Talking Capital Formation; Independent Agencies in Crosshairs; CFPB Backers Forced to Play 'Long Game'
Capitol Account: Free Weekly Edition
With a stroke of the president’s pen, the political landscape for financial regulators shifted suddenly this week. The change came courtesy of an executive order designed to rein in independent agencies by requiring them to give the White House a lot more say in policy decisions. Even the Fed, which frequently touts its independence, won only a partial (and potentially fleeting) exemption. Outgoing Vice Chair for Supervision Michael Barr, on a bit of a farewell speaking tour, wasn’t too pleased.
Uncertainty continued to engulf the CFPB, where workers remained locked out, even as the acting director told a federal court that he intends to fulfill the agency’s statutory obligations. We reported on the “long game” that the consumer bureau’s supporters are plotting to ensure it survives what looks like a bleak four years. We also covered the debut speech of the Acting Comptroller of the Currency Rodney Hood, whose message to banks couldn’t have been more clear. “We exist to serve you,” he told a crowd of cheering executives. And for our Friday interview, we talked to the CEO of OTC Markets Group about what’s in store at the SEC now that Republicans are in charge.
Thanks for reading our digest of articles published this week. To stay on top of the news, click the button below and subscribe to the daily newsletter.
Friday Q and A: Over the past four years, relations between Wall Street traders and the SEC hit what many say was a historic nadir. Financial firms were largely on the defensive, fending off dozens of aggressive rule proposals that touched all corners of their businesses. The agency, executives argued, rarely bothered to listen to concerns – or heed warnings about the potential market disruption.
With Republicans now in control in Washington, there is a reset underway. The SEC’s rulemaking flurry is being replaced by a directive to cut red tape and ease industry burdens. Spurring capital formation is at the top of the agenda. That’s an issue that Cromwell Coulson, the CEO of OTC Markets Group, has been advocating on for years. His firm operates the main trading platforms for over-the-counter securities, where thousands of small public companies get their start.
Coulson has long argued that reducing the complexity of regulation benefits the entire marketplace – and can be done while maintaining investor protection. His own company, he says, provides a good example of how the SEC should work. When he bought OTC Markets in the late 1990s, the agency allowed it and other new venues to develop with light-touch oversight before adjusting the rules as trading technology evolved.
Read on for his thoughts about what went wrong under Chair Gary Gensler and how the commission can change course. What follows is our (lightly edited and condensed) conversation.
Capitol Account: How did you get into this business?
Cromwell Coulson: I worked for a large market maker. Back then, over-the-counter trading was on something called the OTC Bulletin Board, operated by [the National Association of Securities Dealers] and the Pink Sheets. The Pink Sheets was as buggy-whip a way for a market to work as could be.
CA: How so?
CC: There was this publisher called National Quotation Bureau who owned the Pink Sheets. I hated the way it worked because the regulations only required that brokers call three other market makers to get a quote. And often we would miss trades because we were the fourth or fifth call. There were firms much better at getting the call, and there was no price transparency to drive trades to us.
CA: What was your plan to fix the situation?
CC: I got all excited and I called Michael Bloomberg – you could call him in those days. I said, `You need to buy the National Quotation Bureau and put the Pink Sheets on your terminal.’ I loved the Bloomberg terminal. It had so much better data. But he said, `That's the dumbest idea I've ever heard,’ and hung up.
CA: You obviously didn’t agree because you decided to buy it yourself in 1997.
CC: I did, with a bunch of great value investors…The idea was just really a quick fix: close the printing plant, put it on screens and improve price transparency. Make the data available across the Bloomberg and the Reuters terminals of the world so that you open up the market.
CA: Take us up to the present.
CC: Last year we had $478 billion of trading volume. The majority is in international securities, yet we have hundreds of community banks that we offer a low-cost public market for [their shares].
CA: Part of the story of OTC Markets is that the regulation grew with the company. You’ve argued that this kind of oversight should be a model for how the SEC operates.
CC: We were really lucky because when we went electronic, the SEC at the time didn't impose huge regulatory burdens on us. They had regulated different Alternative Trading Systems and [Electronic Communications Networks] through no action letters. And they didn't even require a no action letter for us at first for going real-time with firm quote prices. Then we added trade messaging, and again, it was a reg-light approach.
CA: Today the SEC oversees trading venues like yours through a broader regime known as Regulation ATS. And it has updated the rules as the markets and technology have evolved.
CC: The building up of Reg ATS is a superb example for any type of rulemaking, because for the first 20 years or so the SEC gave exemptions to what didn't fit…By the time they were ready to write Reg ATS they had a lot of experience with these systems and how to regulate them.
CA: Was it an easy process?
CC: It wasn't all champagne and roses, date night with the SEC. There were disagreements with the staff and there were blunt differences, but we got there. I have so much respect for the SEC staff when they're working through hard problems.
CA: Market participants seemed to not only disagree with Gensler during his tenure, but also be openly antagonistic. What happened?
CC: One of my biggest frustrations with the Gensler era was everything was run out of the chairman’s office. So we lost a lot of the staff knowledge.
CA: How should things work with the SEC in your view?
CC: As an industry person, a commercial operator, I'm not going to be in total lockstep agreement. However, there has to be that candid conversation when we all identify a problem we need to solve. We need to be like divorced parents who both love their child – which in this case is markets and capital formation – and we want to make the right decisions for the long term.
CA: What should the SEC be focusing on now that Republicans are in charge?
CC: We need [more companies] going public. That's the number one change in my mind. We need to make being public more popular than being private…With democracy and capitalism, it’s fantastic when large corporations are transparent, have sustainable governance and the average citizen can buy shares as an investor…(Friday)
Click here to subscribe and read the rest of the interview.
Thanks for reading. Follow us on X @CapitolAccount and on LinkedIn by clicking here. We’re always looking for stories, so if you have any suggestions on what we should cover (or comments about Capitol Account), shoot us a note. Rob can be reached at: rschmidt@capitolaccountdc.com and Ryan at rtracy@capitolaccountdc.com. If somebody forwarded this to you and you’d like to subscribe, click on the button below. Please email for information on our special rates for government employees, academics and groups: subscriptions@capitolaccountdc.com.
Reining In: Donald Trump picked up his pen Tuesday night and hammered another nail in the coffin of regulators’ independence from politics, signing a sweeping executive order that will give the White House a lot more control over rulemaking efforts.
The directive enmeshes the president and some of his top advisers, including the attorney general and the head of the Office of Management and Budget, in policy decisions that for decades have been left to the judgment of so-called expert agencies. In the financial world, it heralds big changes for both banking and market overseers.
“This is not good news for any of the independent agencies,” says David Vladeck, a professor at Georgetown Law and a former director of the FTC’s bureau of consumer protection. “This is a way for Trump to really take control over all the regulatory agencies, and I think he’s going to get away with a lot of this.”
While it’s not clear exactly how the administration will apply the directive, many see it as opening a new front in the war to rein in the administrative state – and ultimately have the conservative majority at the Supreme Court declare independent agencies unconstitutional.
Still, the order’s legal future is a bit unclear. It’s not likely that any of the president’s appointees will challenge the new policies. Others who may have standing to sue, such as companies or Democratic commissioners, may be loath to put themselves in the line of fire.
Many conservatives cheered the move, having long argued that independent agencies should be placed squarely under the direction of the executive branch. “We don’t have an unaccountable fourth branch of government,” notes Jennifer Schulp, director of financial regulation studies at the Cato Institute. “Executive agencies should be under the control of the president.”
In some ways, the independence of regulators has always been a veneer – presidents appoint the chairs and members of commissions and the leadership often voluntarily follows the priorities of the administration in power. There was a time not that long ago where agency chiefs stressed their autonomy in setting policy and writing rules, but that has eroded over time – especially as the president has exerted more influence to hire and fire appointees.
The heads of all the financial regulators, for example, turned over after Trump took office – and the new chairmen have already paused pending rules and agreed to freeze hiring at the direction of the White House. They also eliminated DEI programs in response to executive orders. “Trump principals are unlikely to go against Trump policies,” notes Meg Tahyar, a partner at Davis Polk. Much was the same under Joe Biden, who held joint events with the CFPB and directed the SEC and other agencies to address climate change, among other issues.
Nevertheless, Trump’s dictate establishes a new normal for financial regulators, including setting more formal engagement with the president’s team. Some see the change leading to upheaval of previously established norms. For instance, will Trump even bother to nominate Democrats for seats on commissions? And what about the Fed? Though the executive order ostensibly doesn’t apply to monetary policy decisions, the leverage it exerts over supervisory activities calls into question the central bank’s zealously guarded independence.
“It is true that independence has been under attack,” says Todd Baker, a senior fellow at Columbia University’s law and business schools. “But [the order] radically changes the status quo, as no president has ever attempted to directly control agency decisions.”
What follows is a more detailed breakdown of the ramifications…(Wednesday)
Click here to subscribe and read the full article.
Long Game: Acting CFPB chief Russell Vought hasn’t said much, if anything, publicly about his plans for the consumer bureau. Instead he’s speaking with actions: Ordering staff to stop working, shuttering the headquarters, removing the logo from the door and forgoing the next funding draw from the Fed. By nominating a permanent director, the administration seems to be conceding that the agency will continue in some form – after all, the law requires it to perform certain tasks. But for now, chaos reigns. And that seems to be the point.
The situation has presented a dilemma for the CFPB’s defenders: How do they mount a counter-campaign amidst the havoc? In the roughly two weeks since the administration’s shutdown order, the bureau’s allies – current and former workers, unions, consumer groups and Democratic lawmakers – have been frantically scrambling to find answers to that question. The problem is that there’s not a whole lot they can do to stop the administration’s moves. At least in the near term, the future looks bleak.
Protests calling out Vought’s dismantling have been notable for the absence of Republicans, underscoring that CFPB supporters have virtually no allies in positions of power. Several lawsuits have yielded temporary promises that Vought will not engage in the most destructive actions on his menu, namely massive firings or draining the bureau’s coffers. But even the most ardent backers concede that over the full course of Trump’s second term, it may be difficult to prevent the agency from being stripped to the bone.
Instead, the advocates say that they are preparing for a protracted struggle – a “long game,” as one former official engaged in the effort puts it. “From the day the CFPB launched, it was under attack on nearly every front,” the person says. “This has always been part of the bureau’s, and part of the people who support the bureau’s DNA – knowing that every single day people need to wake up and fight for the place.”
The game plan is to ensure that the agency survives until it can be rebuilt. And right now the fight has two main components: Defending the CFPB via lawsuits — and in the court of public opinion as well.
The courts: Advocates have coalesced around two cases, both led by former CFPB attorneys.
Mark Samburg, who until 2023 served as the bureau’s chief operating officer, is a lead lawyer on a suit brought in the U.S. district court in Maryland by the city of Baltimore seeking an order stopping Vought from defunding the agency. Deepak Gupta, the first appellate litigator hired at the CFPB under Elizabeth Warren, is a lead counsel on another case seeking to prevent mass layoffs and the wiping of the agency’s records. That litigation is being spearheaded by the National Treasury Employees Union in D.C.’s federal court.
Both cases set up a potential showdown (one that many observers think the Trump administration is seeking) over the executive branch’s power to control ostensibly independent regulators. Vought’s actions, the NTEU argued, amount to something that “had been unprecedented until two weeks ago: unilaterally dismantling a federal agency established by Congress without any legal authority to do so.”
The Trump administration hasn’t responded in detail to that suit yet, but it did file a reply in the Maryland case related to CFPB funding. The brief alluded to an irony that hasn’t been lost on many CFPB critics, who have long complained that the agency’s unique structure makes its leader unaccountable to other parts of government: Under the law, it is the CFPB director who determines how much funding is “reasonably necessary to carry out” the bureau’s functions.
Notably, the administration also presented a statement from the CFPB’s chief financial officer, Ngagne Jafnar Gueye, assuring the court that the bureau is “committed to performing its statutory obligations.” That includes maintaining the agency’s consumer complaint database and publishing key data on the mortgage market, he said. He also asserted that the CFPB has substantial reserve funds and is undergoing significant “efficiency initiatives,” so there’s no immediate budget pinch.
As part of the cases, Vought has agreed to hold off on mass layoffs for now. Hearings are set for Feb. 26 in the Maryland case and March 3 in D.C…(Thursday)
Click here to subscribe and read the full article.