The Biden administration’s policy agenda, appointment of key personnel and potential impact to the financial services industry were among the issues discussed recently by Ali Wolpert, DTCC Managing Director and Head of Global Government Relations, and a group of financial services policy experts at an interactive discussion hosted by Steptoe Financial Services.
Stimulus and Climate Change on the Forefront
In the legislative and regulatory spaces, the unprecedented stimulus package, a renewed focus on climate agenda and the implications of critical nominations—as well as the lack of key appointments—have all had an impact on the industry, said the panel, which included Matt Kulkin, Co-chair of Steptoe's Financial Services Group, Briget Polichene, Chief Executive Officer, Institute of International Bankers and Christopher Robins, General Counsel, Binance.US.
Panelists agreed that the American Rescue Plan (ARP) is the administration’s most significant accomplishment so far, especially considering the speed at which it was passed. Wolpert noted that prior to the passage of the ARP, state governments in key financial centers like NY, NJ and Illinois were concerned about considerable gaps in local budgets that were not funded by previous COVID relief packages. As such, the potential need to move financial transaction tax proposals to fill those gaps gained a great deal of momentum in 2020. Since ARPs passage and the inclusion of state and local funding, the drive behind financial transaction tax proposals as a source of revenue have ramped down.
Climate change risk has also been a driving force within the Biden administration and there are indications that budget reconciliations may have a carbon adjustment tax as the administration looks to stay on par with European peers, according to the panel.
News on the Hill
Despite a Democrat-controlled White House, Senate and House of Representatives, legislators are still facing uphill battles given the political polarization on Capitol Hill.
Financial services legislation is moving slowly, and panelists agreed that there are many challenges to having major legislative policy completed by the end of 2021. The industry, however, is spending time to set a path for 2022 and further educate lawmakers on key issues.
"The narrow majorities in the House and the Senate pose a challenge to passing a large number of bills, as bipartisan cooperation is needed to do so,” Wolpert said. “However, there have been several targeted pieces of legislation introduced around cybersecurity, including incident reporting that that have bipartisan support and could pass before the end of the year.”
"There have been several targeted pieces of legislation introduced around cybersecurity, including incident reporting that that have bipartisan support and could pass before the end of the year.”
Treasury Playing a Pivotal Role
The U.S. Department of the Treasury continues to play a pivotal role in the administration’s agenda. The Financial Stability Oversight Council (FSOC), a collection of regulatory agencies established under Dodd-Frank Act that monitors risks to the financial system, is chaired by Treasury Secretary Janet Yellen. So far this year, the FSOC has addressed new risk issues impacting major areas of the global financial markets, including hedge funds, open-end mutual funds, climate change, financial stability, housing markets, non-bank financial intermediation, money market reform, LIBOR transition and bank stress tests.
Wolpert noted that the depth of experience at Treasury and the Federal Reserve has added value in dealing with the enormous stresses on the financial system, particularly in handling COVID-19 aid. "The Treasury has done a quality job of implementing and executing COVID relief, especially considering the amount and speed of the legislation, which has provided confidence to markets,” she said.
SEC Addressing Market Trends
The appointment of U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler will have a significant impact on the agency and its policy. Gensler's appointment and confirmation process coincided with the meme stock event and the resulting volatility, which brought accelerated settlement, gamification and payment for order flow (PFOF) to the forefront of industry and legislative conversations.
A supporter of shortening the settlement cycle, Gensler has stated "time equals risk," and has indicated that he is willing to work with the industry to that end. After publishing the white paper "Advancing Together: Leading the Industry to Accelerated Settlement," DTCC is working with SIFMA and ICI is engaging with the industry on next steps to move toward T+1.
Looking Ahead
Wolpert noted that while the administration has many significant accomplishments so far, critical appointments including at the Commodity Futures Trading Commission (CFTC), Office of the Comptroller of Currency (OCC), and the Consumer Financial Protection Bureau (CFPB) remain unfilled.
One panelist noted that the absence of a nominee for the chief banking regulator—the comptroller of the currency— is particularly surprising given the number of controversial interpretive letters, including true lender rules and virtual currencies and Basel III implementation, that are unresolved.
According to panelists, the absence of a permanent chairman at the CFTC has left issues, such as the LIBOR transition, without a roadmap. And while the SEC is moving full speed ahead, the CFTC staff is unable to enact policies without clear direction, and market participants are seeking further clarity to operational challenges.