Bates Research - 11-16-16
How Will The Trump Administration Address Securities Regulation?
by Alex Russell, Head of Bates Research
President elect Donald Trump has promised to overhaul all aspects of Federal regulation within the United States, and as a result there has been a great deal of speculation as to what that might mean for securities regulation, oversight, and especially enforcement for the next four years.
The President elect mentioned a dramatic overhaul of Dodd-Frank at many points during his campaign, even going so far as to say that “it will be close to dismantling of Dodd-Frank.” Mr. Trump seems to have supported that view as recently as a week ago, on his own website. Since the election was decided, House Financial Services Committee Chairman Jeb Hensarling has reiterated the Trump administration’s commitment to change Dodd-Frank. Interestingly, Congressman Hensarling has focused his efforts (via the CHOICE Act) around removing burdensome regulation for community banks and credit unions, who are in a position to provide much needed mortgage and small business financing to average Americans. Rather than "taking it easy" on Wall Street, the law would actually give the SEC authority to impose larger penalties on banks that step out of line. It's unclear if the Trump administration in general will take a hardline or accommodating stance towards the major Wall Street firms.
Senator Elizabeth Warren, who has sparred with Trump in the past, has promised a tough fight over the dismantling of Dodd-Frank, but has noted that she looks forward to the opportunity to discuss a revival of the Glass-Steagall Act with the current administration (President elect Trump had previously indicated that he would support the re-separation of commercial and investment banking). A revival of Glass-Steagall would obviously be met with a good deal of pushback from Wall Street.
The DOL’s new Fiduciary Rule will also likely be impacted by President elect Trump’s stance on regulation. While the rule enjoyed a great deal of support from the Obama administration, including the President’s veto of legislation designed to kill the rule, its future is very uncertain under Trump. President elect Trump’s advisors have previously indicated that he would repeal the rule completely, but many consider it improbable that the rule will be completely removed, now that is has been finalized and firms have already begun working towards compliance with the rule. Slashing the DOL’s budget, or in some other way undermining their ability to actively enforce the rule, seems more likely.
The fate of the anticipated SEC fiduciary rule is much more up in the air. Chair Mary Jo White has already announced that she will resign her post in sync with Obama’s departure. Chair White has overseen a period of tightening of financial regulation since she took the helm of the SEC in 2013. With only two of the five commissioner seats currently filled at the SEC (gridlock in the Senate has prevented further appointments), that leaves quite a bit to speculation. Of the two commissioners currently serving, it is likely that republican commissioner Michael Piwowar will be appointed interim head of the SEC. Mr. Trump has tasked Paul S. Atkins, a former Republican commissioner for the SEC, with leading the effort to identify candidates to fill the now-empty Chair spot. Atkins has been a strong proponent of financial deregulation in the past, which gives a good indicator as to where the agency may be headed. Large-scale regulatory implementations, like the prospective SEC fiduciary rule, seem exceedingly unlikely to progress during the next four years. The SEC’s aggressive regulatory stance, which relies on administrative hearings for enforcement, could possibly be on its way out.
Mr. Trump may also choose to devote resources from the FBI and DOJ away from white collar crime as well, focusing on other areas he has outlined previously that relate to his key focus on homeland security. In the absence of strong Federal regulation, it is likely that state-level regulation, and activity by state attorney generals, will drive much of the policing activity moving forward. It is unclear how the Trump administration, which has championed state’s rights, would respond to an increase in state-level regulatory activity.
Bates Research will continue to provide coverage of the changing landscape of financial regulation as the priorities and positions of the Trump administration become clearer. During this period of uncertainty, we encourage you to join the conversation about what financial regulation might look like moving forward on Linkedin and Twitter.