Deregulation: Do Business Groups Smell Blood in the Water?

Jeb HensarlingJeb Hensarling (R-Texas), chairman of the House Financial Services Committee, has announced his plans to reintroduce his Financial Choice Act (FCA) in the next Congress.

The bill has been described as a Republican wish list to dismantle the Dodd-Frank Act. The Dodd-Frank corporate governance provisions the FCA targets include:

  • restrictions on financial institutions’ incentive-based compensation;
  • the Securities and Exchange Commission’s pay ratio rule; and
  • specialized disclosures for conflict minerals, resource extraction and mine safety.

The bill also contains other provisions that will impact public companies, including changes to the SEC’s enforcement procedures, including:

  • giving defendants in SEC administrative proceedings the right to remove the action to federal court;
  • establishing an Enforcement Ombudsman to review complaints about the enforcement program; and
  • requiring the SEC to publish an Enforcement Manual to ensure “transparency.”

The FCA further would require proxy advisory firms to register with the SEC. Proxy advisers also would have to disclose conflicts of interest to the agency, and ensure their proxy voting recommendations are based on “accurate and current information.”

Business groups have heavily lobbied Congress on some of the above issues. In fact, the SEC received more than 287,000 letters commenting on its pay ratio rulemaking, many from corporate representatives opposing its adoption.

At this point, it’s still too early to say how high Dodd-Frank is on the Republicans and President-elect Donald Trump’s list of priorities. And even if Hensarling reintroduces the FCA, it is doubtful that Democratic lawmakers in the Senate will support the bill, which lowers its chance of passing.

In any case, one of Trump’s major themes is deregulation. And he has picked former SEC commissioner Paul Atkins to lead his transition team’s work on independent financial regulators like the SEC. Atkins was a fierce critic of many SEC initiatives, such as large fines against public companies.

In the meantime, the U.S. Chamber of Commerce, the world’s largest business lobby, said in a Nov. 15 statement that it is expanding its lobbying team in 2017. The Chamber also said one of its top legislative priorities is urging the next Congress to take up and pass the Regulatory Accountability Act, a bill that would impose procedural hurdles to regulatory rulemaking. In addition, the Business Roundtable said it will work with the Trump administration on “bringing common sense to federal regulation.”

In other words: this is a space to watch.