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House Appropriations FSGG Markup

House Appropriations Committee

FY 2023 Homeland Security and Financial Services and General Government Appropriations Bills

Friday, June 24, 2022

Topline

  • The bill was voted favorably to the House by a recorded vote of 31-22.
  • An Amendment by Subcommittee Ranking Member Womack to prohibit the SEC from finalizing its Private Funds Rule was rejected by voice vote. Subcommittee Chair Quigley highlighted report language in the bill to address Womack’s concerns and pledged to work with Womack to make sure the SEC gets the rulemaking right and that there are no unintended consequences from the Rule.
  • An Amendment by Rep. Joyce to prohibit the SEC from finalizing its climate risk disclosure Rule was rejected by a vote of 24-31.
  • The Committee Report included language on many SIFMA Board priorities, including: the Consolidated Audit Trail, data security, SEC economic analysis and comment periods, E-Delivery, and digital assets. 

Bills Considered

Opening Statements
Subcommittee Chairman Mike Quigley (D-Ill.)

In his opening statement, Quigley summarized programs and funding levels in the bill. 

Subcommittee Ranking Member Steve Womack (R-Ark.)

In his opening statement, Womack criticized the bill’s out of control baseline spending and contribution to the rising national debt. 

Committee Chairwoman Rosa L. DeLauro (D-Conn.)

In her opening statement, DeLauro touted the bill’s support for small business programs, the Internal Revenue Service (IRS), and anti-money laundering, 

Committee Ranking Member Kay Granger (R-Texas)

In her opening statement, Granger touted small business programs in the bill but criticized out of control spending.

FY 2023 Financial Services and General Government Appropriations Bill

Rep. Adriano Espaillat (D-N.Y.) discussed COVID-19’s impact on small businesses and touted his district’s community projects funded in the bill. Rep. Hal Rogers (R-Ky.) focused on the opioid epidemic and criticized language in the bill to safeguard financial institutions that work with state-legal marijuana or hemp businesses. Rep. Debbie Wasserman Schultz (D-Fla.) touted women small business programs in the bill. Rep. Marcy Kaptur (D-Ohio) discussed the issue of unbanked and underbanked Americans. Rep. Jennifer Wexton (D-Va.) discussed federal employee pay, and Rep. Louis Frankel (D-Fla.) criticized the Supreme Court’s decision to overturn Roe v. Wade.

Manager’s amendment making certain non-controversial changes to the bill and report

Quigley introduced his Manager’s Amendment. The Manager’s Amendment was reported favorably to the House by a voice vote.

Amendment to prohibit SEC from finalizing rules to require additional disclosures and stop certain unfair practices with respect to Private Fund Advisors

Womack introduced his Amendment to block the SEC’s Private Funds Rule, which he said would disrupt the private sector and our economy, and noted the dramatic change in the SEC’s agenda. He said the Rule would only protect highly sophisticated investors and hinders capital formation and then quoted SEC Commissioner Hester Peirce’s remarks about the Rule benefiting sophisticated investors. He added that government overreach and regulation will not solve the country’s current inflation problems.

Quigley opposed the Amendment, saying the SEC’s Rule would improve the transparency and fairness of private funds, including retirement plans and university endowments. He said the bill’s report language will encourage the SEC to slow down and produce a thorough and fair rulemaking. He then pledged to work with Womack to make sure the SEC gets the rulemaking right and that there are no unintended consequences from the Rule.

The Amendment was rejected by a voice vote.

Amendment to prohibit SEC from finalizing rules to require climate change risk disclosures from corporations

Rep. Dave Joyce (R-Ohio) introduced his Amendment to prohibit the use of funds to finalize, implement, or enforce the SEC’s proposed rule, which he said requires unworkable emissions calculating and reporting and scope 3 emissions disclosure that would force small businesses to undergo the considerable expense of calculating their emissions. He said this threatens to increase market consolidation and force farmers to take time away from producing food and fuel to instead comply with the new regulation. He then said the Rule would force manufacturers to divert their capital to paying accountants to calculate emissions instead of creating new jobs. Joyce highlighted his letter to the SEC noting these concerns and the SEC’s two-paragraph reply. He concluded that the SEC does not have a mandate to regulate carbon emissions but has proposed a Rule requiring disclosure of greenhouse gas (GHG) emissions.

Quigley opposed the Amendment, saying investors need reliable information about climate risk to make informed decisions and that investors support climate disclosure, citing a report saying that many companies publish climate risk information. He said the Rule also addresses disclosure of GHG emissions, which is increasingly being used to measure climate transition risk, and that consistent disclosure would provide investors with a way to compare data across their investments.

Womack said the SEC has no role in protecting the environment, now is not the time for the SEC to become an environmental regulator, and now is not the time to raise disclosure costs of businesses. He quoted Commissioner Peirce, saying the proposal dispenses with materiality and steps outside the SEC’s statutory limits to use the disclosure framework to achieve objectives outside the SEC’s purview and that the Commission underestimates the cost of the proposal. He added that the SEC should not use its authority over public companies to regulate the environment.

Joyce closed by reiterating that Congress did not establish the SEC to set climate policy, which is the clear goal of the Commission’s proposal, and that SEC staff should not be imposing their personal political wishes at the expense of American entrepreneurs.

The Amendment was rejected by a recorded vote of 24-31.

Amendment to reduces USPS funding by $6 million and strikes report language on Postal Non-Banking Financial Services Modernization Pilot Program”
Womack introduced his Amendment, questioned the use of Postal Service banking services, and instead suggested funding for alternative programs. The Amendment was rejected by a voice vote.

Amendment to increase Treasury Cybersecurity by $80 million offset by a reduction to IRS Enforcement
Rep. Ashley Hinson (R-Iowa) introduced her Amendment to increase cybersecurity funds for Treasury by reducing IRS funding. The Amendment was rejected by a recorded vote of 24-31.

FY 2023 Financial Services and General Government Appropriations Bill

The bill was reported favorably to the House by a recorded vote of 31-22.

FY 2023 Financial Services and General Government Appropriations Report Language

Consolidated Audit Trail

Stakeholders have raised concerns about the amount of personally identifiable information (PII) being collected by the SEC and the self-regulatory organizations through the Consolidated Audit Trail (CAT). The Committee supports the actions taken by the SEC in Release No. 34–88393 to allow a CAT Customer ID Alternative and a Modified PII approach that would minimize the collection of PII and support the SEC’s policy to collect only the ‘‘information sufficient to achieve regulatory objectives.’’ The Committee urges the Commission to carefully monitor its CAT policy and implementation to minimize risk to the PII of system participants.

Data Security

It is critically important to both investors and the U.S. capital markets that the SEC fortify its cybersecurity threat detection, response, and mitigation process. The SEC is collecting an increasing amount of market-sensitive data and PII, including through Form N–PORT and the CAT. As a repository for sensitive market data and a likely target for those who wish to manipulate U.S. markets, the security of the CAT system and data is paramount. The Committee strongly supports the SEC’s efforts to strengthen and protect its information technology systems and systems it oversees maintained by the self-regulatory organizations, including the CAT system and EDGAR (the Electronic Data Gathering, Analysis, and Retrieval system). The Committee also strongly urges the SEC, in its oversight of the Financial Industry Regulatory Authority, to ensure the CAT has adequate breach notification policies in place so affected participants are promptly notified of critical security events.

Economic Analysis and Comment Periods

The Committee firmly believes that robust economic analysis and stakeholder engagement in the rulemaking process are not only required by law, but also essential for effective SEC rulemaking, as they help ensure that decisions to propose and adopt rules are informed by the best available information about a rule’s likely economic and other consequences. The Committee appreciates the SEC’s decision to reopen rulemaking comment periods that were previously closed after only 30 days, including the rule titled, ‘‘Private Fund Advisers; Documentation of Registered Investment Compliance Reviews,’’ and encourages the SEC to extend comment periods to a length that is appropriate for the complexity and potential impact of the rule. However, the Committee also strongly encourages the SEC to reconduct the economic analysis for the Private Fund Advisers proposal to ensure the analysis adequately considers the disparate impact on emerging minority and women-owned asset management firms, minority and women-owned businesses, and historically underinvested communities. Doing so will not only improve the quality of proposed rules, but also help to increase public confidence in the SEC’s regulatory process.

E-Delivery

The Committee supports efforts by the SEC to modernize how registered investment companies (including mutual funds, closed-end funds, and exchange-traded funds), business development companies, registered broker-dealers, registered advisers, registered transfer agents, and certain other SEC-regulated entities may satisfy their obligation to deliver regulatory documents to investors under the Federal securities laws using electronic means, or e-delivery, while delivering such information in paper via U.S. mail to any shareholder who requests it. Such changes will better satisfy investor preferences, reduce costs for investors, and facilitate positive and more timely investor engagement. The Committee expects any action by the SEC to incorporate investor protections, including allowing those investors who prefer paper communications to opt out of electronic delivery at any time and receive paper versions of documents.

Digital Assets

The Committee recognizes that digital assets can drive innovation in the financial services sector. New financial products require clear pathways and regulatory structures for stakeholders, developers, and investors. The Committee is concerned that enforcement action in the absence of regulatory clarity invokes confusion in the growing sector. The Committee encourages the SEC to issue public guidance that promotes U.S.-based innovation.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.