Relevant Document:
HR 4664
The Republican leadership of the House of Representatives today
postponed a vote at the last minute on an appropriations bill that would cut funding for the Securities and Exchange Commission, the Consumer Financial Protection Bureau, the Federal Trade Commission and other federal agencies. Before the postponement, the House voted to include amendments that would restrict the SEC’s ability to pursue enforcement actions against cryptocurrency companies and hamstring the agency’s ability to implement other aspects of its regulatory agenda, including its recently adopted rule regulating the $26.6 trillion private funds industry.
After considering amendments over the last two days to House Bill 4664, or the Financial Services and General Government Appropriations Act of 2024, Republican leadership postponed the vote on final passage because of uncertainty about securing enough votes. The bill was unlikely to receive any support from House Democrats.
The decision to postpone the vote comes ahead of a looming government shutdown that could start as soon as Nov. 17. Earlier this week, House Republican leadership similarly
postponed a vote on the transportation, housing and urban development appropriations bill after failing to secure enough votes.
The House bill for financial services and general government is one of the
12 appropriations bills that must be passed by Congress to fund federal agencies. This week’s efforts represent House Republicans’ first stab at passing a financial services and general government appropriations bill under newly elected Speaker of the House Mike Johnson, R-La. Although the final vote on the bill was postponed, the general contours of the package and the amendments proffered by lawmakers provide a general outline to any future bill considered in the House.
The full Senate has not yet considered
companion legislation, which the Senate Appropriations Committee advanced in July. The Senate bill does not include the budget cuts proposed by the House bill and does not target the SEC’s ability to bring enforcement actions or implement its wider agenda.
The White House
said that President Joe Biden would veto the House legislation but that it is willing to engage with the House and the Senate “to enact responsible spending bills that fully fund Federal agencies in a timely manner” ahead of the shutdown.
The House bill would also serve as a benchmark for future negotiations for digital asset legislation, and the proposed legislation has wider implications for the financial services industry. If a version of the bill similar to the one considered this week is enacted, it would rein in the SEC’s wider regulatory agenda, reconfigure the CFPB and hamper the FTC’s efforts to enforce antitrust laws. The bill also foreshadows possible efforts by Republicans to roll back regulations if they gain control of the White House and Congress in the 2024 elections.
Digital Asset Industry
During debate on the bill, the House agreed by voice vote to include an
amendment offered by House Majority Whip Tom Emmer, R-Minn., that would prevent the SEC from using any of the appropriated funds to carry out enforcement actions related to crypto assets.
Emmer criticized the SEC’s
regulation-by-enforcement approach, which he said has resulted in dozens of enforcement actions despite the agency never providing clear rules of the road for the digital asset industry. He also asserted that the SEC’s enforcement action against
Coinbase, which is “desperately trying to survive and innovate,” was misguided, especially since the SEC was late to respond to the meltdowns of FTX and Terra Luna.
Emmer also argued that the SEC lacks jurisdiction over much of the digital asset industry and said that Congress is
considering legislation that would classify digital assets as securities or commodities, and noted the SEC’s recent legal setbacks in its case against
Ripple Labs and concerning
Grayscale’s bitcoin ETF application.
The funding restrictions on the SEC would “not prevent future bad actors like FTX from being pursued and punished to the full extent of the law,” Emmer contended, because the Justice and Treasury departments have the ability to prosecute criminal fraud, tax evasion and sanction evasion.
During debate on the amendment, Rep. Steny Hoyer, D-Md., said that because both the House and the Senate were examining digital asset legislation, he expects that Congress would form a
conference committee - a joint House and Senate panel to reconcile differences in legislation - for the appropriations package that would examine Emmer’s amendment more closely. Hoyer said that he expects the SEC and Treasury to provide input to the conference committee on “where we want to land on this issue of no funds to carry out any enforcement actions.”
Hoyer’s suggestion that Congress could enact legislation for the digital asset industry through the appropriations process comes after the House Financial Services Committee advanced its digital asset market structure bill in July with support from Coinbase and other digital asset firms. Senate Banking Committee Chairman Sherrod Brown, D-Ohio, however, has called for tougher legislation,
saying recently that Congress “can’t let the crypto industry write its own rulebook.”
The bill would also prohibit the Department of the Treasury from using any appropriated funds for developing a central bank digital currency. The House approved an amendment offered by Rep. Alex Mooney, R-W.Va., that would prevent the Treasury from using any appropriated funds to finance the
Central Bank Digital Currency Working Group.
SEC Funding Provisions
The House bill in its current version would provide $2.04 billion to the SEC for fiscal year 2024, representing an almost 8% decrease from the agency’s existing funding level. The Senate’s companion bill proposes $2.4 billion for the agency in FY 2024.
The House agreed by voice vote to an
amendment offered by Mooney that would prohibit the SEC from using any appropriated funds to implement its recently promulgated
regulations for private fund advisors. The rule requires the $26.6 trillion private funds industry - which includes hedge funds, private equity funds, venture capital funds and real estate private funds - to provide additional financial disclosures to investors and restrict certain business practices. The SEC’s rule is also subject to a
legal challenge brought by industry organizations in the Fifth Circuit Court of Appeals.
Mooney said that the rule would impose “burdensome compliance costs” and a “one size fits all approach” for the private funds industry. In support of the amendment, Rep. Steve Womack, R-Ark., said that the SEC did not conduct a thorough economic analysis of the rule and that it was the latest example of the “aggressive regulatory posture” of the agency under Chair Gary Gensler. Rep. Matt Cartwright, D-Pa., countered that the SEC’s private fund advisors rule would protect investors and increase transparency to the benefit of financial markets.
Similarly, the House agreed to several amendments that would prohibit the SEC from using funds to implement its proposed rule for
enhanced disclosures for ESG practices, its final rule for
cybersecurity risk management and disclosure, its proposed rule for
conflicts of interest for use of predictive analytics by broker-dealers and advisors, and its final rule for
governing proxy advisors.
Most of the amendments that were agreed to by voice vote occurred with a largely empty House chamber. While House Democrats opposed the amendments, they did not call for a recorded vote for many of them - which would involve a more time-consuming process that requires members to cast a vote on the House floor. The House rejected an amendment offered by Rep. Warren Davidson, R-Ohio, which sought to reduce Gensler’s salary to $1.
The bill, as passed by the House Appropriations Committee in July, also includes provisions that would prohibit the SEC from using any appropriated funds to enforce other regulations. This includes the SEC’s
proposed rule that would require public companies to make carbon-emission and climate-change-related risk disclosures.
Additionally, the legislation would prohibit the SEC from using any appropriated funds to implement its
proposed regulation for open-end fund liquidity risk management programs and swing pricing. The Loan Syndications and Trading Association has
warned that certain aspects of the proposed rule could cause “market disruption and fire sales in the loan market” and would “significantly harm corporate borrowers” over the long term.
The bill would also prohibit the SEC from using funds to implement its proposed rule for
safeguarding advisory client assets. The SEC has said that the proposal would enhance “protections of customer assets managed by registered investment advisers” and would “protect these assets from the adviser’s own insolvency or bankruptcy, and from the assets being lost, misused, stolen, or misappropriated.” Coinbase has
urged the commission to revise the proposal, arguing that some provisions “could be detrimental to consumer protection for other asset classes, including crypto assets.”
The bill would also prevent the SEC from using funds to implement its proposed rules concerning
best execution regulatory framework,
order competition and
minimum pricing requirements.
The Senate proposal does not contemplate any such restrictions for the SEC in implementing its regulatory agenda, including those restrictions that the House agreed to through the amendment process this week.
CFPB
The House bill would change the funding mechanism for the CFPB by requiring funding through the regular appropriations process rather than by transfers from the Federal Reserve. The bill contemplates providing $635 million to the CFPB for FY 2024 through the appropriations process.
According to the
Congressional Budget Office, the CFPB estimated that its FY 2024 budget would total $685 million, which is currently funded from the Federal Reserve. If HR 4664 is enacted and the CFPB is funded through the regular appropriations process, the agency would have about $50 million less than its FY 2024 estimate. The bill would also replace the CFPB director with a five-person commission and reform the bureau’s procedural processes.
The White House opposes the proposal and argues that it would “fundamentally restructure” the CFPB. Additionally, the U.S. Supreme Court is currently considering a
legal challenge to the CFPB’s existing funding source via the Federal Reserve.
The Senate proposal would leave in place the CFPB’s existing funding mechanism but would require the CFPB to notify Congress whenever it requests funds from the Federal Reserve.
FTC and FCC
Under the House bill, the FTC would be appropriated $377 million for FY 2024 - a 12% decrease from the
existing level of $430 million. The Senate proposal would increase the agency's funding to $450 million.
Additionally, the House bill would limit the funds available for the FTC’s competition bureau - which investigates mergers and enforces other antitrust violations - to $165 million. The FTC would not be allowed to repurpose funds from its consumer protection bureau to the competition bureau. The Senate version does not contemplate such restrictions.
The White House said that the House bill’s proposed decrease in funding would “severely hinder FTC’s ability to protect consumers and continue antitrust enforcement” and could require a permanent reduction in staff of up to 400 employees. Previous
funding bills passed by Congress and signed by President Biden included funding boosts for the FTC with the
express goal of boosting staffing levels at the agency.
The House bill would appropriate $382 million to the Federal Communications Commission for FY 2024, representing a 2% decrease from the existing funding level of $390 million. The Senate proposal would increase funding for the FCC to $411 million.
Treasury, IRS
The House agreed by voice vote to an
amendment offered by Reps. Ann Wagner, R-Mo., and Bill Huizenga, R-Mich, that would prohibit the Treasury Department from using appropriated funds to finalize or implement the Financial Stability Oversight Council’s, or FSOC’s,
recent guidance for designating nonbank financial institutions as “systemically important” and subject to prudential oversight by the Federal Reserve.
Wagner said that FSOC implemented the guidance without conducting a proper economic analysis and that designations could cost consumers and taxpayers $5 billion to $8 billion. In opposing the amendment, Hoyer said that FSOC’s designation authority is essential for maintaining financial stability and that congressional committees should examine the matter further.
FSOC is
funded via the Treasury’s Office of Financial Research through assessments on certain banks and nonbank institutions that are supervised by the Federal Reserve rather than through the normal appropriations process. Therefore, it is unclear to what extent the amendment in the appropriations bill - if ultimately passed into law - would be able to inhibit FSOC from conducting activities related to designating nonbanks as systemically important.
Additionally, the House bill proposes $11.24 billion in funding for the Internal Revenue Service, representing an almost 9% decrease from the agency’s FY 2023 funding levels. The Senate’s proposal would maintain funding at the existing level.
Looming Shutdown
House Republican setbacks this week came as funding for the federal government’s operations are set to lapse after Nov. 17 absent Congress passing a continuing resolution that would fund the government at existing levels while it considers the 12 appropriations bills. Johnson has floated the possibility of using “laddered” continuing resolutions whereby Congress extends funding for certain departments on a staggered basis.
According to
Punchbowl News, one “laddered” scenario that Johnson is considering would involve the House passing a stopgap spending bill until December for some of the 12 funding bills. The House would extend funding for the remaining bills until January 2024. The specific details and length of any extensions, however, remain subject to ongoing discussions, according to the
Punchbowl report, which notes that such an approach faces opposition from some Senate Republicans and Democrats in both chambers.
Another option would involve passing a “clean” continuing resolution similar to the
extension former Speaker Kevin McCarthy, R-Calif., forced through the House in early October. Senate Majority Leader Chuck Schumer, D-N.Y., today said that he is starting the procedural process for the Senate to consider a clean short-term continuing resolution in the coming days.
Discussions related to funding additional security assistance for Israel and Ukraine as well as for enhanced border protections could also influence the direction of the budget negotiations.