We welcome suggestions for additional annotations, which can be sent to firstname.lastname@example.org.
We will update the annotations to the Executive Order periodically with additions, and as changes occur.
While the Executive Order signals the direction and tone of the Trump Administration in respect of financial regulation, there is a limit to what can be done to regulations by Executive Order. In addition, the Treasury cannot itself effectuate the repeal of any of the regulations issued by other US federal financial regulators or the statutorily mandated provisions of the Dodd-Frank Act. In many instances, legislative action would be necessary to repeal (and potentially replace) the Dodd-Frank Act, an effort that House Republicans already have underway via the Financial CHOICE Act. There are also potential ways to use the budget process as well as the Congressional Review Act of 1996 (for rules passed on or after June 13, 2016). Actions by other financial regulators may also be necessary, and relevant senior personnel at those agencies may not yet be in place.
The Consumer Financial Protection Bureau (“CFPB”) has been targeted for a change from a single agency head to a commission form. The Financial Stability Oversight Council (“FSOC”), including its ability to designate non-bank financial companies as systemically important financial institutions that are subjected to Federal Reserve supervision, has also met with criticism and court challenges (e.g., the MetLife "SIFI" determination was successfully challenged and overturned.) Both the CFPB and FSOC as well as the Office of Financial Research were created by Dodd-Frank and could be targets of structural reform. However, the principle also indicates that broader structural reform may be under consideration, including the elimination of regulatory agencies or the consolidation of supervisory powers in fewer agencies.
This has long been a subject of discussion, including with the Treasury white paper that led to the Dodd-Frank reforms.
We note that the initial version of the Executive Order included sub-section (f) but that the version currently available on whitehouse.gov no longer includes sub-section (f).
The "appropriately tailored" prong of this Principle may refer to future action to increase the asset thresholds of certain prudential regulations to reduce the burden on smaller financial institutions, non-bank financial institutions and non-financial institutions. This could take the form of raising from $50 billion the asset threshold at which banking organizations become subject to heightened prudential supervisory standards imposed by the Federal Reserve.
On January 30, 2017, President Trump issued an Executive Order which would require that (unless prohibited by law) for every new regulation issued by any agency, at least two prior regulations must be identified for elimination.
In a letter sent by Congressman Patrick McHenry (R-NC), Vice Chairman of the Financial Services Committee, to Chair Yellen of the Board of Governors of the Federal Reserve System on January 31, 2017, Rep. McHenry urged the Federal Reserve to end talks over international agreements until President Trump has an opportunity to “nominate and appoint officials that prioritize America’s best interests.” The Treasury could evaluate the utility of U.S. participation in international regulatory bodies such as the Basel Committee on Banking Supervision and the Financial Stability Board. Since the financial crisis, many of the regulations that have ultimately been implemented by U.S. regulators have stemmed from policy statements or principles that have come from such groups and been implemented with varying levels of rigor globally. The Treasury may also evalute bilateral discussions and agreements, such as the negotiations between U.S. and EU authorities around equivalence of derivatives regulation.
Numerous Dodd-Frank Act provisions and related regulations have been criticized for their perceived competitive impact. In the context of the comprehensive derivatives regulation adopted by Dodd-Frank, for example, concerns have been raised that certain U.S. rules (and the views of U.S. regulators as to the extraterritorial scope of those rules), may place U.S. firms (including some of their non-U.S. branches and affiliates) at a competitive disadvantage to foreign firms.
The Volcker Rule, and in particular the manner in which it defines prohibited proprietary trading, has also been criticized in this regard, including for the perceived negative impact on U.S. market liquidity. Other aspects of the Dodd-Frank Act that have been criticized as anti-competitive include risk-retention requirements (in securitizations) and U.S. capital and liquidity requirements that are more stringent than other jurisdictions.
Enhanced requirements for cost-benefit analysis and regulatory impact analysis in rulemakings has been the subject of recent analysis and court decisions (e.g., Business Roundtable v. SEC , Chicago Mercantile Exchange, Inc. v. CFTC). Many industry groups and legislators have long advocated such requirements, and versions are included in the Financial CHOICE Act proposed by Representative Jeb Hensarling in June 2016 and the Commodity End-User Relief Act passed by the House in January 2017. The CHOICE ACT would require all financial regulators to include an assessment of the rule’s need and to conduct a rigorous cost-benefit analysis of its quantitative and qualitative impacts. Regulators would be required to allow at least 90 days for notice and comment on a proposed rule and publicly release the data underlying their analyses.
Title II of the Dodd-Frank Act established an “orderly liquidation authority” under which the FDIC would be authorized
to wind-down systemically important financial institutions outside of the usual Bankruptcy Code process. Title II has been criticized as potentially putting taxpayers at risk of supporting “too-big-to-fail” institutions via the “orderly liquidation fund” that would be used
to fund the wind-down in the event that sufficient funds were not available. Republicans have proposed to repeal Title II and replace it with a new chapter of the Bankruptcy Code for large, systemically important financial institutions.
The Trump Administration has also issued a Presidential Memorandum addressing the Department of Labor’s recently promulgated ‘fiduciary’ rule. The memorandum directs the DOL to prepare an updated economic and legal analysis of the rule in order to determine if a revision or rescission of the rule is appropriate. It is likely that the DOL will delay the April 10th applicability date of the rule in order to complete its analysis.
For a more detailed discussion of this memorandum, please see our client memo: President Trump Mandates Reconsideration of DOL’s “Fiduciary” Rule: Delay in “Applicability Date” Likely available here.