increased scrutiny from both lawmakers and regulators. Democrats in particular have expressed concern and have discussed the use of leverage in relation to the failure of private equity-owned retailers, potential systemic risks and the rise of so-called “shadow banking.”
Republican-appointed regulators have noted that the growing leveraged loan sector, while in need of careful monitoring and examination, does not share the same systemic characteristics that enabled the mortgage bubble of the 2000s to become the 2008 financial crisis.
Democrats don’t agree. For instance, in December 2018, Democratic Sen. Elizabeth Warren wrote a letter to regulators with her concerns that the “large leveraged lending market exhibits many of the characteristics of the pre-2008 subprime mortgage market.”
While witnesses for the hearing have yet to be announced, ACG’s public policy team expects a split along partisan lines, with Democrats voicing concern and a desire for increased regulatory oversight.
OMB Releases Spring 2019 Regulatory Agenda
On May 23, the Office of Management and Budget released its biannual Spring 2019 Unified Agenda of Regulatory and Deregulatory Actions.
Released each spring and fall, the agenda is a compilation of the current and projected regulatory actions that will be taken across all federal government agencies, except congressional agencies, over the next 12 months.
The agenda largely reiterated the commitment of federal agencies to rulemakings that ACG has been covering in 2019, though some projected timeframes have shifted. Some highlights include:
SEC Amendments to the Marketing Rule Under the Advisers Act. Modernizing the marketing rule is a key advocacy objective for ACG. A notice of proposed rulemaking is expected by September 2019.
SEC Amendments to the Custody Rules for Investment Companies and Investment Advisers. A longtime source of confusion for private funds that became applicable under the rule after the Dodd-Frank Act, the notice states that the “Division is considering recommending that the Commission propose amendments to rules concerning custody under the Investment Company Act of 1940 and the Investment Advisers Act of 1940.” A notice of proposed rulemaking is expected by April 2020.
SEC Interpretation Regarding Standard of Conduct for Investment Advisers. ACG commented on this proposal, which could impose additional requirements on investment advisers, including potential licensing requirements similar to those for broker-dealers. A final rule is expected by September 2019.
SEC Regulation Best Interest. This rule impacts all broker-dealers by increasing the standard of care they owe to their clients, particularly those that serve retail clients. A final rule is expected by September 2019.
Department of Labor Joint-Employment Rulemaking. As we’ve previously written, the Labor Department’s Wage and Hour Division has proposed updates to the factors that determine whether a business is legally liable for another company’s employees under the Fair Labor Standards Act. After issuing a comment deadline extension, comments on this proposal are due to the DOL by June 25. There is currently no projected date for the rule’s final release.
National Labor Relations Board Joint-Employer Rulemaking. Similar to the Department of Labor, the NLRB also proposed changes to the definition of a joint-employer. Though included in the agenda, the rulemaking does not have an expected date for final release. The comment period on this proposed rule ended in January, and the board is still reviewing the nearly 29,000 comments it received. ACG submitted a comment letter in favor of the NLRB’s return to a more limited and direct definition.
Also included in the release was the proposed rulemaking with regard to the Volcker Rule, another issue that ACG responded to in a comment letter. Also on the docket are changes to Form ADV and an expansion of the so-called “Test the Waters” provision to non-emerging growth companies, among others.
ACG will be working through the full regulatory agenda in the coming weeks to identify potential areas for advocacy efforts.
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Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.
Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.
