Middle-Market Public Policy Roundup

The Securities and Exchange Commission is gearing up for a flurry of activity, with hearings, meetings and rule changes set to take place in coming days. On Wednesday, commissioners passed a package of amendments to the Volcker Rule, including a section excluding small community banks from the regulation’s oversight. On Thursday, an SEC advisory group will meet to discuss the increase in leveraged loans and the implications it could have on future decisions made by the agency. Lastly, the SEC’s five commissioners are preparing for a rare hearing next week that will see them all appear before Congress for the first time in more than a decade.

SEC Adopts Volcker Rule Overhaul

The nation’s securities regulator has became the latest federal agency to ratify modifications to a law regulating the relationship banks can have with private equity firms.

Securities and Exchange Commission leaders passed a rule package amending a section of the Volcker Rule that restricts proprietary trading by banks and the relationships they can have with “covered funds”—which includes private equity firms—after a nonpublic meeting on Sept. 18.

A prominent part of the rulemaking is a provision that excludes community banks with less than $10 billion in assets from Volcker Rule regulations, which could be an opening for smaller banks to invest in private capital funds.

The amendment, known officially as “Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds,” was compiled from a list of proposals provided by five federal agencies in July 2018.

In August, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation became the first federal agencies to adopt these changes. According to earlier statements, the Federal Reserve and the Commodity Futures Trading Commission are also set to adopt the changes.

The move stoked partisan backlash shortly after the OCC and FDIC announced their decision last month, with Republicans in support of the amendment and Democrats in opposition, arguing the move could allow banks to engage in riskier behavior.

The proposed rule is set to take effect on Jan 1., 2020.

Committee Will Discuss Leveraged Loans

The Securities and Exchange Commission’s investor protection wing will hold a meeting Thursday on the increase of leveraged loans and the potential impact it could have on future regulatory efforts.

In a statement, the Investor Advisory Committee, which makes recommendations to SEC commissioners on regulatory priorities, said it would convene on Sept. 19 to discuss increased leverage and related SEC regulatory implications.

Making statements at the meeting will be Michael Barr, dean of public policy at the Gerald R. Ford School of Public Policy at the University of Michigan; Elisabeth de Fontenay, professor of law at Duke University; Erik Gerding, professor of law at the University of Colorado Law School; Andrew O’Brien, head of global loan capital strategy and managing director at JPMorgan; and George Oldfield, principal emeritus at the Brattle Group.

Commissioners to Appear in Rare Joint Hearing

All of the SEC’s leadership will appear before Congress in coming days for the first time since the George W. Bush administration.

The SEC’s five commissioners, including Chairman Jay Clayton, as well as Commissioners Hester Peirce, Elad Roisman, Robert Jackson, and Allison Lee, will appear before the House Financial Services Committee as part of a Securities and Exchange Commission oversight hearing Sept. 24.

Lawmakers last brought together all five commissioners in June 2007. At that time, the SEC was led by Christopher Cox, and the Financial Services Committee was led by then-Chairman Rep. Barney Frank, D-Mass, who discussed the aftermath of the Enron scandal.

The topic of the upcoming hearing is expected to be Regulation Best Interest, the new broker conflict-of-interest rules approved by the Commission in June.

Clayton is no stranger to the Financial Services Committee, having testified nearly a dozen times before Congress since he took office in 2017. However, meeting with lawmakers will be a first for the rest of his colleagues, most of whom joined the agency in 2018.