Regulatory Rollback May Impact Bottom Lines, Companies Warn

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By Michael Greene

Carlyle Group LP and Prudential Financial Inc. are among investment and insurance companies warning that potential changes to financial rules may present risks to their businesses.

Republicans say paring the Dodd-Frank Act will be good for business. However, uncertainty about when any overhaul may happen and what the end result may look like pose challenges, companies said in annual disclosures filed with the Securities and Exchange Commission.

“We cannot predict the timing or requirements of the regulations not yet adopted under Dodd-Frank or how such regulations will impact our business, credit or financial strength ratings, results of operations, cash flows, financial condition or competitive position,” Prudential Financial said in a Feb. 17 disclosure. “Furthermore, we cannot predict whether such regulations will make it advisable or require us to hold or raise additional capital or liquid assets, potentially affecting capital deployment activities, including buying back shares or paying dividends.”

Carlyle Group

In a Feb. 16 filing, Carlyle Group, a Washington-based global alternative asset manager, warned that Republican lawmakers’ legislation to undo parts of Dodd-Frank—expected in the coming weeks—could significantly increase the SEC’s enforcement capabilities and penalties under the Investment Company Act and Investment Advisers Act.

“Any changes in the regulatory framework applicable to our business, including the changes described above, may impose additional costs on us, require the attention of our senior management or result in limitations on the manner in which we conduct our business,” the company said. “Compliance with any new laws or regulations could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely affect our profitability.”

The companies are signaling that there is an unknown out there, Stephen M. Quinlivan, a Minneapolis-based partner at Stinson Leonard Street LLP, told Bloomberg BNA.

“The rollback of Dodd-Frank isn’t necessarily a net plus to anyone,” said Quinlivan, whose practice focuses on mergers and acquisitions and securities transactions. What’s coming next is what matters, he said. For example, companies are worried that if the Consumer Financial Protection Bureau is completely eliminated, the states may start imposing tough rules, he said.


A rollback may be problematic for companies that have spent time and money to put in place procedures mandated by Dodd-Frank, Michael Hermsen, a Chicago-based partner at Mayer Brown LLP’s Corporate and Securities group, told Bloomberg BNA. These companies will have to think about what changes they may need to make if parts of the statute are repealed or amended, he said.

President Donald Trump earlier this month signed an executive order outlining his administration’s core principles for financial regulations and calling on the Treasury Secretary to review Dodd-Frank mandates. Meanwhile, House Republicans have said they plan to introduce legislation that will cast aside core components of the 2010 law.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has said his new draft of the Financial Choice Act will largely track an earlier version of the bill he introduced last year.

Raleigh, N.C.-based financial services provider Triangle Capital Corp. said several Choice Act provisions could pose risks to its business, including changes to the Volcker Rule, swaps regulations and Federal Reserve authority.

The business development company also cited Trump’s statements that he will push to withdraw the U.S. from various trade agreements. “We cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States,” Triangle said in a Feb. 22 filing. “Such actions could have a significant adverse effect on our business, financial condition and results of operations.”

Arlington Asset Investment Corp., a publicly traded principal investment firm that acquires and holds mortgage-related and other assets, cited the Trump administration as a risk factor in its Feb. 21 disclosure. “Uncertainty over the Trump administration’s policies, together with questions regarding the administration’s ability to work with Congress in order to implement such policies, are likely to increase market and credit volatility over 2017,” it said.

Other companies were more vague in their filings. “There may be changes in the laws, regulations, credit card association rules or other industry standards that affect our operating environment in substantial and unpredictable ways in the U.S. as well as internationally,” credit card processor Total System Services Inc. said in its Feb. 24 disclosure.

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