House Financial Services Committee Markup
House Financial Services Committee
Markup of Legislation
Wednesday, May 8 to Thursday, May 9, 2019
Chairwoman Maxine Waters (D-Calif.), House Financial Services Committee
In her opening statement, Waters noted that several measures under consideration have bipartisan support and will crack down on criminals as well as protect investors and whistleblowers. Waters said the committee would consider bills that would require corporations and LLCs to disclose their beneficial owners, close loopholes in the Bank Secrecy Act (BSA), create a clear definition of insider trading, expand whistleblower protections, protect veterans’ mortgages, and require the Securities and Exchange Commission (SEC) to identify key challenges faced by small businesses in acquiring capital. Waters also noted that the committee will create two task forces, one to examine the current legal framework around financial technology (fintech), and the second on artificial intelligence (AI), to examine the impact of automation and machine learning, which will give the committee the opportunity to “dive deep” on these issues.
Ranking Member Patrick McHenry (R-N.C.), House Financial Services Committee
In his opening statement, McHenry said he was encouraged by the bipartisan approach to the markup, noting that several the bills under consideration are “widely bipartisan.” McHenry said that two bills under consideration, H.R. 1988 and H.R. 2409, passed unanimously out of the committee in the 115th Congress. McHenry noted that H.R. 2515 and the Insider Trading Prohibition Act of 2019 are responses to recent Supreme Court decisions, adding that he has concerns with the insider trading measure and would like “real input” from the SEC before moving forward. McHenry said the measure addressing beneficial ownership, H.R. 2513, has “significant challenges,” including its impact on small businesses and questions about whether the Financial Crimes Enforcement Network (FinCEN) should keep personal information. McHenry also discussed the task forces the committee is creating, calling AI and fintech “emerging areas” with great potential to impact the financial system, adding that they pose an opportunity for the committee to legislate.
H.R. 1988, the “Protect Affordable Mortgages for Veterans Act of 2019”
Rep. David Scott (D-Ga.) introduced his bill and his Amendment in the Nature of a Substitute, which would correct a technical error in S. 2155 related to loan churning that affected refinancing requirements for veterans’ home loans. Scott explained that this technical error caused liquidity constraints and boxes out these loans from the secondary market. Reps. Carolyn Maloney (D-N.Y.), Andy Barr (R-Ky.), Lee Zeldin (R-N.Y.), and McHenry spoke in favor of the bill.
The amended measure was favorably reported to the House by a voice vote.
H.R. 2409, the “Expanding Access to Capital for Rural Job Creators Act”
Rep. Cindy Axne (D-Iowa) introduced her bill, which would expand the focus areas for the Office of the Advocate for Small Business Capital Formation to ensure rural area small businesses “have a seat at the table” as policymakers consider new rules. Reps. Alexander Mooney (R-W.Va.), Maloney, John Rose (R-Tenn.), Denver Riggleman (R-Va.), Al Lawson (D-Fla.), Lance Gooden (R-Texas), Scott Tipton (R-Colo.), and Waters spoke in favor of the bill.
The legislation was favorably reported to the House by a voice vote.
H.R. 2513, the “Corporate Transparency Act of 2019”
Maloney introduced her bill and her Amendment in the Nature of a Substitute, which would require companies to disclose their beneficial owners at the time when the company is formed. Maloney explained that this information would be collected by FinCEN and only be available to law enforcement and financial institutions that are complying with Know Your Customer (KYC) obligations. Maloney said that criminals, terrorists, and corrupt officials use anonymous shell companies to launder money, hide bribes, and finance their illegal operations, and never have to disclose who owns those shell companies, calling the bill good for law enforcement, financial institutions, and national security. Reps. Waters, Ann Wagner (R-Mo.), Emanuel Cleaver (D-Mo.), and Alma Adams (D-N.C.) expressed support for the bill.
McHenry spoke in opposition to the bill, saying it would create a government repository within FinCEN that would capture the information of three to five million small businesses. McHenry said this would be a “massive” new undertaking for a federal agency, and the committee has not had a classified hearing or briefing to warrant this. McHenry asked for more data on the issue from Treasury and FinCEN, particularly information on use cases and privacy standards. Reps. Tipton and Riggleman expressed concern about the bill’s effect on small businesses. Luetkemeyer expressed concern about data protection.
In light of the concerns expressed by McHenry, Maloney requested to postpone consideration of the bill to a future markup so Treasury and FinCEN could provide the committee with the requested data.
H.R. 2514, the “Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act of 2019″
Cleaver introduced his bill and his Amendment in the Nature of a Substitute, which would amend the BSA to help federal agencies evolve to meet new challenges in their anti-money laundering (AML) efforts. Cleaver noted that the last major AML reforms were in 2001 and national security threats have evolved profoundly since then. He explained that his bill would empower the Treasury Department to protect national security and explicitly safeguard financial systems, codify a voluntary information sharing program between law enforcement, financial institutions and Treasury, and require Treasury and financial regulators to create the position of Civil Liberty and Privacy Officer to ensure policies are not intruding on or undermining citizens’ constitutional rights. He continued that the legislation would also close a number of loopholes that have allowed financial crimes and encourage financial regulators to work with companies to find innovative solutions to AML challenges. Cleaver said it is important to balance the responsibility to provide law enforcement with the information they need to protect Americans with the cost placed on smaller companies. McHenry spoke in favor of the bill, saying the BSA/AML regime is outdated in a number of ways and the legislation is a “thoughtful solution” to fill certain gaps in enforcement.
Amendment Offered by Rep. Loudermilk
Rep. Barry Loudermilk (R-Ga.) offered his amendment, which would update Suspicious Activity Report (SAR) and Currency Transaction Report (CRT) reporting thresholds, calling the current thresholds “the most outdated aspects of the BSA.” With the understanding that a compromise on this issue would be included in the Manager’s Amendment offered by Cleaver, Loudermilk withdrew his amendment.
Manager’s Amendment Offered by Rep. Cleaver
Cleaver introduced his Manager’s Amendment that included several Republican amendments addressing the reporting thresholds for SARs and CTRs, explaining that while these reports are needed to “keep us safe,” the current threshold for filing often includes safe or mundane transactions and burdens smaller institutions. He continued that the amendment will require the Government Accountability Office (GAO) to produce a report to Congress and the Treasury Department that analyzes the CTR threshold and its effects. Cleaver noted that the amendment also calls for Treasury to review SARs and CTRs, including reporting requirements to streamline the process, and calls on FinCEN to conduct a study on the use of emerging technology, such as AI. Reps. McHenry, Steve Stivers (R-Ohio), Maloney, Blaine Luetkemeyer (R-Mo.), French Hill (R-Ark.), Brad Sherman (D-Calif.), Warren Davidson (R-N.C.), Anthony Gonzalez (R-Ohio), Andy Barr (R-Ky.), Loudermilk, Bill Foster (D-Ill.), Riggleman, and Waters voiced their support for the bill. The Manager’s Amendment was agreed to by voice vote.
The amended measure was favorably reported to the House in a 55-0 vote.
H.R. 2515, “To amend the Securities and Exchange Act of 1934 to amend the definition of whistleblower”
Rep. Al Green (D-Texas) introduced his bill and his Amendment in the Nature of a Substitute, which would restore law to the status quo ante as existed before digital realty and protect whistleblowers from retaliation if they report company wrongdoing within the company rather than going directly to the SEC. Rep. Bill Huizenga (R-Mich.) voiced his support for the bill, explaining that internal reports will not be able to be used against whistleblowers and that it will encourage employees to report misconduct internally before immediately escalating to the Commission. Reps. Joyce Beatty (D-Ohio) and Waters also voiced their support.
The amended measure was reported favorably to the House by a voice vote.
H.R. 2534, The Insider Trading Prohibition Act of 2019
Rep. Jim Himes (D-Conn.) introduced his bill and his Amendment in the Nature of a Substitute, which would codify insider trading law. Himes said that for decades there has been no specific statutory prohibition on insider trading, and such crimes have been tried under fraud provisions and “court-made law,” noting that this has resulted in conviction reversals in the 2nd Circuit Court of Appeals. Himes noted that he has spoken with SEC Chairman Jay Clayton to address concerns raised by Ranking Member McHenry and that he believes the technical concerns can be addressed as the bill moves to the House floor. McHenry said the bill was an opportunity to clarify a longstanding body of law and court precedent on insider trading and agreed to work with Himes on technical corrections as the bill moves to the floor. Reps. Adams, Huizenga, Waters, and Maloney spoke in support of the bill.
The amended measure was favorably reported to the House in a voice vote.
Task Force on Financial Technology Resolution of 2019 and the Task Force on Artificial Intelligence Resolution of 2019
Waters introduced the resolutions, which would create two task forces to help the committee understand the many applications of fintech and of the issues associated with AI. Waters said advancements in these areas can open up opportunities for those who have been excluded from access to financial services, but there must also be “robust” protections for consumers and abuse must not be allowed. Reps. Stephen Lynch (D-Mass.), Foster, McHenry, and Hill spoke in favor of the resolutions.
The resolutions were favorably adopted.
For more information on this markup, please click here.