The Trump administration is aiming to reverse the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Obama in 2010 to regulate the financial services industry. Will Trump succeed? AmCham’s Kenny Lau speaks to a panel of financial and legal experts amid a drastic change of direction on regulation, trade and diplomacy
A growing environment of compliance…
In 2016 alone, we saw more than 52,506 regulatory alerts – an average of more than 200 regulatory changes per day. Across the financial services industry and into the world of corporates, regulation continues to be an overriding theme and challenge for institutions across all jurisdictions as both US and European rules in the form of Dodd-Frank, US Foreign Account Tax Compliance Act (FATCA), and MiFID II/EMIR.
The volume of global regulatory change has helped fuel a type of FinTech that continues to grow across Asia. RegTech, the use of technology in regulatory monitoring, reporting and compliance, is gaining rapid attention in the financial industry. Innovative products and services already on the market can provide more efficient ways to ensure financial stability, enhance prudential safety and soundness, strengthen consumer protection and market integrity.
Head of Enterprise Content & Capabilities Market Development, Asia
The Trump Administration has largely departed from the anti-bank populism espoused during the campaign and quickly moved onto more traditional Republican goals to (a) spur economic growth by improving the ability of banks to lend more freely and (b) reduce the “excess” regulatory burden on financial institutions and the financial system.
The Administration has been primarily issuing Executive Orders (EOs) and Presidential Memoranda (Memos) which have been more geared toward grabbing headlines than enacting any immediate regulatory change. They have had a particularly limited effect on financial services because EOs and Memos only target executive agencies (e.g., Treasury and Department of Labor) whereas most of the agencies regulating banks are independent of the executive branch.
Ultimately, changes to financial regulation will either need to be accomplished by changing the regulators (and therefore the interpretation and enforcement of rules) or changing the rules themselves through legislation.
Even before the battle over repealing and replacing the Affordable Care Act (ObamaCare) revealed the depth of the divisions in the Republican Party, it was clear that the threat of a filibuster by Democrats would make legislative changes to Dodd-Frank difficult to accomplish before 2018 at the earliest (when Republicans have a chance of gaining more Senate seats).
Further, inquiries into the decision to fire Director of the Federal Bureau of Investigation James Comey will take up valuable Congressional committee and floor time over the next several weeks (or even months), and thereby push financial services regulatory reform even further to the back burner. Therefore, we continue to believe that changing the referees (i.e., regulators) rather than the rules is the Trump Administration’s best chance for speedy and impactful reforms.
President Trump will have already replaced the majority of President Obama’s senior financial regulators by the end of this year. This transformation at the top of regulatory agencies will enable changes to various pain points – perceived stringent demands of regulators, very narrow or non-transparent interpretations of complex provisions, and punitive enforcement actions. In choosing relatively moderate nominees with industry experience for financial services agency positions thus far, the Trump Administration is sending a signal that there will be changes to the financial regulatory environment, but the core framework of Dodd-Frank is here to stay (for now).
Partner & Financial Services Consulting - Asia Pacific Leader
A different direction of policy…
Upon taking office President Donald J. Trump implemented campaign promises to revise financial industry regulatory overreach, and has appointed a group of regulators and policymakers led by Treasury Secretary Steven Mnuchin, National Economic Council Chairman Gary Cohn, Securities and Exchange Commission Chairman Jay Clayton, and Office of Management and Budget Director Mick Mulvaney.
What followed was Executive Order 13772 (Core Principles for Regulating the United States Financial System) issued on February 3 by President Trump, stating seven key principles: ensuring Americans’ financial well-being, preventing taxpayer-funded bailouts, fostering economic growth, promoting U.S. competitiveness, advancing American interests internationally, making regulation efficient and effective, and restoring accountability.
Legislative priorities such as healthcare, tax reform, infrastructure investment, and the budget might hinder those changes that require Congressional action. Thus, change via regulatory reform is where industry is likely to see faster progress. Executive Order 13777 (Enforcing the Regulatory Reform Agenda) issued on February 24 directs executive agencies to appoint a regulatory reform officer.
Moreover, Executive Order 13781 (Comprehensive Plan for Reorganizing the Executive Branch) issued on March 13 directs agencies to prepare reorganization plans within 180 days. The Presidential Memorandum “Financial Stability Oversight Council” issued on April 21 sets to improve the FSOC processes under the Dodd-Frank Act.
Ross D. Feingold
DC International Advisory
On trade and diplomacy…
President Trump wasted little time in shifting the landscape of U.S. trade policy, via executive order, upon entering the oval office. He immediately withdrew the United States from TPP and promptly ordered a thorough review of all U.S. free trade agreements. Although President Trump ultimately did not withdraw the United States from NAFTA, he has entrusted Secretary of Commerce Wilbur Ross and U.S. Trade Representative Robert Lighthizer to begin “renegotiations” with the participating countries.
Amidst this flurry of trade activity, the Administration has also imposed preliminary tariffs on Canadian lumber, launched a Section 232 investigation to determine whether imports of steel and aluminum threaten U.S. national security, expressed concern over Congressional consideration of a Border Adjustment Tax as part of any tax reform, and established a new U.S.-China Comprehensive Dialogue.
The first meeting under the U.S.-China Comprehensive Dialogue will follow implementation of the U.S.-China “100-day plan” that included commitments by China to allow U.S. beef imports and suppliers of electronic payment services into its market and commitments by the United States to allow imports of Chinese cooked poultry into the U.S. market and greater access by Chinese banks, among other commitments.
On the foreign policy front, despite his rhetoric on the campaign trail, President Trump has not moved to amend the sanctions programs that he criticized most prominently when he was a candidate for office. In the run-up to the election, President Trump expressed his opposition to the Iran nuclear deal, calling it a “disaster” and “the worst deal ever.” He was similarly critical of U.S. sanctions against Russia, suggesting that it would be preferable to improve our relationship with Russia.
However, following the election, instead of trying to renege on the Iran nuclear deal, the Trump Administration has continued to certify Iran’s compliance and waive sanctions. Notwithstanding this approach, and creating uncertainty with respect to the future trajectory of Iran sanctions relief, the Administration is currently conducting an inter-agency review of the Iran nuclear deal to determine if the suspension of sanctions is vital to the national security of the United States.
On Russia, where President Trump was initially bullish on orchestrating a dial-back of sanctions, he is now hemmed in by multiple controversies related to Russia and his campaign and Administration, as well as the threat that Congress will codify the sanctions program and potentially enhance sanctions against Russia before he can revoke or amend existing Executive Orders.
Registered Foreign Lawyer
Akin Gump Strauss Hauer & Feld
*The panel of experts appeared at an AmCham forum earlier as part of a new event series called “The Trump Era,” designed to provide business executives with insights on a range of issues including taxation, geopolitics, diplomacy and trade relations.