During the first 100 days of President Biden’s administration, key themes and priorities have emerged and are expected to remain a focus moving forward. Alison Wolpert, DTCC Head of Global Government Relations, shares her perspective on anticipated future considerations and offers a look ahead for the industry.
Historically, events of the day have helped drive policymaker agendas and recent activity proves this to remain true. Market volatility, cybersecurity issues and innovation – all of which tie to current events and areas of focus - have emerged as impactful to policy considerations.
Reactions to Market Volatility
Market volatility earlier this year prompted U.S. Congress to engage with the financial industry to identify causes and underlying issues, and to examine potential policy solutions to mitigate negative impact on the global financial markets. The U.S. Senate and the House of Representatives held committee hearings focusing on the “meme stocks” event. The House Financial Services Committee held three hearings, the last of which included testimony from Michael Bodson, DTCC President & CEO, as well as new SEC Chairman Gary Gensler and FINRA CEO Robert Cooke.
Similar conversations are taking place globally. For example, the EU is currently examining the gamification of trading including retail strategy and short selling rules.
As part of our educational outreach efforts, DTCC provided legislators with detailed descriptions of the firm’s role in ensuring the safety and stability of the marketplace, its processes and operations, and relationships with clients. We highlighted the importance of netting and margin requirements, as well as our efforts with the industry to further shorten the U.S. equities settlement cycle. While legislation is not required, having Congressional support to further reduce settlement helps promote increased engagement among some policymakers and industry stakeholders.
Cybersecurity and network vulnerability, spurred by a recent wave of ransomware attacks, remains a priority for the administration.
Vulnerability Escalations and Cybersecurity
JBS Foods, AXA, SolarWinds and the Colonial Pipeline ransomware attacks, among others, have heightened international focus toward cybersecurity. As a result, efforts to address cyber vulnerabilities and secure critical infrastructure are at the forefront of both Congress and the Administration.
Efforts are underway globally to build frameworks that will further protect networks and encourage threat information sharing. Public-private partnership remains an important consideration as governments work to develop ways to combat and prevent a range of evolving cybersecurity attacks. Recent cyberattacks and policymaker responses make it clear that cybersecurity issues span international regions and jurisdictions.
Congress is currently debating a large legislative package to address increasing U.S. competitiveness with China which includes cybersecurity elements. The U.S. Innovation and Competition Act of 2021 (formerly referred to as the Endless Borders Act), is aimed at strengthening American research and technology manufacturing. The legislation recently passed the Senate and the House is anticipated to consider the legislation shortly. Additionally, Senators John Warner (D-VA) and Marco Rubio (R-FL) are working on a proposal regarding mid-incident cybersecurity reporting.
President Biden issued an executive order in May – which is viewed by Democrats and Republicans as a positive step – that focuses on improving the nation’s cybersecurity. The order aims to strengthen and modernize U.S. cybersecurity defenses, improve software supply chain security and establish a cybersecurity safety review board.
There are similar moves underway in Europe as well. The European Union recently revised its incident reporting rules under the Directive on Security of Network and Information (NIS2), which introduced stringent supervision measures and enforcement. There is also an EU focus on the Digital Operations Resilience Act, known as DORA. This draft legislation is the first of its kind and is designed to be the foundation for EU Member States to promote safety and soundness across the sector as well as financial services innovation.
Read more: DTCC’s Jason Harrell Discusses DORA
Looking ahead, the cybersecurity landscape globally will likely continue to rely on a combination of broad long-term policy initiatives, such as the U.S. executive order, and legislation driven by specific needs or events
Innovation and the Digital Asset Landscape
A third area of focus—innovative technology —is now part of the mainstream political agenda globally. During the last Congressional session, approximately 40 proposals regarding crypto and blockchain were introduced. Chair Gensler brings a unique lens into the space at the SEC, given his focus on innovation during his tenure as a professor at the Massachusetts Institute of Technology. Cryptocurrency, blockchain and other digital innovations increasingly are integral parts of discussions about the financial services industry, as firms, stakeholders and policymakers assess implementation and regulation in this space.
In the U.S., there is bipartisan support for innovation-focused activity with recent legislation focusing on digital assets and potential Central Bank Digital Currencies (CBDC). Ranking Member Patrick McHenry (R-NC) and Representative Stephen Lynch (D-MA), Chair of the Financial Technologies Task Force, introduced a bipartisan bill that passed the full House to require the SEC and the CFTC to establish a digital asset working group. Additional bipartisan proposals focus on maintaining the dollar’s dominance as global currency and calling for a CBDC study.
From the supervisory side, the Federal Reserve continues to explore a U.S. CBDC and recently indicated a report would be released this summer. Central banks around the world also are exploring digital currencies. The Bank of England and the UK Treasury are investigating a UK CBDC and created a taskforce to coordinate efforts. The European Central Bank continues to explore options, and a recent consult for a potential digital euro received more than 8,000 responses.
As market events unfold and potential impacts to policy considerations are debated, we will continue to work with legislators and policymakers to encourage dialogue, share perspectives and ideas, and help shape outcomes to support the safety and soundness of the financial markets globally.