Mary H. Carlson
Loyola University School of Law, JD 2018
During his first 67 days in office, Mr. Trump signed 19 executive orders. One such action designed to roll back regulations from the 2010 Dodd-Frank Act (“Act”) received little to no media attention but may have long lasting ramifications in the financial industry.
Outlining the Order
The Executive Order titled Core Principles for Regulating the United States Financial System directs a sweeping review of the Act which was one of the most significant changes to financial regulation since the Great Depression.
In the Order, Mr. Trump outlines the following “Core Principles” of regulation:
- Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
- Prevent taxpayer-funded bailouts;
- Enable American companies to be competitive with foreign firms in domestic and foreign markets;
- Advance American interests in international financial regulatory negotiations and meetings;
- Make regulation efficient, effective, and appropriately tailored; and
- Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.
Through the Order, Mr. Trump seeks to reduce regulations on Wall Street in the hopes of enabling US companies to better compete in global markets. In order to determine whether the Core Principles are properly utilized, the Secretary of Treasury must review existing financial regulations and report back to the President within 120 days following the review.
Mr. Trump has yet to explain what specific changes he wants or the compliance guidelines that accompany such changes. White House press secretary, Sean Spicer, has simply said that the administration will work with Congress on reforming the Act.
What does the Future Look Like for the Act and Financial Compliance?
The Act currently requires America’s largest lending firms to undergo regulatory exams and pares back private equity and hedge fund investments. Firms with over $10 billion in assets are subjected to increased surveillance, and those with $50 billion in assets are deemed systemically important financial institutions. The Federal Reserve can place these systematically important institutions under stress tests. The Financial Stability Oversight Council and the Consumer Financial Protection Bureau emerged to carry out the Act’s surveillance.
Mr. Trump’s Order outlines an extensive effort to loosen regulations on banks and other major financial companies. In his State Dining Room meeting with business leaders, Mr. Trump said that, “[w]e can expect to be cutting a lot out of the Act, because frankly, I have many people, friends of mine that had nice businesses, they can’t borrow money. They can’t get any money because the banks just won’t let them borrow it because of the rules and regulations in the Act.”
Weakening the Act won’t be as easy as the Mr. Trump hopes; all amendments will require congressional approval, meaning reluctance and push-back from congressional Democrats who helped draft and pass the Act. However, the impact of the Order still carries weight. The Order places greater scrutiny on the Financial Stability Oversight Council, the Consumer Financial Protection Bureau, as well as other agencies that regulate Wall Street.
What does this mean for the future of financial compliance? The Act lays out what one author coined as the three “R”s: 1) real-time monitoring of trading activities; 2) reconciling positions across all legal entities; and 3) responding to any requests for information from regulators about issues that impair operations, trading, or other critical functions. Under the Act, financial firms must comply with regulatory obligations and report errors and false positives. Removal of the three “R”s means leaving a large gap in how banks and financial firms handle problems such as over, under, and misreporting. Although Mr. Trump’s “Core Principals” outline what he deems important principals of regulation, they fail to provide compliance guidelines. The future of financial regulatory compliance remains uncertain.