Rep. Nickel on Crypto and Life as a Moderate; Chopra's Surprising Plans for Big Asset Managers; Fintech in Spotlight
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Rohit Chopra always has a lot to say about a host of different policies, including those not directly within his remit at the CFPB. But this week in particular, he seemed to pop up everywhere. Most notably, the consumer bureau announced its long-awaited open banking rule, an agenda item near and dear to the director’s heart. The lawsuit came hours later. We also reported on a little-noticed speech where Chopra proposed a far-reaching crackdown on giant asset managers’ “natural oligopoly.”
With the fall conference season kicking into high gear, we covered two fintech gatherings, which highlighted some big changes in store for digital assets and payments firms. The CEO of Ripple was perhaps the most colorful speaker, and he had some choice words about the SEC’s crypto efforts. Meanwhile in New York at a Sifma event, BlackRock’s Larry Fink brushed off regulatory worries about private credit and CFTC chief Rostin Behnam lamented his agency’s court loss on election betting. For our Friday interview, we talked with a moderate Democratic congressman who has been working overtime to pass legislation laying out an oversight framework for crypto.
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Friday Q and A: Moderate voices have been slowly, but surely, disappearing from the debate over financial regulatory policy. That’s true in both parties, but is arguably more acute among Democrats. In his two years in Congress, Wiley Nickel has been an exception.
From his seat on the House Financial Services Committee, the North Carolina lawmaker has unabashedly taken a pro-business stance. He’s strived to be bipartisan as well, working closely with Republicans to design an oversight framework for digital assets. Nickel has also been a thorn in the side of Gary Gensler, cross-examining the SEC chair at hearings and joining GOP colleagues on letters that blast the agency’s vast rulemaking agenda.
We recently sat down with Nickel, who decided to retire last year after his district was gerrymandered, for an exit interview of sorts. Spoiler alert: he’s not really planning to disengage from the Washington arena – his sights are on Thom Tillis’ Senate seat, which will be contested in two years. Read on for Nickel’s thoughts on the prospects for crypto legislation in the lame-duck congressional session, why he thinks Kamala Harris is going to win his state and how his musical tastes overlap with Fed Chairman Jerome Powell. What follows is our (lightly edited and condensed) conversation.
Capitol Account: You’ve done a lot of work to get crypto legislation over the line. How unusual is that for a Democrat?
Wiley Nickel: When we started with [Chairman] Patrick McHenry, I was one of only three Democrats to co-sponsor FIT21, the digital assets market structure bill, and one of six to vote in favor of it at the committee level with my Republican colleagues.
CA: Were you surprised when many more from your party supported the bill when it came to the floor?
WN: We worked real hard, whipping and educating and talking to other House Democrats about the issue. Nobody thought we'd get to 71…voting in favor.
CA: What do you make of Harris’ approach to the crypto industry since she became a candidate?
WN: You can definitely call it a reset. And it's definitely a place where Vice President Harris would be very different than President [Joe] Biden…The statements that Vice President Harris made put her squarely in-line with the 71 Democrats who voted in favor of FIT21.
CA: How did the reset come about?
WN: We engaged with her and her team right away, as soon as she became the nominee, to see where they were on this issue…We made our pitch and our point. They asked for lists of folks to meet with, and we gave them lists and they did all those meetings – good meetings. And now we've got good, moderate policy proposals, which I think says a lot about Vice President Harris and the kind of middle-of-the road approach that she’s going to take on a lot of issues as president.
CA: What would that mean, though, for the SEC? Few would say the current chair is on the moderate side when it comes to digital assets.
WN: Gary Gensler will very quickly see the writing on the wall as we move legislation through Congress…This digital asset market structure bill certainly clarifies those regulatory gaps between the SEC and the CFTC that he has made worse. I think the days of his regulation-by-enforcement approach are going to be over, regardless of who wins the White House. He'll understand that pretty quickly.
CA: What’s it like being a moderate Democrat on the financial services committee?
WN: We've got a tremendous portfolio, and the people who gravitate to the committee are folks who are serious members of Congress. It's not like Judiciary or Oversight where it's just a constant food fight. There's been a lot of good opportunity to work in a bipartisan way.
CA: How about your fellow Democrats?
WN: I agree with my colleagues on some things, and disagree on others…Overall, it has been a great place to provide a different perspective…We're a big-tent party, and I think it's important to have Democrats pushing a pro-business agenda. We need to make sure that folks know there are moderate Democrats who want to make sure [that] we have regulation and good consumer protections, but also encourage innovation and industry.
CA: Why is it so hard to get legislation passed?
WN: The number one reason is extreme partisan gerrymandering. I won a Republican district in Congress. It was slightly Republican leaning, and one of just six that we flipped from red to blue in the last election. We had a fair map in my race. But unfortunately more than 90 percent of the seats in Congress are virtually guaranteed to go to whoever wins the Democratic primary or the Republican primary…Less than 10 percent of the seats are competitive. There's no incentive for most members to work together on issues.
CA: And of course, you are retiring because Republicans redistricted you out of a seat. Does that color your views?
WN: I'm an eternal optimist…I believe that we ought to be able to vigorously debate issues and then go have an adult beverage after votes. That's been my approach…The American people are not in the far left or far right. Most of them are in the center, and they don't have a lot of people speaking up for them in Congress…(Friday)
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Poking the ‘Oligopoly’: From his perch on the FDIC board, Chopra has helped spearhead a controversial plan to increase oversight of asset managers that own stakes in banks. But the influential progressive is envisioning a much more extensive regulatory assault on the biggest players in the industry – one that could include taking steps to cap their size, limit their ability to vote in proxy contests and restrict their private communications with the management of companies they invest in.
The CFPB chief outlined his ideas during a little-noticed talk last week at Harvard Law School, where he singled out BlackRock and Vanguard as part of a “natural oligopoly” that is “difficult to disrupt” without policy changes. Chopra called his suggestions “holistic remedies” that “many of us across government are actively considering.”
The CFPB didn’t widely publicize the director’s appearance at the event, which focused on “common ownership,” an issue that crops up when an investor owns shares in multiple companies in the same sector. (Interest in the topic has been fueled by the growth of index investing and the domination of the so-called Big Three asset managers, which includes State Street, as well as BlackRock and Vanguard.) According to people who were there, most in the audience were academics, though representatives from Vanguard and BlackRock came after being given a heads up that Chopra was participating in a question and answer session. The bureau later posted a copy of his prepared remarks on its web site.
The comments are already causing agitation at fund firms, which have not surprisingly pointed out that the prescriptions go far beyond the remit of both the FDIC and consumer agency. (Proxy voting, for example, is the provenance of the SEC. And it’s not completely clear that regulators could place size limitations on a firm, though such a restriction could come about if the FSOC designated a company for tighter oversight.) Still, it’s not totally unexpected that Chopra would look to mastermind a broad effort in the area. He has long expressed worries about the economic power of enormous corporations. With asset managers, he’s questioned whether their so-called passive investments can help them exert control over the companies they hold shares in.
The public speech that has been making the rounds among industry executives doesn’t capture all of what Chopra said, according to people who attended the conference. One observer estimated that he mentioned BlackRock nearly 20 times. And he particularly took issue with an agreement the firm has with the Federal Reserve that allow it to escape oversight that comes with owning more than 10 percent of a bank’s stock.
Chopra underscored that BlackRock’s deal with the Fed contains a “loophole” that gives the firm the ability to appoint a director to a lender’s board. Some saw the description and the numerous references to the asset manager as evidence of a vendetta against the company – which, they noted, will be impacted by the pending FDIC proposal on bank stakes he has championed.
Another attendee, who took notes, wrote that Chopra seemed “thrilled” by the pushback his effort has drawn from the industry. He suggested that the outcry was an indication that the regulation was appropriate, the person added.
The note-taker also reported that Chopra seemed to be actively courting the academics to provide research that supports his agenda. He hinted, the person wrote, that federal regulatory agencies would soon sponsor studies on common ownership and he encouraged people who may write papers to include policy ideas and legislative proposals.
A CFPB spokesman declined to comment.
Meanwhile, at the FDIC: There’s also a fair amount going on with respect to asset managers’ holdings of bank stock…(Thursday)
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Fintech Roundup: Financial technology is having a bit of a moment. This week, two major conferences – one in Philadelphia, the other in Washington – drew big audiences and prominent speakers. A standing-room-only throng at the International Spy Museum Wednesday for DC Fintech Week heard from regulators across the globe, top executives at crypto firms and even a few folks who could end up heading important agencies if Donald Trump wins next month.
Perhaps the most ubiquitous government official was Chopra who hit both events as part of the rollout for the agency’s long-awaited open banking rule. Released Tuesday, the plan instantly became a huge point of contention between fintech firms (which mostly cheered the new mandate) and banks (which immediately sued to overturn it).
All the hubbub is a reminder that regulatory policy these days is about a whole lot more than traditional lenders and investment funds. Fintech players with deepening pockets and an increasingly aggressive agenda are throwing their weight around the capital, and more importantly, they’re finding sympathetic ears. That will continue to be true no matter who controls Washington next year.
The upstarts’ top priorities include eased regulation of digital assets, more sharing of customer account data and injecting competition into the U.S. payments system. What follows is a rundown of some notable moments from the fintech gathering in D.C.
Crypto pushback: Ripple’s Brad Garlinghouse, one of the digital assets industry’s more politically active executives, said he’s optimistic about the future no matter what happens in the election. For good measure, though, he had plenty to say about the Biden administration, which he termed “the Gensler reign of terror mixed with Elizabeth Warren spreading misinformation, saying crypto is the boogeyman.”
Garlinghouse, who described Ripple as a “pillar” of the pro-blockchain Fairshake PAC alongside Coinbase and Andreessen Horowitz, expressed optimism that either a Trump or Harris administration would shift the tone (though perhaps to varying degrees).
Trump, of course, has reversed his previous skepticism an heartily endorsed digital assets. Some tech leaders have publicly thrown their lot in with the GOP candidate, but Garlinghouse indicated he isn’t among those. “It’s not a coincidence I’m wearing a purple tie today,” rather than a red or blue one, he quipped. (Though he did underscore that he recently endorsed John Deaton, Warren’s opponent in the Massachusetts Senate race.)
As for the Democratic presidential candidate, Garlinghouse called her, “more nuanced.” But he added: “Kamala Harris is from Silicon Valley. I think she has generally been pro-technology over the years.”
“No matter what happens, we are going to have a more pro-crypto, more pro-innovation Congress than we have ever had,” Garlinghouse predicted. “No matter what happens, we are going to leave behind a failed approach from the Biden administration.”
Still, when asked to give advice to crypto entrepreneurs in the audience, he was a lot less optimistic. “Incorporate outside the United States,” he said. “You could hire the best lawyers, the most expensive lawyers, and spend a shit ton of money. You still don’t know if the SEC is going to sue you.”
Looking back at the last few years, Garlinghouse said the industry “made a mistake by not leaning in earlier” and spending more time in Washington. “It doesn’t help that you had Sam Bankman-Fried showing up on Capitol Hill with cargo shorts and selling something that turned out not to be what was represented,” he noted. “That hurt the whole industry.”
Tryouts: For those looking for more details on what financial oversight, especially of digital assets, may look like in a second Trump administration, a few speakers offered some hints. Exhibit A was former CFTC Chairman J. Christopher Giancarlo, who’s been engaged in a not-so-subtle campaign to elevate his name on a list of potential Republican candidates to lead the SEC…(Wednesday)
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