Several Paths to Financial Deregulation Possible in 2017

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By Rob Tricchinelli

Nov. 18 — President-elect Donald Trump and an incoming Republican Congress have a variety of legal methods for carrying out their pledge to roll back the Dodd-Frank Act and other financial regulations.

It will take time for the new administration to evaluate all the laws and rules that could be on the chopping block—provisions affecting trading, lending, corporate disclosure, financial crisis management and consumer protection, among others.

But once Congress reconvenes and executive agencies are staffed up, they can begin bringing their deregulatory goals to fruition.

Method 1: Repeal

Republicans have targeted Dodd-Frank provisions for winding down large banks during a crisis and allowing federal regulators to designate other large nonbanks as “systemically important financial institutions.” A number of regulations disfavored by Republicans, such as CEO pay ratio disclosure and the Volcker Rule, were adopted by federal agencies under a mandate from Congress in Dodd-Frank.

Congress could wipe them off the books by passing repeal legislation and getting it signed by the president.

“For something like the Volcker Rule,” which limits proprietary trading by financial institutions, “the regulations have already been promulgated, so it would take legislative action to ‘undo’ those rules by removing their statutory basis,” Clifford S. Stanford, chairman of the bank regulatory practice at Alston & Bird LLP in Atlanta, told Bloomberg BNA in an e-mail. “However, it is conceivable that new agency heads could shift the focus of supervision or use a ‘light hand’ in enforcement even while the rule is in effect.”

Getting rid of some sections of Dodd-Frank is a priority of House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who has met with Trump and is reportedly under consideration for Treasury Secretary. A bill introduced by Hensarling and approved by the committee in September, the Choice Act, would do just that.

Other regulations that don’t depend on a statutory mandate could still be halted, reduced or overseen by Congress, through standalone bills or policy riders in spending measures. Hensarling’s bill, likely to be a starting point for House Republicans in 2017, would also require congressional approval of major agency rulemakings.

Method 2: Re-Regulate

Agency heads chosen by Trump could also undo or adopt different versions of existing regulations. Republicans have objected to many Consumer Financial Protection Bureau initiatives, for example, so new leadership there could alter the rule regime.

Brandon Becker, senior counsel at Wilmer Cutler Pickering Hale & Dorr LLP in Washington, pointed out that revising or eliminating a federal rule isn’t necessarily a simple process. “You need to follow the same rulemaking procedure, following the same standards, subject to the same judicial review, as you did when you enacted the rule,” he told Bloomberg BNA in an interview.

In certain cases, however, it would be quicker for an agency to act than to wait for congressional repeal.

“I think the administrative process is more efficient,” Helgi C. Walker, co-chair of Gibson, Dunn & Crutcher’s regulatory practice group, told Bloomberg BNA in an interview. “It takes a lot of agreement to get anything through, and it’s always harder as a practical matter to get legislation through Congress and signed by the president than it is to get three members on a multi-member commission to vote in favor of something.”

Repeal efforts in a politically unified Congress could still get hamstrung by filibusters or other priorities. “Even if you have agreement in Congress, there’s a million reasons why a bill could stall,” Walker, who worked for President George W. Bush’s transition team and administration, said.

Method 3: Ignore

Anything not completed by an executive agency can be dropped from the agenda altogether because of the wide discretion agency leaders have to set their agenda. Rules in development—or that have been proposed but not adopted—could be abandoned or left to languish, and never carry the full force of law.

“There is no reason that a proposed rule has to be finalized,” Stanford said. “However, this is more difficult to justify in the face of a legislative mandate to issue rules.”

“An agency that ignores Congress does so at its own peril,” Becker, a former director of what is now the Securities and Exchange Commission’s Division of Trading and Markets, said. “If, however, the new Congress is not interested in the agency continuing to pursue those directives, it’s very hard to think about a private citizen or a critic taking that agency to court.”

The SEC under Chairman Mary Jo White, for example, has proposed but not adopted several rules relating to asset managers and equity market structure. Whether action on those rules continues depends on the new chairman’s priorities.

“We have dockets that sit for years,” Walker said. “Sometimes they’re formally closed out, sometimes they’re left to sit. It’s the same effect.”

Method 4: Negate

In early 2017, Congress could also use the Congressional Review Act, a rarely used law, to negate rules that were issued in the final part of the Obama administration.

“There is a brief period at the beginning of a new Administration during which rules issued toward the end of the previous Administration are eligible for CRA disapproval,” a Nov. 9 memo from Congressional Research Service said.

The CRA says any rules adopted in a congressional session’s final 60 days are eligible for negation by a simple majority of the next Congress, and CRS estimated that cutoff to be May 30, 2016.

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at PDiamond@bna.com

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