With two releases, Trump made good on his promise to reform regulation of the financial industry. However, the nature of agencies regulating the sector requires that he receive an assist from Congress to effectuate real change. On February 3, the industry saw its first simultaneous act to dismantle the Dodd-Frank Act. President Trump issued an Executive Order on Core Principles for Regulating the United States Financial System and a Presidential Memorandum on the Fiduciary Rule. The Administration has indicated that at least one more order is forthcoming. On that same day, in a vote of 52 to 47, the Senate voted to repeal the Security and Exchange Commission’s (SEC) foreign payments rule requiring companies to state the taxes and other fees they pay to foreign governments that was included in the 2010 Dodd-Frank Act. Although the new law and executive orders are not related to the same Dodd-Frank initiatives, they indicate a desire by both branches of government to dismantle the impact of the Act.
In a Presidential Memorandum on the Fiduciary Duty Rule, addressed to the Secretary of Labor, Trump requests that the Secretary examine the Fiduciary Duty Rule to determine whether it may negatively impact the ability for Americans to obtain retirement information and financial advice. The Memorandum includes three factors for consideration by the Secretary, and directs that if any one of the factors is found to have an impact, a rule to rescind the Rule be proposed. The three factors include:
(1) whether it has harmed or is likely to harm investors due to a reduction in access to certain retirement offerings;
(2) whether it has resulted in dislocations or disruptions in the retirement services industry that may adversely affect investors or retirees; and
(3) whether it is likely to cause an increase in litigation and an increase in prices that investors and retirees must pay.
It is worth noting that the federal government is not the only source of fiduciary duty. Each state has well-established standards for fiduciaries within case law. Further, the new federal Fiduciary Duty Rule has not gone into effect. Thus, it is difficult if not impossible to know what impact it will have on the industry.
In The Executive Order on Core Principles for Regulating the United States Financial System, Trump delineates Core Principles of the administration’s approach, and directs the Secretary of Treasury to consult with heads of member agencies of the Financial Stability Oversight Council for the purpose of producing a report to the President within 120 days on the extent to which existing laws promote and support the Core Principles. The Core Principles include:
(1) empowering Americans to make independent financial decisions and informed choices;
(2) prevent taxpayer funded bailouts;
(3) foster economic growth and vibrant financial markets through impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
(4) enable American companies to be competitive with foreign firms;
(5) advance American interest in international financial regulatory negotiations and meetings;
(6) restore public accountability within Federal Financial regulatory agencies and rationalize the regulatory framework.
The Order does not mandate the repeal of any specific regulations. Notably, the only government agency on the Financial Stability Oversight Council under the direct authority of the President is the Secretary of the Treasury. All other agencies are independent. Thus, as with previous orders that address the financial industry, it is difficult to know exactly what impact the Executive Order will have on financial regulations.
Ironically, the Congressional Action that overturns the Foreign Payments Rule actually has little impact on the financial industry. Although a part of the Dodd-Frank Act, it has more impact on large international corporations.
Although the Presidential and Congressional activity in the first week of February generated a lot of press and speculation, none of the actions have any real impact on the financial industry so far. Instead, it merely signals an attitude by the Administration, with the backing of Congress, to restructure the regulatory framework. However, it appears no branch of the government feels comfortable doing so without research and recommendations from the federal agencies and industry experts most impacted. Perhaps the impact of the activity that sparked the Dodd-Frank Act is causing the government to be more cautious about repealing reform. Companies should not, at least for the next 120 days, make plans to operate in a system with pre-Dodd-Frank levels of control.
This post was written by Carliss Chatman for Jurispect. Carliss joined Stetson University College of Law in in 2015 as a Visiting Assistant Professor. She teaches in the areas of business law and ethics. Her scholarship is intersectional with a focus on issues at the heart of commercial litigation: the interplay of business entities, government, and natural persons.