House Financial Services Committee passes Dodd-Frank rollback

After days of partisan wrangling, the House Financial Services Committee on May 4, 2017, advanced a far-reaching bill to roll back the Dodd-Frank Act, ease disclosure and accounting rules on public companies, and place new constraints on financial regulators. PL111-203

H.R. 10, the Financial Choice Act, still faces substantial legislative roadblocks before it can be signed into law.

The panel voted 34 to 26 to pass the Choice Act following a markup session in which Democrats invoked parliamentary tactics and introduced a flurry of amendments in an attempt to delay the bill’s passage. A clerk spent hours reading the bill out loud on a request from Rep. Carolyn Maloney, a New York Democrat, who blasted the Choice Act as a “591-page middle finger to consumers, investors, regulators, and markets.”

Foes also accused Chairman Jeb Hensarling of rushing the measure through the committee process with only one hearing.

“Just a single hearing on a bill with consequences for our entire financial system and economy,” said Rep. Maxine Waters of California, the committee’s top Democrat, in her opening remarks. “That's just irresponsible.”

The nearly bill contains hundreds of measures aimed at financial deregulation, some of them unrelated to the 2010 Wall Street reform law. A core provision of the bill would free banks that hit a certain capital ratio from the requirements of Dodd-Frank and the international Basel III accords, as well as other federal regulations and supervision. The Choice Act also abolishes the “orderly liquidation authority” that allows regulators to resolve large failing banks and brokerages, restructures the Consumer Financial Protection Bureau (CFPB) under the executive branch, curtails the SEC’s enforcement powers, and requires all major agency rules to be approved by Congressional resolution, among other provisions.

“The Financial Choice Act ends bailouts so Washington can never again pick taxpayers’ pockets and hand the money over to big banks,” Hensarling, a Texas Republican, said in his opening remarks. “It ends too-big-to-fail. It makes our financial system safer and helps avoid another crisis by replacing taxpayer funds with loss-absorbing private capital, far more capital than either Dodd-Frank or the Basel accords requires.”

During the markup session, the committee’s GOP majority shot down a series of Democratic amendments, including one that would have struck language repealing the Department of Labor’s fiduciary rule on retirement investment advisers. Under the Choice Act, the DOL is forbidden from issuing another such standard, which requires brokers, insurance agents, and other financial advisers working with retirement accounts to act in the best interest of their clients, until the SEC implements its version of the fiduciary rule.

The committee spent two hours debating the amendment from Rep. Stephen Lynch, a Democrat from Massachusetts, who decried a “seemingly endless assault” on the rule by Republicans.

Rep. Ann Wagner, a Missouri Republican and outspoken critic of the DOL requirement, said the rule would “limit access, reduce choice, and increase prices for retirement investment advice.”

“Instead, the SEC should be taking the lead on this issue as the expert regulators,” she said.

The vote marks the second time the committee has passed the Choice Act. The bill’s first iteration advanced out of the panel in September but never reached the House floor. Hensarling’s second version is both longer and more sweeping than the first, with several provisions expanded to apply to more companies.

The first version of the Choice Act exempted all public companies with a market capitalization of up to $250 million from the auditor attestation requirements in Section 404(b) of the Sarbanes-Oxley Act of 2002. Section 404(b) requires companies hire an outside auditor to review and report on management’s assessment of internal controls over financial reporting (ICFR), which is widely considered one of the most expensive requirements from Sarbanes-Oxley. The latest version of the bill frees public companies with a market value of up to $500 million from Section 404(b).

If the Choice Act passes the House, it still faces significant challenges in the Senate, both from Republicans and Democrats. Senate Banking Committee Chairman Mike Crapo has yet to roll out his version of a regulatory reform package, which is expected to reflect more bipartisan consensus than the Choice Act. Democrats, as well, still hold the keys to the filibuster, and are expected to use it to block a wholesale attempt to gut post-crisis reforms.

In a statement, Sen. Sherrod Brown, an Ohio Democrat and the Senate Banking Committee’s ranking member, pointed to President Donald Trump’s recent remarks on restoring and updating the Glass-Steagall Act. Trump, speaking to Bloomberg News, said, “We’re going to look at” separating investment banks from depository institutions.

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