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AFP Reg Report: 2014 Begins with a Flurry of Activity

  • By Konstantine Kastens, AFP Public Policy Analyst
  • Published: 2/3/2014
Recent regulatory developments relevant to treasury and finance professionals are reviewed in the AFP Reg Report. In this issue: monetary policy, payments risk, ACH, borrowing costs, swap data recordkeeping, EMIR, corporate lending, money-market fund reform, FBAR, corporate tax reform, and data security.

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) met January 29, unanimously voting to continue modest reductions in their monthly asset purchases—a $10 billion decrease in bond-buying from $85 billion to $75 billion. Its decision was driven by outlook “improvement in economic activity and labor market conditions... consistent with the growing underlying strength in the broader economy.” Forward guidance on interest rates was left unchanged, with added assurance from the Fed that such would remain the case “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”

It marked Fed Chair Ben Bernanke’s final monetary policy meeting before stepping down and turning leadership over to Janet Yellen, who was sworn in on February 3. Yellen makes her first appearance before U.S. Congress as head of the central bank on February 11 to deliver the Fed’s semi-annual Monetary Policy Report to the House Financial Services Committee.

February 10 is the deadline for comments to the Fed’s Policy on Payment System Risk. The proposed changes deal with Fed efforts to improve posting rules for automated clearing house (ACH) and commercial check transactions.

A new Fed working paper released in early-January challenges conventional thought about monetary policy trends. The Insensitivity of Investment to Interest Rates: Evidence from a survey of CFOsfound that 68 percent of CFO respondents from a prior business survey indicated that their company investments were largely insensitive to borrowing costs.

The U.S. Commodity Futures Trading Commission (CFTC) announced plans to establish a working group to review and improve current swap data recordkeeping and reporting procedures. The move comes as CFTC found reporting errors and inaccuracies in swap transactions. Meanwhile, European derivatives market counterpart European Market Infrastructure Regulation (EMIR) has a swap data reporting compliance effective date of February 12. Corporate practitioners will be mandated to comply with tagging existing trades to backload transactions and acquire legal entity identifiers (LEI) to label trading subsidiaries.

In a study released by the U.S. Office of the Comptroller of the Currency (OCC), U.S. banks have gradually eased off tightened lending standards as the economy begins to show steady improvement.

In a Reuters interview, OCC officials expressed concern that banks are skirting regulatory lending limits to pursue risky junk-rated loans to companies, by sharing the risk with fund asset-managers.

The U.S. Securities and Exchange (SEC) Commissioner Michael Piwowar, recently confirmed to fill a Republican seat on the panel, drew attention in recent remarks made at the U.S. Chamber of Commerce, when he gave public support to further money-market fund reforms. Piwowar noted he would like reforms that “mitigate the first mover-advantage enjoyed by investors who run during times of heavy redemptions” and “provide investors with more timely information about funds’ holdings, including the value of those holdings.” As such, he charged the Financial Stability Oversight Council (FSOC) with circumventing securities oversight assigned to the SEC and expressed disappointment in the SEC for having “ceded ground to the FSOC and banking regulators” on MMFs.

A newly-released SEC working paper called The Economic Implications of Money Market Fund Capital Buffersfinds previously-proposed capital buffers for MMFs would reduce performance levels of the funds to those of U.S. government securities, effectively stripping them of their appeal for investors. While the current proposed MMF rules under SEC consideration did not include capital buffers, regulatory attempts to incorporate the rule have been a long-standing concern for financial executives.

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced further extension of the FBAR filing until June 30, 2015. Treasury and finance executives who hold signature authority for foreign financial accounts on behalf of their companies, but no financial interest will receive the extension, as FinCEN works to further clarify compliance concerns.

In his State of the Union speech, President Obama called for reforming the corporate tax code in a manner that makes the “decision easier for more companies” to hire and bring outsourced work back the United States. “Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad,” he said. “Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs here at home.”

Consumer financial data security breaches found widespread among large U.S. merchants have left U.S. Congress scrambling to investigate how more than a staggering 200 million customers’ credit and debit information were compromised. Three subsequent hearings are scheduled on Capitol Hill for early-February to look into the matter by the Senate Banking and Judiciary Committees and the House Energy and Commerce Committee.

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