Thursday, July 21, 2022

House passes SEC, CFTC funding bill

By Mark S. Nelson, J.D.

The House passed a bill that would provide FY23 funding for the SEC and the CFTC, one of several minibus appropriations bills the House is expected to consider as it seeks to pass legislation covering all 12 of its annual appropriations subjects. Both the SEC and the CFTC would get funding increases, while the Democratic majority also rejected GOP-led amendments that would have curbed key SEC priorities on climate disclosures and ESG investing. The Transportation, Housing and Urban Development, Agriculture, Rural Development, Energy and Water Development, Financial Services and General Government, Interior, Environment, Military Construction, and Veterans Affairs Appropriations Act, 2023 (H.R. 8294) passed by a vote of 220-207. In recent years, negotiations between the House and Senate have tended to extend beyond the end of the fiscal year and it is possible that one or more continuing resolutions will be necessary before Congress finally sends a FY23 appropriations bill to the president’s desk.

SEC, CFTC, merger review funding. The SEC would for the first time be funded at over $2 billion, if the House bill is enacted. Specifically, the bill would allot the SEC $2.149 billion in FY23. The bill also would earmark $18.98 million for the SEC’s Inspector General and set aside $57.4 million for the SEC’s replacement lease for its Washington, D.C. headquarters. The CFTC, by contrast, would receive $365 million in funding for FY23.

For FY23, the SEC had requested an appropriation of $2.149 billion, which the agency said was needed to reverse the shrinking of some of its divisions and offices in recent years. The SEC is deficit neutral so its appropriation is offset by transaction fees. The agency was recently funded for the remainder of FY22 under the Consolidated Appropriations Act, 2022 (H.R. 2471) at just under the $2 billion level, receiving $1.989 billion. The CFTC, by contrast, continues to operate on a much smaller budget despite its swaps and derivatives responsibilities under the Dodd-Frank Act. For FY23, the CFTC had requested $365 million, which would include 16 new FTE positions. That would be $45 million more than the CFTC’s appropriation under the Consolidated Appropriations Act, 2022, which set the agency’s funding for FY22 at $320 million.

Moreover, the FY23 appropriations bill would allocate $20 million to the Committee on Foreign Investment in the U.S., the entity that passes on mergers involving foreign companies and whose duties have been greatly expanded by Congress in recent years.

Policy riders. While the House version of the legislation would eliminate the years-old policy rider that barred the SEC from pursuing disclosure requirements for corporate political spending, it would replace that rider with a new policy rider in aid of current SEC goals. For example, Section 540 of the bill would bar the use of SEC funds to implement the 2020 amendments to the agency’s proxy rules regarding solicitations by proxy voting advisers. The SEC recently adopted a set of amendments addressing much of the subject matter covered by the appropriations bill, including removal of material form the note to Exchange Act Rule 14a-9, which had stated that the failure to disclose material information regarding proxy voting advice covered by Rule 14a-1(l)(1)(iii)(A) (e.g., the proxy voting advice business’s methodology, sources of information, or conflicts of interest) was an example of what could be misleading under the 2020 proxy rules amendments.

The House also rejected a trio of GOP-led amendments that would have curbed the SEC’s ability to issue regulations on climate change and ESG investing. An amendment sponsored by Rep. Warren Davidson (R-Ohio) would have barred the SEC from updating Investment Adviser Act and Investment Company Act disclosure forms regarding ESG topics. The SEC in May of 2022 proposed similar amendments to those that would have been addressed by the policy rider. An amendment by Rep. David Joyce (R-Ohio) would have barred the SEC from implementing its proposed climate-related disclosure regulations. A related amendment sponsored by Rep. John Rose (R-Tenn) would have barred the SEC from implementing Scope 3 emissions disclosures under its proposed climate-related disclosure regulations. The en bloc vote defeating these and other amendments was 197-230.

The House also adopted a pair of blockchain amendments. One amendment, sponsored by Rep. Josh Gottheimer (D-NJ), would allot $1 million to Treasury to study the potential interaction between central bank digital currencies and privately issued stablecoins with the goal of promoting the continuation of the U.S. Dollar as the world’s reserve currency. The other amendment, sponsored by Gottheimer and Rep. Ted Budd (R-NC), would allot $3 million to Treasury’s Office of Terrorism and Financial Intelligence to improve that office's blockchain analysis tools and to provide training for personnel who investigate criminal and terrorist groups' use of cryptocurrencies and ransomware. These amendments were adopted en bloc by a vote of 224-204.