President Donald J. Trump ended his second full week in office by kick-starting promised efforts to pare down Dodd-Frank Act regulations. He also ordered a review of a controversial Labor Department rule that would impose a “fiduciary duty” on investment advisors offering retirement planning advice;.
An Executive Order “On Core Principles for Regulating the United States Financial System,” lays out “core principles” of regulation under the Administration. Among them, to:
Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
prevent taxpayer-funded bailouts;
foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
enable American companies to be competitive with foreign firms in domestic and foreign markets;
advance American interests in international financial regulatory negotiations and meetings;
and restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.
A directive to the Secretary of the Treasury (the Senate confirmation of Trump’s nominee, Steven Mnuchin, is still pending), requires them to consult with the regulatory heads who comprise the Financial Stability Oversight Council and report within 120 days should be preserved, revised, or eliminated.
Created by the Dodd-Frank Act, FSOC is comprised of federal and state regulators and an independent insurance expert appointed by the President. SIFIs are required to conduct regular stress tests, prepare credit exposure reports, and draft “living wills” that document resolution and liquidation plans. They may also face enhanced prudential standards, including requirements regarding risk-based capital and leverage, liquidity, risk management, early remediation, and credit concentration.
Trump also put the future of the Labor Department’s fiduciary duty rule in jeopardy, ordering a fresh review to assess its future.
In April, the Department of Labor finalized a new rule that creates a fiduciary duty for brokers and registered investment advisers who offer retirement advice. It provides exemptions that, if applied for and granted, would allow these advisers to maintain fee-based arrangements.
A presidential memorandum issued on Feb. 3 details the process by which the rule will be reviewed. It “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration,” Trump wrote.
The Department of Labor is ordered to review the rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” As part of this examination, it is directed to prepare an updated economic and legal analysis concerning the likely impact of the rule. That analysis will consider, among other things:
Whether the anticipated applicability of th rule has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
whether it has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and
whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.
If the Labor Department concludes that the rule is “inconsistent” with Administration priorities, it is told to “publish for notice and comment a proposed rule rescinding or revising the rule, as appropriate and as consistent with law.”