What Will New Financial Choice Act Look Like?

Release of a Feb. 6 memo detailing changes to House Financial Services Committee Chairman Jeb Hensarling’s Financial Choice Act got the rumor mill churning that a reintroduction of the bill to derail the Dodd-Frank Act was imminent.

It likely still is. But the memo, which, as it states, “provides changes to be made to the introduced version of the Financial Choice Act in the 115^th Congress,” isn’t likely the final version of what amendments will be made during the bill’s markup.

Indeed, industry officials and political watchers doubt the Choice Act — if passed by the House — will survive the Senate, where 60 votes are required for passage.

“It’s hard to see how the supporters can get this through the Senate,” says Andy Friedman of The Washington Update. “These are not fiscal issues that can be addressed through reconciliation.”

(Reconciliation would mean no filibuster was allowed, so the measure could pass with a simple majority.)

So what does the memo say? Besides changes to end too-big-to-fail and bank bailouts as well as “eviscerating” the Consumer Financial Protection Bureau, the memo also “appears to eliminate nonbank” systemically important financial institutions, or SIFIs, said Mercer Bullard, law professor at the University of Mississippi Law School, founder of Fund Democracy and a former attorney at the Securities and Exchange Commission. The memo also seeks to reform the Federal Reserve and details “capital markets improvements” that include changes impacting the SEC and the rules it issues.

The memo states that it would impose term limits on members of the SEC’s Investor Advisory Committee, require the SEC to establish a “Wells Committee 2.0” to reevaluate the agency’s enforcement program, as well as prohibit a “co-conspirator” from receiving an SEC whistleblower award.

“Those aren’t the whistleblowers I worked with,” said Stephen Cohen, former associate director in the SEC’s Division of Enforcement, who recently joined Sidley Austin LLP as partner in the Securities & Derivatives Enforcement and Regulatory practice, in a recent ThinkAdvisor interview.

“I don’t believe this is a fundamental change, although the Commission already carefully considered this issue and made explicit provisions about this in existing rules,” Cohen added. “First, whistleblowers who are criminally convicted already are disqualified from receiving an award by statute. And, the existing SEC’s rules already prohibit awards to whistleblowers where sanctions are predicated on liability based substantially on conduct that the whistleblower directed, planned or initiated. So, whistleblowers already cannot benefit by blowing the whistle on themselves. What is left is the possibility that wrongdoers can come forward and claim an award by telling the government about other related misconduct (not their own) that the government did not already know about. This is good for law enforcement.”