As with other areas of the law, the recent presidential election will present both challenges and opportunities for retailers concerned with financial and securities regulation. While President-elect Trump did not articulate his views on financial services regulation on the campaign trail in any detailed manner, he did suggest that the Dodd-Frank Act should be repealed as it has increased costs for businesses, impeded economic growth and severely reduced lending without any clear benefits to investors or consumers. The starting point for realignment at the U.S. Securities and Exchange Commission (“SEC”) will be the appointment of a new SEC chair; SEC Chair Mary Jo White officially announced that she will resign in January 2017. While this was certainly expected, it marks the first of many departures to come; also, there are two existing vacancies at the SEC (not counting White), two vacancies on the Federal Reserve Board (Federal Reserve Chair Janet Yellen’s term expires in February 2018), and two vacancies at the Commodity Futures Trading Commission. In addition, the Trump administration will appoint new heads at the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation in 2017. The appointment of financial markets regulators is one of the principal means by which the President affects regulation of financial markets, which in turn could affect the availability of credit for retailers and the overall economic environment in which they operate.
At the top of the list of those mentioned as Trump’s selection for the position of SEC Chair is former SEC Commissioner Paul Atkins, who is a member of Trump’s transition team and is advising him on current vacancies and policy decisions involving the SEC and financial regulation generally. Atkins served as an SEC Commissioner under former President George W. Bush, leaving the agency in 2008, and is currently the CEO of a financial and regulatory consulting firm that he founded. Trump’s appointment of Atkins to help manage the Trump team’s transition efforts suggests that he is either the top contender for the position of SEC Chair or will be instrumental in helping Trump select the next chair. He is a fierce critic of the Dodd-Frank Act and overregulation. Atkins is also reportedly being considered for the position of Vice-Chair of Supervision at the Federal Reserve Board, a position that has not been filled since it was created by the Dodd-Frank Act in 2010. The next SEC Chair will, in particular, set the tone for disclosure and financial reporting by publicly traded retailers.
Trump will likely look to a bill authored by House Financial Services Chairman Hensarling (referred to as the “Financial Choice Act”) as a guide to dismantling, replacing or amending what Congressional Republicans consider to be some of the more onerous provisions of the Dodd-Frank Act. In addition to significant structural changes in the regulation of banks and other financial institutions, the Financial Choice Act calls for the repeal of a rule requiring public companies to disclose the pay ratio between their CEOs and median compensation of all employees as well as the repeal of other corporate governance rules unrelated to the SEC’s core mission, such as the conflict mineral disclosure rule.
The Financial Choice Act also would turn the Consumer Financial Protection Bureau (“CFPB”) into a bipartisan, five member commission that is subject to the annual congressional appropriations process. As an aside, on October 11, 2016, the U.S. Court of Appeals for the D.C. Circuit issued a ruling that changed the CFPB director’s status, allowing the director to be removed by the President “at will” rather than “for cause.” Moreover, it would exempt banks and credit unions with less than $50 billion in assets from CFPB jurisdiction; currently, the cap is $10 billion.
Possible Changes to SEC’s Agenda
Other recommendations, many of which have been suggested by the business community (including industry groups) whose views are likely to be aligned with a Trump administration, include that the SEC:
- accelerate the disclosure effectiveness review to ensure that it is premised on materiality;
- reconsider moving forward on proposed rules restricting incentive-based compensation arrangements;
- rethink the SEC’s reward program for whistleblowers, including whether they should first inform management before alerting the SEC to possible misconduct;
- reform Rule 14a-8 and the shareholder proposal process; and
- curtail its use of administrative actions, which has attracted criticism from the industry given that this process lacks some of the due process protections of an Article III court and the view held by some that SEC administrative law judges are biased in favor of the SEC.
Many of these changes would be welcome developments for publicly traded retailers.
It appears likely that a Trump administration will promote a more business friendly regulatory environment for asset managers, insurance companies, consumer lenders and other financial firms; the outright repeal of Dodd-Frank in its entirety, however, seems unlikely as there are enough Democrats in the Senate to thwart attempts to do so. Rather, we are more likely to see targeted amendments to Dodd-Frank, including efforts to reduce the regulatory burden on small banks and credit unions. The SEC enforcement program will likely focus on more bread and butter securities fraud, (e.g., insider trading). In light of concerns expressed by some that extracting large financial penalties against public companies only punishes shareholders who have already been victimized, it is possible that an SEC under a Trump administration may place even greater focus on individual misconduct.