US regulatory relief bills go to Congress

Author: Edward Price | Published: 8 Mar 2016
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The House Financial Services Committee has approved a number of bills, each proposing reducing regulatory burdens for insurers, small banks or small businesses.

The bills, passed on March 2, include the Taking Account of Institutions with Low Operation Risk Act (Tailor Act) and the Main Street Growth Act. Those two individual bills were introduced by Republican Congressmen Scott Tipton and Scott Garrett respectively and will now be sent to the House.

Congressman Scott Tipton (R)
Congressman Scott Tipton

Tailor Act

Introduced by Congressman Tipton in June 2015, the Tailor Act would require federal agencies to fine-tune regulations to better fit a bank or credit union’s risk profile and business model. According to Tipton’s website, those federal regulatory agencies include the Federal Reserve, The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), and the Consumer Financial Protection Bureau (CFPB).

“We were really excited to get the Tailor Act out of committee,” said Congressman Scott Tipton speaking to IFLR.

“We got bipartisan support and a number of emails from our small community banks supporting us,” Tipton said.

The Act represents a trend in Congress towards pursuing bipartisan regulatory for small, if not large, banks.

“There was also a provision in the Act that I think’s important: the look-back provision,” said Tipton.

A look-back provision requires agencies to periodically evaluate the necessity of those existing regulations with significant economic impacts on small businesses. 

The Tailor Act passed the House Financial Services Committee by a 34-22 vote.

Main Street Growth Act

The Main Street Growth Act aims to aid small business growth, and capital formation, through the creation and registration of venture exchanges. These exchanges would be required to register with the Securities and Exchange Commission (SEC). As such, it’s an extension of the legislative and rulemaking effort that started with the Jobs Act in 2012. 

The Jobs Act refreshed the existing Regulation A, upgrading it for a more modern capital market environment and increasing the threshold for what can be raised from $5 million to $50 million. That upgrade resulted in Regulation A+. But the work is incomplete and market infrastructure is lacking.

"One of the key issues with Regulation A+ offerings is that there is no current trading venue where securities can trade post offering,” said Mike Zuppone, partner at Paul Hastings.

Plugging that gap is the purpose of the Main Street Growth Act. According to Zuppone, the Act’s proposed trading venues are made for smaller companies and so not subject to minimum tick size rules and decimalisation which would otherwise make it challenging for smaller companies to list. In this way, the Act would offer the legal pathway to making use of Regulation A+ and its substantially reduced disclosure requirements.

“This bill if enacted will allow innovators to create trading venues that are tailor made for these early stage growth companies,” Zuppone said. It also sidelines the state blue sky authorities.  

KEY TAKEAWAYS

  • The House Financial Services Committee has approved a number bills aiming at reducing regulatory burdens for insurers, small banks or small business.
  • The bills include the Taking Account of Institutions with Low Operation Risk Act (Tailor Act) and the Main Street Growth Act.
  • The Tailor Act would require federal agencies to fine-tune regulations to better fit a bank or credit union’s risk profile and business model.
  • The Main Street Growth Act aims to aid small business growth, and capital formation, through the creation and registration of venture exchanges.

“Right now, Regulation A+ offered securities could be traded over-the-counter, but brokers would have to comply with the 50 state blue sky securities regulators, which makes no sense,” said Zuppone.


"We were real excited to get the Tailor Act out of committee"


Under the Bill, companies listed on venture exchanges would benefit from the pre-emption  of the blue sky authorities.

Mike Zuppone, partner at Paul Hastings
Mike Zuppone, Paul Hastings


“In effect it kills two birds with one stone, removing a layer of unnecessary regulation and creating a new trading platform,” said Zuppone.

Any push to create a more hospitable trading environment for smaller and newer companies, however, raises a question: will they attract new market entrants or will incumbent stock exchanges simply create a lower tier trading venue?

“Of course, there will always be a concern as to whether this will attract companies that don’t necessary merit public investment,” said Zuppone.

“But that’s for the operator of the trading venue to regulate through their listing rules, which will target good quality companies and avoid companies with bad boy actors,” Zuppone said.

The Main Street Growth Act passed the Financial Services committee 32-25.

See also

US small bank bipartisanship won’t extend to larger FIs

Examination cycle extension for small banks

Bill to amend Dodd-Frank passes Senate committee