Throughout the 2016 presidential race, deregulation was a key battle cry for the Trump campaign, and one of the major platforms it rode to the Whitehouse. True to his word, the newly appointed president almost immediately announced a regulatory freeze of all new and pending regulations. In addition, Trump also issued the first of many executive orders (E.O.) promising to lessen the regulatory environment in order to stimulate the economy. Here, Trump promised that “for every new regulation issued, at least two prior regulations be identified for elimination.”
It is important to note that the language surrounding this E.O. does not mandate that two regulations’ be eliminated, but merely be identified for elimination. This is an important distinction, mainly because it does not specifically require the dismantlement of regulations. Though to many this approach is flawed, it will certainly force regulatory agencies to carefully consider any future regulations they plan to impose.
The regulatory freeze and E.O. are not the only Trump actions that have influenced the financial industry. Potential changes to Dodd-Frank, new appointments to key government agencies, and an increased crackdown on money laundering and terrorism through BSA/AML regulations may also directly affect banks and credit unions in the coming years.
The Demise of Dodd-Frank?
One of the key pieces of legislation that Trump has promised to revise is the Dodd-Frank Act. Eclipsed by more publicized issues like immigration and travel bans, it is unclear at this stage whether the Trump administration plans to completely repeal or simply revise the Act, though either would certainly shake up the regulatory environment surrounding financial institutions.
Too many leaders in the banking industry, community banks have been disproportionately affected by Dodd-Frank, forcing them to bear an unnecessary regulatory burden. A repealing of Dodd-Frank would see many of these burdens lifted, giving these institutions more breathing room. President Trump asserts that the deregulation of Dodd-Frank would serve as an economic booster, allowing more loans to get to the businesses that need them. This repeal, if successful, would ultimately lead to decentralized lending and strengthen community banks’ position in their local capacities.
House Republicans have stated they would like to see new legislation on the floor by early May, but due to the recent health care bill’s failure and a hearty list of other initiatives like tax reform and the proposed border wall taking center stage, any material legislation will likely not be produced until 2018. In particular, Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, has developed the Financial CHOICE Act, a substitute to Dodd-Frank, which would seek, among other things, to reorganize the CFPB.
In a broad sense, having the repeal or revision of Dodd-Frank on the horizon means that financial institutions must be ready to swiftly change their compliance standards.
Under New Management
To support his deregulatory agenda, Trump will have the opportunity to hire key personnel in 2017 and 2018. In April, Trump will be able to appoint a new Comptroller of the Currency, and in November, he has the opportunity to appoint a currently vacant seat for Chairman of the FDIC.
Most notably, in February 2018, Federal Reserve Chair Janet Yellen’s term will come to an end. A Trump appointee to this position will surely have a lasting effect on regulatory policy moving forward. President Trump will also be able to appoint at least four of the seven members of the Federal Reserve Board during his term.
To Regulate or Not To Regulate?
Contrary to his overwhelmingly deregulatory stance, another E.O. from Trump promised to crack down on cyber security and money laundering. Though no specific industry was mentioned in the order, many financial institutions have speculated that the president might increase BSA/AML regulations.
BSA/AML has many components that correlate with Trump’s E.O.; namely, sanctions list screening. If Trump’s stance on national defense is any indication of the direction of his policy, it must be assumed that the administration will take every measure to ensure that American businesses, especially American financial institutions, are in no way affiliated with international or domestic criminals or terrorists. The anticipation of heightened BSA/AML measures means that all financial institutions must consider their BSA/AML policies and procedures as well as watch list compliance and ensure that all meet any heightened scrutiny in the coming year.
Though the effects of Trump’s presidency have not yet materialized in legislation for the financial industry, it is not far off. If institutions wait until regulation has passed, however, it might be too late. Financial institutions must continue to survey the administration’s regulatory stance in order to maintain the highest standards of compliance, and be ready to act if policies change.