Key Regulatory Considerations Ahead of Trump Presidency
President-elect Donald Trump and a Republican-controlled Congress may ease the regulatory burden for many organizations and arguably lower their cost of doing business. Exactly what change remains to be seen, though, raising key strategic and risk management considerations for organizations.
A new report from law firm Skadden, Arps, Slate, Meagher & Flom LLP, a member of Marsh’s Panel Counsel, analyzes potential regulatory and other changes that could impact financial institutions and other industries. These include:
- Tax reform.
- The repeal or replacement of portions of The Dodd–Frank Wall Street Reform and Consumer Protection Act.
- Congressional oversight of the Federal Reserve System.
- US Securities and Exchange Commission (SEC) leadership changes.
- Limiting the authority of the Consumer Financial Protection Bureau (CFPB).
The Risk of Uncertainty
Expected regulatory changes could benefit businesses across the board. For example, the potential change in SEC leadership could lessen the agency’s aggressive enforcement approach, which could result in fewer SEC investigations and reduced likelihood of individual personal liability.
However, there are numerous potential trade-offs that will only become apparent as the legislative agenda comes into focus. Potential regulatory changes that have been priced into equities over the past 30 days may not all happen. For instance, in the immediate term, Republicans might have to choose between a general tax cut and significant changes to Dodd-Frank. If they choose tax cuts, then the relative boost bank shares have enjoyed might appear unjustified.
Other potential impacts of regulatory change could be significant. For example:
- Companies with deferred tax assets might see those values decrease if tax rates drop.
- Lesser regulation could lead to more competition as regulatory requirements generally present a barrier to entry, especially for smaller organizations.
- Companies that have spent several years adapting to current regulations will now have to adjust. Again, at a cost.
- Companies may choose to lessen the rigorous internal controls they established to comply with Dodd Frank, which eventually could lead to directors and officers (D&O) liability claims.
Managing the Risks
While a looser regulatory environment is generally perceived as a positive for the private sector, any rollback will likely happen one regulation at a time, with specific regulatory changes affecting particular sectors or companies differently. And the precise areas of risk and opportunity will vary across and within industries.
- Working through possible scenarios, focusing on how specific changes will apply to your company.
- Reviewing how deregulation might affect you on an absolute basis and also relative to competitors.
- Refreshing your risk assessments more frequently than you might have in the past.
The combination of global volatility and a swing to one-party control of the US federal government will make for a faster-changing landscape than in the recent period of divided-government gridlock.