David Weild: The Collapse of the Small IPO is Undermining Entrepreneurship, Tokenization May Help Fix the Problem | Crowdfund Insider

The article below was originally published by Crowdfund Insider on February 26, 2019, at this link.

This article discusses a recent speech by David Weild, Father of JOBS Act 1.0.  Several other of my published articles discuss the themes of  he disappearing US public companies, lack of capital for smaller-cap companies, the dying of US entrepreneurship, and the consequent loss of upward mobility that appear in Mr. Weild’s published work.

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Last week Crowdfund Insider attended the KoreSummit in Miami – a security token focused event. The opening presentation was delivered by David Weild, a former Vice Chairman of NASDAQ and now CEO of his own firm Weild & Co.

Weild, a staunch proponent of the JOBS Act, has long championed the benefits of entrepreneurship and the smaller initial public offering (IPO) market – a sector that has dramatically declined in recent years. He believes that misguided policy decisions have crushed the small to mid-market IPO and thus undermined access to capital and wealth creation in the US.

Today in the US, much of the innovative entrepreneurship takes place in hotbeds of creativity like Silicon Valley or Silicon Alley – to the exclusion of most of the country. Weild believes this is a shortcoming that must be addressed and the loss of small-cap IPOs have accelerated the decline in entrepreneurship.

Additionally, part of the economic impact due to this concentration of innovation is that the concept of upward mobility has been undermined. For much of the country, it is harder to get ahead. The wealthier get more wealthy while the poor and middle class struggle to make ends meet.  Opportunity and access to capital, is not being equally disseminated across the country. Now, Weild is no social democrat. As he explains:

“I do not begrudge the rich getting rich. I begrudge the people getting left behind.”

Weild is on a mission. He believes that education, access to capital, company formation, and “exitability” are all essential for upward mobility. Fostering a robust entrepreneurial ecosystem is vital.

He has advocated on behalf of the concept of creating a venture exchange: a marketplace for smaller firms to raise capital, provide liquidity, and create an exit opportunity.

Currently, Weild believes that blockchain technology and tokenization may be the best path forward to take friction out of the innovation ecosystem, lower costs, and reinvigorate entrepreneurship in the US. The technology may streamline primary issuance as well as secondary transactions.

“Instead of us having a one size fits all stock market that is really geared towards trading … and ignores the needs of the companies and intermediaries this would be one that really balances all of the interests.”

Weild believes the problem with the current market structure is that interests are out of balance. He is critical of the existing options. Weild calls OTC Markets efforts to be the US venture market “lunacy” and says we need a complete remake:

“OTC Markets is a stock held exchange. I seriously doubt that any model will work unless it is a member owned exchange.”

He believes the tick size pilot, an experiment launched by the SEC to boost liquidity for smaller cap firms, was flawed due to the participation of the exchanges as they were incentivized by their own profitability. Weild believes that small investment banks and those who make markets and commit capital must be part of the equation.

“You don’t get that optimization, that balancing of interests. Investment banks have to worry about being on the right side of the investors and the right side of the companies they serve and they have to get it right.”

NASDAQ and NYSE just care about their quarterly earnings as public firms, according to Wield. He also believes that the SEC set up the tick pilot to fail from the beginning. In fact, Weild sent a letter to SEC Chair Jay Clayton telling him just that.

Bullish on Entrepreneurs

Weild notes that jobs are created by small businesses – a statement that has been born out in multiple reports. Most innovation takes place in startups and early-stage firms as well. It is vital that policy and regulation support these types of firms – even if many of them inevitably fail.

“You gotta get that right or you don’t have a future,” says Weild.

So what about private markets? Today, there is an ocean of private money looking for great deals. As public markets have declined in relevance and viability, private money has stepped in to fill the void.

Weild believes private markets are not that efficient. He asks the question as to how many entrepreneurs do you run into that are struggling to raise money. This point is buttressed by a slide from his presentation that shows the decline in entrepreneurship that has hit fly-over country.

“They don’t know who to talk to, they can’t find it. It’s a chronic disease of US public markets … there is a have and have not world and the vast majority of the United States is have not … we are in the lowest startup rate in 40 years…”

In effect, venture capital has become a substitute for public markets.

Policymakers need to get ahead of the curve. They need to figure out how to get the heartland back to creating jobs and you cannot do it if you have to be a $500 million company before it is reasonable to take it public.

So where does tokenization fit into all of this? And is the hype getting ahead of reality?

Weild says yes, the hype always gets ahead of the story. But the technological shifts are always overestimated over the short term, or the hype phase, and underestimated in the long term. Weild draws a parallel to the rapid rise of the internet and the first market entrants that largely failed. Inevitably hugely successful companies will arise from the “primordial ooze.”

“Security tokens technologically are really interesting because they can take a lot of cost out of the system. It is not just a token, it is not just a block and general ledger, its this integrated system that includes this software layer that can do whatever, ultimately, they are programmed to do.”

Weild sees a system that is amazingly efficient where you can take out intermediaries – like a bank.

“Look at what JP Morgan just did announcing their own stablecoin.”

Sure. There are plenty of Luddites and naysayers that don’t believe in blockchain tech but in Weild’s experience, we are in the trial and error phase where we are going to work out the kinks. He would be surprised if, at some point in the future, we are not holding securities very differently.

Even DTCC is working on a blockchain project.

Weild says that a lot of the transactional costs will be stripped out of the system.

Securities on blockchain will create a level of innovation we have yet to experience in the past, says Weild. It will transform securities but there will be an interim step where traditional and digital will be interchangeable but eventually, it will all be tokenized.

Weild acknowledges there are still many issues that need to be worked through such as custody. But eventually, major Wall Street firms will be compelled to change and adapt.

Of course, the change is not going to be instantaneous. Weild sees it shifting over the next five years at best.

JUMP Coalition: Jobs Upward Mobility and Making Markets Perform

One of Weild’s newer projects is the Jump Coalition that will be a bi-partisan lobbying group/think tank. The goal is to advocate politically for creating incentives that work for most people. He mentioned both Representative Maxine Waters and former Representative Jeb Hensarling as pursuing supportive legislation in Congress. Representative Waters, now the Chair of the powerful House Financial Services Committee, is on the record supporting the JOBS Act 3.0 – an entrepreneur/small business friendly act of legislation.

Ultimately, Weild wants to see everyone on a path to a better future – not just the lucky few.

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Mr. Woessner  mentors, advises, and helps companies in the start-up and smaller-cap company ecosphere raise capital via Regulation Crowdfunding (CF) and otherwise.  He also advocates in Washington DC for policies that create a more hospitable public company environment for smaller-cap companies, enhance capital formation, support small business, promote entrepreneurship, and increase upward mobility for all Americans, particularly minorities. See here for more information on Mr. Woessner’s background.

 

 

Bipartisan Housing Finance Reform Summary – by Ronald Woessner

On September 6, 2018,  House Financial Services Committee Chairman Jeb Hensarling (R-TX), Congressman John K. Delaney (D-MD) and Congressman Jim Himes (D-CT) introduced a bipartisan plan to reform the country’s broken housing finance system, as described below:

THE BIPARTISAN HOUSING FINANCE REFORM ACT SUMMARY OF KEY PROVISIONS

OVERVIEW

  • Americans deserve a better single family housing finance model – one that’s sustainable and built to last. Sustainable for homeowners so they can keep their homes; sustainable for taxpayers so they are never again asked to rescue an imperiled housing system; and sustainable for our nation’s economy so we avoid the boom-bust housing cycles that have hurt so many in the past.
  • The goal of the Bipartisan Housing Finance Reform Act is to provide a safe, sustainable, transparent, and liquid mortgage credit market for all Americans wishing to own a home.
  • The overarching philosophy of the Bipartisan Housing Finance Reform Act is to create an equal playing field across different ways to finance a single family mortgage, allowing risk to be allocated to those entities which are best able to manage it and avoid too-big-to-fail institutions dominating or restricting access to the mortgage market.
  • Instead of introducing new, unproven ideas or creating intricate new structures, the Bipartisan Housing Finance Reform Act builds on the working parts of today’s system and known successful pathways to finance mortgages.
  • That way it can harness the benefits of the existing framework of Ginnie Mae and the government guarantee it provides, while providing options for how to finance mortgage lending so that we maximize choice for borrowers, loan originators, and investors.
  • In many ways, the disaggregated Ginnie Mae issuer model that the Bipartisan Housing Finance Reform Act contemplates as a replacement for the pre-crisis GSE model is already happening, and happening with private capital not taxpayer dollars.
  • The Bipartisan Housing Finance Reform Act also seeks to build an affordable housing framework by providing sustainable, dedicated, and transparent funding through an affordability fee. The proposal envisions the fee would provide substantially more funding to address the supply of affordable housing options and directly target underserved individuals and markets that are heavily represented by low-income families and first-time homebuyers.
  • The Bipartisan Housing Finance Reform Act recognizes the importance of multifamily financing in providing housing options and affordable rental properties and seeks to preserve what works in the market today. The proposal envisions the current multifamily business of Fannie Mae and Freddie Mac will continue to function within the new multifamily housing market as entities with an explicit government guarantee of their multifamily securities provided by Ginnie Mae.
  • The Bipartisan Housing Finance Reform Act recognizes the importance of continuing to work on reforms that revitalize and update tax, investment, and banking laws to reflect the realities of financing mortgages in the modern age, while maintaining appropriate consumer protections and investor rights. The proposal envisions better engaging private sector capital to inform, compete with, and supplement any guarantees provided by the government to ensure a functioning mortgage market under all economic conditions.

PROVIDE BORROWERS MORE CHOICES TO OBTAIN A CONVENTIONAL MORTGAGE LOAN AND ACHIEVE HOMEOWNERSHIP

  • Directs Ginnie Mae to establish a new program called Ginnie Mae Plus, which preserves the 30-year fixed rate mortgage.
  • Offers borrowers access to conventional home loans by guaranteeing payment to investors of pooled loans backed by private credit enhancers through Ginnie Mae Plus.
  • Promotes a robust “to be announced” or “TBA” market for mortgage securities and preserves the liquidity of long-term traditional mortgage products through Ginnie Mae Plus.
  • Provides borrowers the benefit of increased options to obtain a safe and affordable loan funded with a Ginnie Mae guarantee.
  • Minimizes the impact on today’s mortgage rates by utilizing the working parts of today’s system and known successful pathways to finance mortgages.
  • Increases the liquidity for Ginnie Mae mortgage-backed securities (MBS) and lowers mortgage rates for all borrowers through an expanded pool of eligible loans that can access the Ginnie Mae guarantee.
  • Sets eligibility requirements for loans to qualify through Ginnie Mae Plus in a similar manner to those for loans guaranteed in the conventional loan market today, subject to: minimum down payments, maximum loan-to-value (LTV) ratios, conforming loan limits, and meeting the Qualified Mortgage (QM) criteria.
  • Allows borrower freedom to choose products that best match their own needs, with additional options available through standardized private capital transactions that can compete with Ginnie Mae on an equal footing.
  • Fosters a market that meets borrower demand without restrictions that favor certain products or financing options over others.
  • Phases in reforms over time, allowing continued and enhanced access to 30-year fixed rate mortgages and existing government guarantees.

UTILIZE EXISTING AVENUES FOR THE GOVERNMENT GUARANTEE AND PROTECT TAXPAYERS WITH PRIVATE CAPITAL

  • Removes Ginnie Mae from HUD and establishes it as an independent entity.
  • Continues using Ginnie Mae to guarantee the timely payment of principal and interest to investors of Ginnie Mae MBS.
  • Grants Ginnie Mae the authority to guarantee eligible MBS backed by private insurance provided the mortgages meet qualifications through Ginnie Mae Plus and the insurance is provided by qualified a Private Credit Enhancer (PCE).
  • Increases the use of private capital in the system by requiring Ginnie Mae Plus issuers to purchase credit insurance from eligible PCEs to qualify for a government guarantee in the secondary market.
  • Places the issuer as the last line of private capital before Ginnie Mae steps in to use government funds to pay MBS investors.
  • Requires any taxpayer exposure through a government guarantee to be transparent, explicit, and paid for under Ginnie Mae.
  • Limits the government guarantee to catastrophic losses and only attaches at the mortgage-backed security level, not at the entity-level.
  • Offsets the government’s catastrophic risk position through the use of private reinsurance, which would both inform the market price for catastrophic risk as well as syndicate pieces of that credit risk throughout the financial system.
  • Expands Ginnie Mae’s capabilities to police the financial health of all Ginnie Mae-approved issuers, monitor the application of the government guarantee, and administer affordability enhancement requirements on guaranteed loans.

INCREASE THE NUMBER OF ACCESS POINTS FOR LENDERS TO FINANCE MORTGAGES

  • Provides small- and medium-sized lenders more access points to finance mortgages than they have today.
  • Requires new mortgage funding access points to allow local institutions to maintain their relationship with the borrower.
  • Provides a pathway for a lender of any size to qualify as a Ginnie Mae-approved issuer and directly access the liquidity of the secondary mortgage market without the need for an intermediary.
  • Enhances the aggregation capabilities of the 400+ Ginnie Mae issuers today, many of which are small lenders, to allow for robust competition.
  • Creates certainty for community lending institutions and their mortgage finance operations by retaining cash window functions equivalent to today’s system through Small Lender Access Programs run by PCEs.
  • Ensures access for lenders of all sizes and prohibits price discrimination based on loan production volume.
  • Allows the Federal Home Loan Bank (FHLB) system to participate as a Ginnie Mae issuer and aggregate loans through a cash window for its members.
  • Offers the ability to finance loans secured with private capital by allowing lenders to sell or issue loans directly through a Common Securitization Platform.

MODERNIZE THE MORTGAGE CREDIT RISK SYSTEM THROUGH PRIVATE CREDIT ENHANCERS

  • Establishes approval and oversight criteria for Private Credit Enhancers (PCEs) as new secondary market entities that replace many of today’s functions that reside at the GSEs.
  • Allows PCEs to charge a guarantee fee in exchange for covering loan-level credit risk on a pool of mortgages backing a government-guaranteed MBS through Ginnie Mae.
  • Requires PCEs to hold a bank-like amount of capital through equity ownership, a significant amount of credit risk transfer coverage, and participation in a backstop reserve fund.
  • Requires PCEs to obtain external private capital in a “first loss” position to horizontally defray and syndicate credit risk to willing counterparties.
  • Tasks FHFA to establish regulatory capital standards that meet bank-like requirements.
  • Requires PCEs to hold capital that consists of equity capital and qualifying credit risk transfers sufficient to protect taxpayers in all but the most catastrophic scenario.
  • Establishes a Private Capital Reserves fund to backstop PCEs, capitalized by assessments on guaranteed loans through a fee set by FHFA using private sector reinsurance tools to determine current market risk conditions.
  • Mandates that the balance of Private Capital Reserves meet 2 percent of the total unpaid principal balance guaranteed by PCEs.
  • Requires private credit enhancers and other market participants to operate on a non-discriminatory basis and comply with all applicable federal rules and regulations, including the Fair Housing Act and the Equal Credit Opportunity Act.

REIGNITE THE PRIVATE LABEL MARKET THROUGH STANDARDIZATION AND A COMMON INFRASTRUCTURE PLATFORM

  • Establishes a new non-government, not-for-profit Mortgage Security Market Exchange (Exchange) to develop common “best practices” standards for the private securitizing, pooling, and servicing of mortgages, and operate a publicly accessible securitization outlet to match loan originators with investors.
  • Transforms the Common Securitization Platform (CSP) from a proprietary secondary market access point jointly owned by Fannie Mae and Freddie Mac and built only for their benefit, to an open market utility operated by the Exchange.
  • Offers lenders and investors for the first time a mortgage security market exchange and data repository to foster liquidity in the private label market and provide standardization of key securitization functions.
  • Requires the Exchange to operate the CSP in an open-access and non-discriminatory manner as a conduit for loan originators of all sizes to access the secondary market using common standards and terms in non-government transactions.
  • Removes barriers to private capital and provides clear, transparent, and enforceable rules for transactions that will restore market discipline, encourage innovation, and match individuals with global investors outside the government-guaranteed market.
  • Gives the FHFA clear ability and instructions on how to transfer ownership of the CSP from the GSEs to the Exchange.
  • Requires the transfer of both historical loan-level data and the underwriting technologies used by the GSEs to the Exchange and grants public access to this information.
  • Establishes a new mechanism with the Exchange to set and maintain the basic recordation, disclosure, and transparency “best practices” standards for the mortgage industry.

REPEAL THE GSES’ CHARTERS AND TRANSITION THEIR SUCCESSORS INTO A NEW SYSTEM WITHOUT SPECIAL PRIVILEGES OR ADVANTAGES

  • Repeals the statutory charters for the GSEs.
  • Places the successor de-chartered entities of Fannie Mae and Freddie Mac on a sustainable path going forward while ensuring no future market participant needs taxpayer support.
  • Repurposes the successor entities to the GSEs into the new system without special privileges and advantages.
  • Eases the transition by providing a 5-year window prior to the repeal of the GSE charters.
  • Places the GSEs through mandatory receivership to prevent the return of a hybrid private entity-public charter approach.
  • Leaves all legacy obligations in a “bad bank” structure along with a formalized guarantee to preserve liquidity in MBS market.
  • Repurposes the remaining infrastructure and human capital of the de-chartered GSEs into the new system through a “good bank” structure.
  • Restricts activities during conservatorship, including setting limitations on retained portfolios and standardizing guarantee fee pricing.

PROMOTE AFFORDABLE HOUSING, MULTIFAMILY HOUSING, AND MODERNIZATION OF OUR HOUSING FINANCE SYSTEM

  • Establishes bipartisan principles to promote affordable housing, multifamily housing, and modernization of our housing finance system (See Title III of Discussion Draft).

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Mr. Woessner’s bio appears here.

“Corporate Governance Reform and Transparency Act of 2017” – Summary by Ronald Woessner

See below for a discussion of HR 4015, the “Corporate Governance and  Reform and Transparency Act of 2017.”  The bill.  which originated in the US House Financial Services Committee, was approved by the US House of Representatives in December 2017 and sent to the US Senate.  The US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the bill in June 2018.

The goal of H.R. 4015 is to improve transparency in the proxy system and enhance shareholder access to investment information by requiring proxy advisory firms to register with the SEC, disclose potential conflicts of interest and codes of ethics, and make publicly available their methodologies for formulating proxy recommendations and analyses.

Each year, public companies hold shareholder meetings at which the company’s shareholders vote for the company’s directors and on other significant corporate actions that require shareholder approval. As part of this annual process, the SEC requires public companies to provide their shareholders with a proxy statement before shareholder meetings. A proxy statement includes all important facts about the matters to be voted on at a shareholder meeting, including, for example, information on board of director candidates, director compensation, executive compensation, related party transactions, securities ownership by certain beneficial owners and management, and eligible shareholder proposals. The information contained in the statement must be filed with the SEC before soliciting a shareholder vote on the election of directors and the approval of other corporate actions.

Solicitations, whether by management or shareholders, must disclose all important facts about the issues on which shareholders are asked to vote.     In general, state corporate law governs shareholder voting rights, including the types of corporate actions that require shareholder approval. However, Section 14 of the Securities Exchange Act of 1934 (Exchange Act) authorizes the SEC to promulgate rules governing the solicitation of proxies for most public companies. SEC Regulation 14A governs proxy solicitations and sets forth the categories of information that must be disclosed in proxy solicitations. Regulation 14A also provides for shareholder access to certain information in connection with proxy solicitations, sets forth when a company must include a shareholder’s proposal in its proxy statement, and prohibits the making of materially false and misleading statements or omissions in connection with a proxy solicitation.

Institutional investors, including investment advisers to mutual funds and pension funds, typically hold shares in a large number of public companies. Each year, the investment advisers to these funds vote billions of shares on behalf of their clients, on thousands of proxy ballot items. In 2003, the SEC adopted a rule under the Investment Advisers Act of 1940 requiring an investment adviser that exercises voting authority over its clients’ proxies to adopt policies and procedures designed to ensure that the investment adviser votes those proxies in the best interests of its clients. The SEC’s release adopting the rule clarified that “an adviser could demonstrate that the vote was not a product of a conflict of interest if it voted client securities, in accordance with a pre-determined policy, based upon the recommendations of an independent third party.” As a result, institutional investors increased their reliance on proxy advisory firms to help them decide how to vote their shares. In 2004, the SEC staff issued, without a Commission vote, two no-action letters, which SEC Commissioner Daniel M. Gallagher described in a 2013 speech as “effectively blessing the practice of investment advisers simply voting the recommendations provided by a proxy adviser.”

Largely as a result of the SEC’s regulations, proxy advisory firms now wield outsized influence in the U.S. proxy system. Studies have shown that the two largest proxy advisory firms–Institutional Shareholder Services (ISS) and Glass Lewis & Co.–collectively make up approximately 97% of the proxy  advisory industry and can control a significant percentage of shareholder votes in corporate elections, sometimes as high as 40%. This outsized influence raises important public policy concerns.

In particular, regulators, market participants, and academic observers have highlighted potential conflicts of interest inherent in the business models and activities of proxy advisory firms. For example, as indicated above, proxy advisory firms may feel pressured by their largest clients– many of whom are activist investors–to issue vote recommendations that reflect those clients’ specific agendas.

In addition, proxy advisory firms often provide voting recommendations to investment advisers on matters for which they also provide consulting services to public companies. According to a Mercatus Center study, “these consulting services are designed precisely to facilitate managers’ obtaining favorable recommendations.” Some proxy advisory firms also rate or score public companies on its governance structure, policies, and practices, which provides another avenue for proxy advisory firms to influence corporate governance practices.

Given the major role proxy advisory firms play in the U.S. proxy system through their ability to influence corporate governance standards–by supplying voting recommendations and other services despite the risk conflicts of interest, such as those described above–proxy advisory firms have become the subject of greater scrutiny. The Committee is aware of numerous instances whereby the two largest proxy advisory firms have issued vote recommendations to public company shareholders that include errors, misstatements of fact, and incomplete analysis.

Some proxy advisory firms’ recommendations have been made without any contact to the public company, and these same proxy advisory firms encourage companies to join their service in order to have the privilege to “influence” an advisory firm’s recommendations.

Regulators, market participants, and academics have argued that rather than using shareholder votes to maximize shareholder value, proxy advisory firms have instead aligned themselves with single-issue, narrow-issue shareholders, activist shareholders or unions to push social and political initiatives unrelated–and in many cases antithetical–to increasing shareholder returns. In turn, corporate governance decisions occur that are not in the best interest of shareholders and the company. Critics of proxy advisory firms attribute this hijacking of the proxy system to proxy advisory firms generally having no financial interest in a public company’s performance and owing no duty to shareholders.

In response to these concerns, on June 30, 2014, the SEC’s Division of Corporate Finance and the Division of Investment Management jointly issued a staff legal bulletin entitled “Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms.” (“Bulletin”) The Bulletin clarifies that an investment adviser and its clients “have flexibility in determining the scope of the investment adviser’s obligation to exercise proxy voting authority” and that SEC rules do not require investment advisers to vote every proxy. The Bulletin also states that, in considering whether to obtain the assistance of a proxy advisory firm, an investment adviser should ascertain the proxy advisory firm’s “capacity and competency to adequately analyze proxy issues” and “identify and address any conflicts of interest.” The Bulletin adds that, in order to comply with SEC rules, investment advisers should adopt policies and procedures “reasonably designed to provide sufficient ongoing oversight of . . . third party [proxy advisers]” in order to ensure that proxies are voted in the best interest of the investment adviser’s clients. Finally, the Bulletin describes the exemptions available to proxy advisory firms from the filing and disclosure requirements of the SEC’s proxy rules, and clarifies that, in order to rely on these exemptions, proxy advisers must make certain disclosures regarding significant relationships and material interests, including material conflicts that may arise from consulting services or client relationships.

The Corporate Governance Reform and Transparency Act of 2017 addresses these issues in a manner that provides greater accountability and transparency in regards to the proxy advisory industry, thereby helping to ensure that the voting recommendations that proxy advisory firms provide are in fact in the interests of long-term shareholders. By requiring proxy advisory firms to disclose any potential conflicts of interest that may impact their voting recommendations, the amount of impartial information provided to investors actually will be increased, as investors for the first time can be certain that they understand the biases that may be affecting the partiality of the information they are reviewing.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This Section cites H.R. 4015 as the “Corporate Governance Reform and Transparency Act of 2017.”

Section 2. Definitions

This section amends Section 3(a) of the Exchange Act by defining the term “proxy advisory firm” to mean any person registered under section 15H who is engaged in the business of providing proxy voting research, analysis, or recommendations to clients, which constitutes a solicitation; by defining “person associated with” to mean any partner, officer, employee, director or controller or under control of a proxy advisory firm.

Section 3: Registration of proxy advisory firms

This section amends the Exchange Act by inserting Section 15H. This new section states that a proxy advisory firm must file an application for registration with the Commission and disclose any potential conflicts of interest and code of ethics. Specifically, when applying for registration the proxy advisory firm must include the following information: a certification that the firm has the financial and managerial resources to provide proxy advice; the procedures and methodologies that the firm uses in developing proxy voting recommendations; the organizational structure of the firm; whether or not the firm has a code of ethics; any potential or actual conflict of interest; policies and procedures to manage conflicts of interest; and any other information that the Commission deems necessary. The Commission is directed to issue final rules regarding the form in which such information must be filed with the Commission. The Commission also is directed to issue final rules to prohibit or require the management and disclosure of any conflicts of interests related to the offering of proxy advisory services by a registered proxy advisory firm. This section further sets forth that the Commission shall issue final rules to prohibit any act that they believe is unfair, coercive, or abusive relating to the offering of proxy advisory services, as well as make publicly available all information that was provided to them by the proxy advisory firms.

Section 4: Commission annual report

This section requires that the Commission publicly release an annual report that describes the methodologies that they used for formulating proxy recommendations and analyses.

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Mr. Woessner’s bio appears here.

Ronald Woessner Provides Summary of Pro-Growth S. 2155

S. 2155, “The Economic Growth, Regulatory Relief, and Consumer Protection Act,” Public Law No: 115-174 (May 2018), represents the most significant pro-growth financial regulatory reform package since the passage of Gramm-Leach-Bliley nearly a generation ago. It amends provisions of the Dodd-Frank Act, including the Volcker Rule.

[Editor’s Note:  although the legislation carries an “S” designation, which denotes that the final bill was a Senate legislative vehicle, many provisions of the legislation originated in the Financial Services Committee of the House of Representatives, chaired by Congressman Jeb Hensarling, as illuminated in a previous article here. ]

TITLE I–IMPROVING CONSUMER ACCESS TO MORTGAGE CREDIT

(Sec. 101) This bill amends the Truth in Lending Act (TILA) to allow a depository institution or credit union with assets below a specified threshold to forgo certain ability-to-pay requirements regarding residential mortgage loans. Specifically, those requirements are waived if a loan: (1) is originated by and retained by the institution, (2) complies with requirements regarding prepayment penalties and points and fees, and (3) does not have negative amortization or interest-only terms. Furthermore, for such requirements to be waived, the institution must consider and verify the debt, income, and financial resources of the consumer.

The bill also provides for circumstances in which such requirements shall be waived with respect to a loan that is transferred: (1) by reason of bankruptcy or failure of the originating institution, (2) to a similar institution, (3) in the event of a merger, or (4) to a wholly owned subsidiary of the institution.

(Sec. 102) Mortgage appraisal services donated by a fee appraiser to an organization eligible to receive tax-deductible charitable contributions are deemed to be customary and reasonable under TILA.

(Sec. 103) The bill amends the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to exempt from appraisal requirements certain federally related, rural real-estate transactions valued below a specified limit if no certified appraiser is available.

(Sec. 104) The bill amends the Home Mortgage Disclosure Act of 1975 to exempt from specified public disclosure requirements depository institutions and credit unions that originate fewer than a specified number of closed-end mortgages or open-end lines of credit.

The Government Accountability Office (GAO) must report on these changes.

(Sec. 105) The bill amends the Federal Credit Union Act to allow a credit union to extend a member business loan with respect to a one- to four-family dwelling, regardless of whether the dwelling is the member’s primary residence. Under current law, a member business loan may be extended with respect to such a dwelling only if it is the member’s primary residence.

(Sec. 106) The bill amends the S.A.F.E. Mortgage Licensing Act of 2008 to revise the Act’s civil liability immunity provisions and to temporarily allow loan originators that meet specified requirements to continue to originate loans after moving: (1) from one state to another, or (2) from a depository institution to a non-depository institution.

(Sec. 107) The bill amends TILA to specify that a retailer of manufactured housing that meets certain requirements is generally not a “mortgage originator” subject to requirements under that Act.

(Sec. 108) The bill exempts from certain escrow requirements a residential mortgage loan held by a depository institution or credit union that: (1) has assets of $10 billion or less, (2) originated 1,000 or fewer mortgages in the preceding year, and (3) meets other specified requirements.

(Sec. 109) The required mortgage disclosure waiting period is eliminated with respect to a second offer of credit if the creditor offers a consumer a lower annual percentage rate in the second offer.

TITLE II–REGULATORY RELIEF AND PROTECTING CONSUMER ACCESS TO CREDIT

(Sec. 201) Federal banking agencies must develop a specified Community Bank Leverage Ratio (the ratio of a bank’s equity capital to its consolidated assets) for banks with assets of less than $10 billion. Such banks that exceed this ratio shall be deemed to be in compliance with all other capital and leverage requirements. Federal banking agencies may consider a company’s risk profile when evaluating whether it qualifies as a community bank for purposes of the ratio requirement.

(Sec. 202) The bill amends the Federal Deposit Insurance Act to exclude reciprocal deposits of an insured depository institution from certain limitations on prohibited broker deposits if the total reciprocal deposits of the institution do not exceed the lesser of $5 billion or 20% of its total liabilities. Reciprocal deposits are deposits that banks make with each other in equal amounts. (Generally, an insured depository institution that is not well capitalized may not accept funds obtained by or through any deposit broker for deposit.)

(Sec. 203) The bill amends the Bank Holding Company Act of 1956 to exempt from the “Volcker Rule” banks with: (1) total assets valued at less than $10 billion, and (2) trading assets and liabilities comprising not more than 5% of total assets. (The Volcker Rule prohibits banking agencies from engaging in proprietary trading or entering into certain relationships with hedge funds and private-equity funds.)

(Sec. 204) Volcker Rule restrictions on entity name sharing are eased in specified circumstances.

(Sec. 205) The bill amends the Federal Deposit Insurance Act to require federal banking agencies to issue regulations allowing certain small depository institutions to satisfy reporting requirements with a reduced Report of Condition and Income (i.e., call report).

(Sec. 206) The bill amends the Home Owners’ Loan Act to permit certain federal savings associations to elect to operate, subject to supervision by the Office of the Comptroller of the Currency, with the same rights and duties as national banks (including operating without certain lending restrictions).

(Sec. 207) The Federal Reserve Board (FRB) must increase, from $1 billion to $3 billion, the consolidated asset threshold (i.e., permissible debt level) for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance-sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. If warranted for supervisory purposes, the FRB may exclude a company from this threshold increase.

(Sec. 208) The bill amends the Expedited Funds Availability Act to apply the Act, which governs bank deposit holds, to American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam. The Act’s one-day extension for certain deposits in noncontiguous states or territories shall also apply to these territories.

(Sec. 209) The bill amends the United States Housing Act of 1937 to reduce inspection requirements and environmental-review requirements for certain smaller, rural public-housing agencies.

(Sec. 210) The bill amends the Federal Deposit Insurance Act to increase the asset limit below which certain depository institutions are eligible for an 18-month, instead of a 12-month, examination cycle.

(Sec. 211) The bill creates the Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the FRB. The FRB and the Department of the Treasury must report on: (1) their efforts regarding global insurance regulatory or supervisory forums, and (2) any final international insurance capital standards prior to adoption of such standards.

(Sec. 212) The bill amends the Federal Credit Union Act to require the National Credit Union Administration to hold public hearings on its draft annual budget.

(Sec. 213) A financial institution is authorized to record personal information from a scan, copy, or image of an individual’s driver’s license or personal identification card and store the information electronically when an individual initiates an online request to open an account or obtain a financial product. The financial institution may use the information for the purpose of verifying the authenticity of the driver’s license or identification card, verifying the identity of the individual, or complying with legal requirements. The financial institution must delete any copy or image of an individual’s driver’s license or personal identification card after use.

(Sec. 214) The bill amends the Federal Deposit Insurance Act to specify that a federal banking agency may not subject a depository institution to higher capital standards with respect to a high-volatility commercial real-estate (HVCRE) exposure unless the exposure is an HVCRE acquisition, development, or construction (ADC) loan.

An HVCRE ADC loan : (1) is secured by land or improved real property; (2) has the purpose of providing financing to acquire, develop, or improve the real property such that the property becomes income-producing; and (3) is dependent upon future income or sales proceeds from, or refinancing of, the real property for the repayment of the loan.

(Sec. 215) The Social Security Administration (SSA) is directed to develop a database to facilitate the verification of consumer information upon request by a certified financial institution. Such verification shall be provided only with the consumer’s consent and in connection with a credit transaction. Users of the database shall pay system costs as determined by the SSA.

(Sec. 216) The bill directs Treasury to report on the risks of cyber threats to financial institutions and capital markets.

(Sec. 217) The bill amends the Federal Reserve Act to lower the maximum allowable amount of surplus funds of the Federal Reserve banks.

TITLE III–PROTECTIONS FOR VETERANS, CONSUMERS, AND HOMEOWNERS

(Sec. 301) The bill amends the Fair Credit Reporting Act to increase the length of time a consumer reporting agency must include a fraud alert in a consumer’s file. It also: (1) requires a consumer reporting agency to provide a consumer with free credit freezes and to notify a consumer of their availability, (2) establishes provisions related to the placement and removal of these freezes, (3) creates requirements related to the protection of the credit records of minors.

(Sec. 302) The bill limits, and establishes a dispute process and verification procedures with respect to, the inclusion of a veteran’s medical debt in a consumer credit report.

(Sec. 303) The bill extends immunity from liability to certain individuals employed at financial institutions who, in good faith and with reasonable care, disclose the suspected exploitation of a senior citizen to a regulatory or law-enforcement agency. Similarly, the employing financial institution shall not be liable with respect to disclosures made by such employees.

The bill allows financial institutions and third-party entities to offer training related to the suspected financial exploitation of a senior citizen to specified employees. The bill provides guidance regarding the content, timing, and record-maintenance requirements of such training.

(Sec. 304) The sunset provision of the Protecting Tenants at Foreclosure Act is repealed, restoring notification requirements and other protections related to the eviction of renters in foreclosed properties. (The Act expired on December 31, 2014.)

(Sec. 305) Treasury may use loan guarantees and credit enhancements to remediate lead and asbestos hazards in residential properties.

(Sec. 306) The bill amends the United States Housing Act of 1937 to revise the Family-Self-Sufficiency (FSS) program, an employment and savings incentive program for families that reside in public housing or have housing vouchers. Specifically, the bill:

  • combines existing, separately operated FSS programs into a single program;
  • extends program eligibility to tenants of certain privately owned properties subsidized with project-based rental assistance;
  • revises program requirements related to eligibility, supportive services, and escrow deposits; and
  • otherwise modifies the FSS program.

(Sec. 307) The Consumer Financial Protection Bureau is directed to promulgate ability-to-repay regulations regarding property assessed clean energy financing.

(Sec. 308) The bill directs the GAO to report on the accuracy and security of consumer reporting agencies and consumer reports.

(Sec. 309) A refinanced home loan may not be guaranteed by the Department of Veterans Affairs (VA), unless: (1) a specified minimum time period has passed between the original loan and the refinancing; and (2) the lender complies with provisions related to fee recoupment, mortgage interest rates, and net tangible benefit tests.

The Department of Housing and Urban Development (HUD) and the Government National Mortgage Association (Ginnie Mae) must report on the liquidity of the VA Housing Loan Program.

The VA must report annually on refinanced home loans to veterans.

(Sec. 310) The bill amends the Federal National Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Act to allow the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), when determining whether to purchase a residential mortgage, to consider a borrower’s credit score only if certain procedural requirements are met with respect to the validation and approval of credit-scoring models.

The Federal Housing Finance Agency must, by regulation, establish standards and criteria for processes used by Fannie Mae and Freddie Mac to validate and approve credit-scoring models in accordance with the bill.

(Sec. 311) The GAO is directed to report on foreclosures, homeownership, and mortgage defaults in Puerto Rico before and after Hurricane Maria.

(Sec. 312) HUD must report on and provide recommendations for lead-based paint hazard prevention and abatement, with an emphasis on preventing exposure in children.

(Sec. 313) The bill amends the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 to make permanent the one-year grace period during which a servicemember is protected from foreclosure after leaving military service.

TITLE IV–TAILORING REGULATIONS FOR CERTAIN BANK HOLDING COMPANIES

(Sec. 401) The bill amends the Financial Stability Act of 2010, with respect to nonbank financial companies supervised by the FRB and certain bank holding companies, to:

  • increase the asset threshold at which certain enhanced prudential standards shall apply, from $50 billion to $250 billion, while allowing the FRB discretion in determining whether a financial institution with assets equal or greater than $100 billion must be subject to such standards;
  • increase the asset threshold at which company-run stress tests are required, from $10 billion to $250 billion; and
  • increase the asset threshold for mandatory risk committees, from $10 billion to $50 billion.

(Sec. 402) The bill requires the appropriate federal banking agencies to exclude, for purposes of calculating a custodial bank’s supplementary leverage ratio, funds of a custodial bank that are deposited with a central bank. (“Supplementary leverage ratio” is a capital adequacy measure that refers to the ratio of a banking organization’s tier-one capital to its leverage exposure.) The amount of such funds may not exceed the total value of deposits of the custodial bank linked to fiduciary or custodial and safekeeping accounts.

(Sec. 403) This bill amends the Federal Deposit Insurance Act to require certain municipal obligations to be treated as level 2B liquid assets if they are investment grade, liquid, and readily marketable. Under current law, corporate debt securities and publicly traded common-equity shares, but not municipal obligations, may be treated as level 2B liquid assets (which are considered to be high-quality assets).

TITLE V–ENCOURAGING CAPITAL FORMATION

(Sec. 501) The bill amends the Securities Act of 1933 to exempt from state registration securities qualified for national trading by the Securities and Exchange Commission (SEC) and authorized to be listed on a national securities exchange. Currently, securities listed on exchanges specified by statute or SEC rule are exempt.

(Sec. 502) The bill directs the SEC to report on the risks and benefits of algorithmic trading in capital markets.

(Sec. 504) The bill amends the Investment Company Act of 1940 to exempt from the definition of an “investment company,” for purposes of specified limitations applicable to such a company under the Act, a qualifying venture capital fund that has no more than 250 investors. Specifically, the bill applies to a venture capital fund that has less than $10 million in aggregate capital contributions and uncalled committed capital. Under current law, a venture capital fund is considered to be an investment company if it has more than 100 investors.

(Sec. 505) The bill requires the SEC to offset future fees and assessments due from a national securities exchange or association that: (1) has previously overpaid such fees and assessments, and (2) informs the SEC of the overpayment within 10 years.

(Sec. 506) The bill amends the Investment Company Act of 1940 to apply the Act to investment companies created under the laws of Puerto Rico, the U.S. Virgin Islands, or any other U.S. possession.

(Sec. 507) The bill requires the SEC to increase, from $5 million to $10 million, the 12-month sales threshold beyond which an issuer is required to provide investors with additional disclosures related to compensatory benefit plans.

(Sec. 508) The bill expands the applicability to issuers of “Regulation A+” (which exempts certain smaller offerings from securities registration requirements).

(Sec. 509) The bill directs the SEC to revise registration rules to allow a closed-end company to use offering and proxy rules currently available to other issuers of securities, thereby reducing filing requirements and restrictions on communications with investors in certain circumstances. (A closed-end company is a publicly traded investment management company that sells a limited number of shares to investors in an initial public offering.)

TITLE VI–PROTECTIONS FOR STUDENT BORROWERS

(Sec. 601) The bill amends TILA to prospectively revise provisions relating to cosigners of private student loans. Specifically, the bill: (1) prohibits a creditor from declaring a default or accelerating the debt of a private student loan on the sole basis of the death or bankruptcy of a cosigner to such a loan, and (2) directs loan holders to release cosigners from any obligation upon the death of the student borrower.

(Sec. 602) The bill amends the Fair Credit Reporting Act to allow a person to request the removal of a previously reported default regarding a private education loan from a consumer report if: (1) the lender chooses to offer a loan-rehabilitation program that requires a number of consecutive on-time monthly payments demonstrating renewed ability and willingness to repay the loan, and (2) the consumer meets those requirements. A consumer may obtain such rehabilitation benefits only once per loan. The GAO shall report on the implementation of these provisions.

(Sec. 603) The bill amends the Financial Literacy and Education Improvement Act to direct the Financial Literacy and Education Commission to establish best practices for teaching financial literacy skills at institutions of higher education.

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Mr. Woessner’s bio appears here.

S. 2155, Most Significant Pro-Growth Financial Regulatory Reform in a Generation – by Ronald Woessner

 

This article discusses the “Economic Growth, Regulatory Relief and Consumer Protection Act” became Public Law No: 115-174, which is the most significant pro-growth financial regulatory reform package since the passage of Gramm-Leach-Bliley nearly a generation ago.  For a discussion of the most significant pro-growth capital formation legislation currently pending in Congress, see the articles Business JOBS Act 3.0 Legislation Pending in House and JOBS 3.0 Capital Formation Legislation Pending in US Senate! and JOBS 3.0 Capital Formation Legislation Pending in US Senate (2nd).

Although the bill was designated as S,2155, where the “S” signifies that the final bill was a Senate legislative vehicle, much of the bill is comprised of legislative work of the House of Representatives.  It was reported that approximately half of the bill – including ¾ of the regulatory relief provisions and nearly 90% of the capital formation provisions – originated in the House of Representatives. A number of the following House-originated provisions were included in S. 2155:

  • H.R. 2226, the “Portfolio Lending and Mortgage Access Act,” sponsored by Representative Andy Barr (R-KY).
  • H.R. 2255, the “Housing Opportunities Made Easier (HOME) Act,” sponsored by Representative David Trott (R-MI).
  • H.R. 2954, the “Home Mortgage Disclosure Adjustment Act,” sponsored by Representative Tom Emmer (R-MN).
  • H.R. 389, the “Credit Union Residential Loan Parity Act,” sponsored by Representative Ed Royce (R-CA).
  • H.R. 2948, the “S.A.F.E. Mortgage Licensing Act,” sponsored by Representative Steve Stivers (R-OH).
  • H.R. 1699, the “Preserving Access to Manufactured Housing Act of 2017,” sponsored by Representative Andy Barr (R-KY).
  • H.R. 3971, the “Community Institution Mortgage Relief Act of 2017,” sponsored by Representative Claudia Tenney (R-NY).
  • H.R. 2403, the “Keeping Capital for Local Underserved Communities Act of 2017,” sponsored by Representative Gwen Moore (D-WI).
  • H.R. 3093, the “Investor Clarity and Bank Parity Act,” sponsored by Representative Michael Capuano (D-MA).
  • H.R. 4725, the “Community Bank Reporting Relief Act,” sponsored by Representative Randy Hultgren (R-IL).
  • H.R. 1426, the “Federal Savings Association Charter Flexibility Act of 2017,” sponsored by Representative Keith Rothfus (R-PA).
  • H.R. 4771, the “Small Bank Holding Company Relief Act of 2018,” sponsored by Representative Mia Love (R-UT).
  • H.R. 5076, the “Small Bank Exam Cycle Improvement Act of 2018,” sponsored by Representative Claudia Tenney (R-NY).
  • H.R. 1457, the “MOBILE Act of 2017,” sponsored by Representative Scott Tipton (R-CO).
  • H.R. 2148, the “Clarifying Commercial Real Estate Loans Act,” sponsored by Representative Robert Pittenger (R-NC).
  • H.R. 2683, the “Protecting Veterans Credit Act of 2017,” sponsored by Representative John Delaney (D-MD).
  • H.R. 3758, the “Senior Safe Act of 2017,” sponsored by Representative Kyrsten Sinema (D-AZ).
  • H.R. 4258, the “Family Self Sufficiency Act,” sponsored by Representative Sean Duffy (R-WI).
  • H.R. 898, the “Credit Score Competition Act of 2017,” sponsored by Representative Ed Royce (R-CA).
  • H.R. 2121, the “Pension, Endowment, and Mutual Fund Access to Banking Act,” sponsored by Representative Keith Rothfus (R-PA).
  • H.R. 1624, the “Municipal Finance Support Act of 2017,” sponsored by Representative Luke Messer (R-IN).
  • H.R. 4546, the “National Securities Exchange Regulatory Parity Act,” sponsored by Representative Ed Royce (R-CA).
  • H.R. 1312, the “Small Business Capital Formation Enhancement Act,” sponsored by Representative Bruce Poliquin (R-ME).
  • H.R. 1219, the “Supporting America’s Innovators Act of 2017,” sponsored by Representative Patrick McHenry (R-NC).
  • H.R. 1257, the “Securities and Exchange Commission Overpayment Credit Act,” sponsored by Representative Gregory Meeks (D-NY).
  • H.R. 1366, the “U.S. Territories Investor Protection Act of 2017,” sponsored by Representative Nydia Velazquez (D-NY).
  • H.R. 1343, the “Encouraging Employee Ownership Act of 2017,” sponsored by Representative Randy Hultgren (R-IL).
  • H.R. 2864, the “Improving Access to Capital Act,” sponsored by Representative Kyrsten Sinema (D-AZ).
  • H.R. 4279, the “Expanding Investment Opportunities Act,” sponsored by Representative Trey Hollingsworth (R-IN).
  • H.R. 3221, the “Securing Access to Affordable Mortgages Act,” sponsored by Representative David Kustoff (R-TN).
  • H.R. 4790, the “Volcker Rule Regulatory Harmonization Act,” sponsored by Representative French Hill (R-AR).
  • H.R. 4028, the “PROTECT Act of 2017,” sponsored by Representative Patrick McHenry (R-NC).
  • H.R. 385, a bill to amend the Expedited Funds Availability Act to clarify the application of that Act to American Samoa and the Northern Mariana Islands, sponsored by Representative Aumua Amata Coleman Radewagen (R-AS).

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Mr. Woessner’s bio appears here.

Business JOBS Act 3.0 Legislation Pending in House – by Ronald Woessner

The Financial Services Committee of the US House of Representatives earlier this year approved and sent to the US House for vote a package of bipartisan capital markets legislation to help America’s small business and entrepreneurs and to protect investors and the US capital markets. The legislative package, if approved by the House during this Congress, could be included in the “JOBS and Investor Confidence Act of 2018,” also known as “JOBS Act 3.0,” which was approved by the US House of Representatives and sent to the US Senate with broad bipartisan support this past Summer of 2018.

This is the third article on the topic of JOBS Act 3.0 and follows article one and article 2 published yesterday regarding JOBS Act 3.0.

H.R. 1645, Fostering Innovation Act – Sponsored by Rep. Kyrsten Sinema (D-AZ) and cosponsored by Rep. Trey Hollingsworth (R-IN), the “Fostering Innovation Act of 2017” amends Section 404(b) of the Sarbanes-Oxley Act (SOX) to extend the exemption to comply with the law for certain low-revenue emerging growth companies (EGCs) that would otherwise lose their exempt status at the end of the five-year period that applies under current law.

The bill passed the Financial Services Committee with a bipartisan vote of 48-12 on October 12, 2017.

H.R. 6177, Developing and Empowering our Aspiring Leaders (DEAL) Act – Sponsored by Rep. Trey Hollingsworth (R-IN), the “DEAL Act” requires the SEC to revise the definition of a qualifying investment to include equity securities acquired in a secondary transaction.

The bill passed the Financial Services Committee on July 11, 2018 on voice vote.

H.R. 6319, Expanding Investment in Small Businesses Act – Sponsored by Rep. Randy Hultgren (R-IL), the “Expanding Investment in Small Businesses Act” requires the SEC to study whether the current diversified fund limit threshold for mutual funds constrains their ability to take meaningful positions in small-cap companies.

The Financial Services Committee passed the bill by voice vote on July 11, 2018.

H.R. 6320, Promoting Transparent Standards for Corporate Insiders Act – Sponsored by Rep. Maxine Waters (D-CA), the “Promoting Transparent Standards for Corporate Insiders Act” requires the SEC to consider certain types of amendments to Rule 10b5-1 to ensure that corporate insiders are not able to indirectly engage in illegal insider trading through changes to their trading plans.

The bill passed the Financial Services Committee on July 11, 2018 by voice vote. 

H.R. 6321, Investment Adviser Regulatory Flexibility Improvement Act – Sponsored by Rep.

Gwen Moore (D-WI) and cosponsored by Rep. Bill Huizenga (R-MI), the “Investment Adviser Regulatory Flexibility Improvement Act” directs the SEC to consider alternative methods for a business or an organization to qualify as a “small business” or “small organization” for the purposes of assessing the regulatory impact on investment advisers.

H.R. 6321 passed the Financial Services Committee by voice vote on July 11, 2018.

H.R. 6322, Enhancing Multi-Class Share Disclosures Act — Sponsored by Rep. Gregory Meeks (D-NY), the “Enhancing Multi-Class Share Disclosures Act” requires issuers with a multi-class share structure to make certain disclosures in any proxy or consent solicitation material that provide enhanced transparency regarding certain shareholders’ voting power.

It passed the Financial Services Committee by voice vote on July 11, 2018.

H.R. 6323, National Senior Investor Initiative Act of 2018 – Sponsored by Rep. Josh Gottheimer (D-NJ) and cosponsored by Rep. Trey Hollingsworth (R-IN), the “National Senior Investor Initiative Act of 2018” or the “Senior Security Act of 2018” creates an interdivisional task force at the SEC, to examine and identify challenges facing senior investors and requires the Government Accountability Office to study the economic costs of the exploitation of senior citizens.

The Financial Services Committee passed the bill by voice vote on July 11, 2018.

H.R. 6324, Middle Market IPO Underwriting Cost Act – Sponsored by Rep. Jim Himes (D-CT), the “Middle Market IPO Underwriting Cost Act” requires the SEC, in consultation with the Financial Industry Regulatory Authority, to study the direct and indirect costs associated with small and medium-sized companies to undertake initial public offerings.

The bill passed the Financial Services Committee on July 11, 2018 by voice vote.

H.R. 3555, Exchange Regulatory Improvement Act – Sponsored by Rep. Barry Loudermilk (R-GA) and cosponsored by Reps. Lee Zeldin (R-NY), Gregory Meeks,  (D-NY) and David Scott (D-GA), the “Exchange Regulatory Improvement Act,” as amended, requires the SEC to set forth the facts and circumstances it considers in determining what is a “facility” of an exchange.

The bill passed the Financial Services Committee on July 11, 2018 by voice vote.

H.R. 4281, Expanding Access to Capital for Job Creators Act – Sponsored by Rep. Ruben Kihuen (D-NV) and cosponsored by Rep. Alex Mooney (R-WV), the “Expanding Access to Capital for Rural Job Creators Act” amends the Securities Exchange Act of 1934 to have the SEC’s Advocate for Small Business Capital Formation identify any unique challenges to rural area small businesses when identifying problems that small businesses have with securing access to capital. H.R. 4281 also requires that the annual report made by the SEC’s Small Business Advocate include a summary of any unique issues encountered by rural area small businesses.

The bill passed the Financial Services Committee with unanimous bipartisan support, 60-0, on November 15, 2017.

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Mr. Woessner’s bio appears here.

 

Business JOBS 3.0 Legislation Pending in Senate (2nd article) – by Ronald Woessner

 

This article, the second of three articles, summarizes more of the individual pieces of strong, bipartisan capital-formation business legislation comprising JOBS Act 3.0 to help America’s small business owners and entrepreneurs and to protect investors.  JOBS Act 3.0 is pending in the US Senate.

The US House of Representatives approved and sent to the US Senate earlier this year legislative package known as the “JOBS and Investor Confidence Act of 2018,” or “JOBS 3” comprised of scores of individual pieces of business legislation approved by the House of Representatives with broad bipartisan support.

An earlier article summarized 11 individual bills included in the business legislative package.  This article summarizes 11 more of the individual bills included in the legislative package.

H.R. 4537, International Insurance Standards Act – Sponsored by Rep. Sean Duffy (R-WI) and cosponsored by Rep. Denny Heck (D-WA), the bill ensures that international insurance standards and agreements are consistent with our domestic insurance system and provides greater Congressional oversight and transparency on international insurance standard negotiations.

The bill passed the House by voice vote on July 10, 2018.

H.R. 4566, Alleviating Stress Test Burdens to Help Investors Act (Secs. 2 and 3) – Sponsored by

Rep. Bruce Poliquin (R-ME), the section of this legislation to be included in JOBS Act 3.0 amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to exempt non-bank financial institutions not  primarily regulated by either a federal banking agency or the Federal Housing Finance Agency from the Dodd-Frank Act’s mandatory company-run stress-testing requirements. Additionally, the bill clarifies that the SEC and the Commodity Futures Trading Commission retain their authority to issue regulations to require non-bank financial companies to conduct periodic analysis of the financial condition of such companies under adverse economic conditions.

The bill passed the House on March 20, 2018 by strong bi-partisan support vote of 395-19.

H.R. 4768, National Strategy for Combating the Financing of Transnational Criminal

Organizations Act – Sponsored by Rep. David Kustoff (R-TN) and cosponsored by Rep. Kyrsten Sinema (D-AZ), H.R. 4768 requires the President, through the Secretary of the Treasury, to develop a national strategy to combat the financial networks of transnational criminal organizations (TCOs) not later than one year after the enactment of this Act and every two years thereafter. In particular, the strategy will assess the most significant TCO threats and the individuals, entities, and networks that provide financial support or facilitation to those TCOs.  It also reviews current goals, priorities, and actions against TCOs’ financial support networks and will recommend new ways to deter and prosecute those who financially enable TCOs.

H.R. 4768 passed the House by voice vote on March 6, 2018.

H.R. 5288, Common Sense Credit Union Capital Relief Act – Sponsored by Rep. Bill Posey (R-FL) and cosponsored by Rep. Denny Heck (D-WA), the bill delays the effective date of the rule used by the National Credit Union Administration titled “Risk-Based Capital” from 2019 to 2021. Included in HR 5841.

H.R. 5749, Options Markets Stability Act – Sponsored by Rep. Randy Hultgren (R-IL) and cosponsored by Rep. Bill Foster (D-IL), the legislation requires the prudential regulators to implement a risk-adjusted approach to value centrally-cleared exchange-listed derivatives as it relates to capital rules to better and more accurately reflect exposure and to promote  market-making activity.

On July 10, 2018, the bill passed the House with a unanimous vote of 385-0.

H.R. 5783, Cooperate with Law Enforcement Agencies and Watch Act of 2018 – Sponsored by Rep. French Hill (R-AR) and cosponsored by Rep. Bill Foster (D-IL), the “Cooperate with Law Enforcement Agencies and Watch Act of 2018” provides a safe harbor for financial institutions that maintain a customer account at the request of a Federal, State, tribal or local law enforcement agency.

The bill passed the House with overwhelming bipartisan support, 379-4, on June 25, 2018.

H.R. 5877, Main Street Growth Act – Sponsored by Rep. Tom Emmer (R-MN), the “Main Street Growth Act” amends the Securities Exchange Act of 1934 to allow for the registration of venture exchanges with the SEC to provide a venue that is tailored to the needs of small and emerging companies and offers qualifying companies one venue in which their securities can trade.

It passed the House by voice vote on July 10, 2018.

H.R. 5953, Building Up Independent Lives and Dreams (BUILD) Act – Sponsored by Rep. Barry Loudermilk (R-GA) and Rep. Brad Sherman (D-CA), H.R. 5953 allows certain non-profits that are conducting charitable mortgage loan transactions to use either the truth in lending (TIL), good faith estimate (GFE), and HUD-1 forms, or those required under the TILA-RESPA Integrated Disclosure (TRID) rule.

H.R. 5953 passed the House by voice vote on July 10, 2018.

H.R. 5970, Modernizing Disclosures for Investors Act – Sponsored by Rep. Ann Wagner (R-MO), the “Modernizing Disclosures for Investors Act” requires the SEC to provide a report to Congress with a cost-benefit analysis of emerging growth company (EGC) businesses use of SEC Form 10-Q, including the costs and benefits to investors and other market participants of the current requirements for reporting on Form 10-Q, as well as the expected impact of the use of alternative formats of quarterly reporting for EGCs. The bill also directs the SEC to report to Congress with recommendations for decreasing costs, increasing transparency, and increasing efficiency of quarterly financial reporting by EGCs.

The House passed H.R. 5970 by voice vote on July 10, 2018.

H.R. 6069, Fight Illicit Networks and Detect (FIND) Trafficking Act – Sponsored by Rep. Juan Vargas (D-CA) and cosponsored by Rep. Keith Rothfus (R-PA), the “FIND Trafficking Act” requires the Comptroller General of the United States to carry out a study on how virtual currencies and online marketplaces are used to buy, sell, or facilitate the financing of goods or services associated with sex trafficking or drug trafficking, and for other purposes.

The bill passed the House on June 25, 2018 by voice vote.

H.R. 6139, Improving Investment Research for Small and Emerging Issuers Act – Sponsored by Rep. Bill Huizenga (R-MI) and cosponsored by Rep. Maxine Waters (D-CA), the bill requires the SEC to carry out a study to evaluate the issues affecting the provision of and reliance upon investment research into small issuers and pre-IPO companies, including EGCs and other small issuers.

It passed the House by voice vote on July 10, 2018.

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Mr. Woessner’s bio appears here.

 

JOBS 3.0 Capital Formation Legislation Pending in US Senate – by Ronald Woessner

The US House of Representatives approved and sent to the US Senate earlier this year a package of strong, bipartisan capital-formation legislation to help America’s small businesses and entrepreneurs raise capital and to protect investors. The legislative package, known as the “JOBS and Investor Confidence Act of 2018,” is comprised of scores of individual pieces of legislation approved by the House of Representatives or the House Financial Services Committee with broad bipartisan support.  This so-called “JOBS Act 3.0” follows two earlier capital formation legislative packages, the “Jump Start our Business Startups Act of 2012”  (“JOBS Act 1.0″ ), and JOBS Act 2.0,” incorporated in  the “Fixing America’s Surface Transportation Act of 2015” (the “FAST Act”).

In commenting on the legislation, Congressman Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, wherein the bills originated, stated:

“Over the last several months, our Committee has been working hard to put forth a number of capital formation bills that are designed to breathe new life in markets that are suffocating under aging regulations,” said Hensarling. “Thanks to the efforts of the Ranking Member and Members of the Committee on both sides of the aisle, we have a strong bipartisan package that will play an important role in sustaining long-term economic growth and global competitiveness.”

This article, the first of three articles, summarizes 11 of the individual pieces of legislation JOBS 3.0 — all of which are pending in the Senate.

H.R. 79, Helping Angels Lead Our Startups (HALOS) Act – Sponsored by Rep. Steve Chabot (R-OH) and cosponsored by Rep. Kyrsten Sinema (D-AZ), this bill defines an “angel investor group” and clarifies a regulation issued by the Securities and Exchange Commission (SEC) to ensure that startups have the opportunity to make a presentation to interested parties without running afoul of the securities laws.

It passed the House on January 10, 2017 with strong bipartisan support, 344-73.

H.R. 435, The Credit Access and Inclusion Act of 2017 – Sponsored by Rep. Keith Ellison (D-MN) and cosponsored by Rep. Robert Pittenger (R-NC), the bill amends the Fair Credit Reporting Act (FCRA) to authorize an entity, including the Department of Housing and Urban Development (HUD) to furnish data to consumer reporting agencies regarding an individual’s history of on-time payments with respect to a lease, or contracts for utilities and telecommunications services.

The bill passed the House by voice vote on June 25, 2018.

H.R. 477, Small Business Mergers, Acquisitions, Sales & Brokerage Simplification Act of 2017 Sponsored by Rep. Bill Huizenga (R-MI) and cosponsored by Rep. Brian Higgins (D-NY), the bill alleviates costs to small business owners by simplifying the securities registration system for mergers and acquisition brokers who help transfer the ownership of small, privately held companies.  It also disqualifies “bad actors” from utilizing the simplified process and does not allow transactions involving shell companies.

H.R. 477 passed the House with unanimous bipartisan support, 426-0, on December 7, 2017.

H.R. 1585, Fair Investment Opportunities for Professional Experts Act – Sponsored by Reps. David Schweikert (R-AZ) and cosponsored by Reps. French Hill (R-AR), Carolyn Maloney (D-NY) and Kyrsten Sinema (D-AZ), H.R. 1585 modernizes the definition of accredited investor so those who do not have a high income or high net worth but do have the education and job experience to evaluate investment risks and merits can participate in the growth of promising companies.  This change will provide more Americans with greater investment opportunities and enable the businesses they invest in to create more jobs.

It passed the House by voice vote on November 1, 2017.

H.R. 1645, Fostering Innovation Act – Sponsored by Rep. Kyrsten Sinema (D-AZ) and cosponsored by Rep. Trey Hollingsworth (R-IN), the “Fostering Innovation Act of 2017” amends Section 404(b) of the Sarbanes-Oxley Act (SOX) to extend the exemption to comply with the law for certain low-revenue emerging growth companies (EGCs) that would otherwise lose their exempt status at the end of the five-year period that applies under current law. Included in HR 3978.

H.R. 2219, End Banking for Human Traffickers Act of 2018 – Sponsored by Rep. Ed Royce (RCA) and cosponsored by Rep. Carolyn Maloney (D-NY), H.R. 2219 amends the Victims of Trafficking and Violence Protection Act of 2000 to add the Treasury Secretary to the President’s Interagency Task Force to Monitor and Combat Trafficking, requires the task force to submit to Congress an analysis of anti-money laundering (AML) efforts of the U.S. government and financial institutions relating to severe forms of trafficking in persons, and requires the Treasury Secretary to designate an office within the Office of Terrorism and Financial Intelligence to coordinate efforts to combat the illicit financing of human trafficking.

It passed the House with overwhelming bipartisan support, 408-2, on April 10, 2018.

H.R. 2364, Investing in Main Street Act – Sponsored by Rep. Judy Chu (D-CA) and cosponsored by Rep. Stephen Knight (R-CA), the bill amends the Small Business Investment Act by increasing the percentage a financial institution or federal savings association can invest in a small business investment company (SBIC) to 15 percent and require the financial institution or the federal savings association to be approved by their federal regulator prior to investing more than five percent.

H.R. 2364 passed the House by voice vote on July 24, 2017.

H.R. 3903, Encouraging Public Offerings Act of 2017 – Sponsored by Rep. Ted Budd (R-NC) and cosponsored by Rep. Gregory Meeks (D-NY), the “Encouraging Public Offerings Act of 2017” amends the Securities Act of 1933 to expand to all public companies certain provisions of Title I of the Jumpstart Our Business Startups (JOBS) Act, which previously applied only to an EGC. Specifically, the legislation allows issuers to submit to the SEC for confidential review, before publicly filing, draft registration statements for Initial Public Offerings (IPOs) and for follow-on offerings within one year of an IPO. Additionally, this bill allows all companies to “test-the-waters” before filing an IPO, which means they may meet with qualified institutional buyers and other institutional accredited investors to gauge those investors’ interest in the offering.

It passed the House with unanimous bipartisan support, 419-0, on November 1, 2017.

H.R. 3972, Family Office Technical Correction Act – Sponsored by Rep. Carolyn Maloney (D-NY), H.R. 3972 clarifies that family offices and family clients, as defined in section 275.202(a)(11)(G)-1 of title 17, Code of Federal Regulations, are accredited investors under Regulation D of the SEC.

H.R. 3972 passed the House by voice vote on October 24, 2017.

H.R. 4292, Financial Institution Living Will Improvement Act of 2017 – Sponsored by Rep. Lee Zeldin (R-NY) and cosponsored by Rep. Carolyn Maloney (D-NY), the bill amends the “Dodd-Frank Wall Street Reform and Consumer Protection Act” to reform the resolution plan submission “living will” process by requiring bank holding companies to submit to the Federal Reserve Board (Federal Reserve) and the Federal Deposit Insurance Corporation (FDIC) resolution plans every two years. This bill requires the Federal Reserve and FDIC to provide feedback regarding a resolution plan within six months after a bank holding company submission. This bill also requires the Federal Reserve and FDIC to publicly disclose the assessment framework used to review the adequacy of resolution plans.

It passed the House on January 30, 2018 with unanimous support, 414-0.

H.R. 4294, Prevention of Private Information Dissemination Act of 2017 – Sponsored by Rep. David Kustoff (R-TN), the “Prevention of Private Information Dissemination Act of 2017” establishes criminal penalties for the unauthorized disclosure of living will and stress test determinations and other individually identifiable information by federal officials, consistent with existing penalties for other unauthorized disclosure of confidential records by federal officials.

It passed the House on June 26, 2018 with overwhelming bipartisan support, 392-2.

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Mr. Woessner’s bio appears here.