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President Trump begins rollback of Dodd-Frank

President Donald Trump signed an executive order on Friday (3rd February) seeking a review of the 2010 Dodd-Frank financial regulatory framework. At the same time President Trump has rescinded the Fiduciary Rule which was designed to eliminate investment advisor conflicts-of-interest in respect of retirement plans.

Republicans in Congress have already being taken action against Dodd-Frank and vowed to scrap it. On Wednesday (1st February) the House of Representatives voted to repeal regulations that require publicly-traded oil, gas, and mining companies to disclose any payments that they made to foreign governments, including taxes and royalties. The majority of members believed that the rule put American public companies at a disadvantage against foreign competitors like state-owned companies in China and Russia.

Proxy advisors regulated, financial advisors exempted?

Sean Duffy discussing CHOICE Act

Sean Duffy discussing the CHOICE Act at a Chamber of Commerce Event

The repeal of the Fiduciary Rule will mean that certain financial advisors will no longer be subject to conflict of interest regulations. The same cannot be said of proxy advisors. Speaking at a Chamber of Commerce Centre for Competitive Markets luncheon, Representative Sean Duffy (R-Wis.) said that an amended Financial CHOICE Act would be introduced in February requiring proxy advisors to disclose conflicts of interest and to be registered with the  Securities and Exchange Commission. Duffy said that the regulation would “foster greater accountability, transparency, responsiveness and competition in the proxy advisory industry.” In an a nod to concerns about the effect of regulation on competition in an already concentrated market, he added that the bill “wasn’t intended to limit access to proxy advisory services” adding “In fact, my bill recognizes the importance of these firms to corporate governance and to our economy”.

Good-bye Dodd-Frank, Hello ‘CHOICE’?

Jeb Hensarling, House Financial Services Committee Chairman, has welcomed previous comments by
President Trump and his Vice President Pence arguing for the scrapping of Dodd Frank. Hensarling believes that the Financial CHOICE Act developed and passed by his committee offers an alternative approach for the President and some of its proposals could now be considered as part of a review ordered by Trump. Hensarling said: “Fulfilling the Trump Administration’s pledge to dismantle Dodd-Frank this year is essential to levelling the playing field, building a healthy economy and offering every American greater opportunities to achieve financial independence“.

These latest executive orders follow an executive order signed on Monday (30th January) which aims to reduce the overall regulatory burden on business. The order proposed that for every one new regulation issued, at least two prior regulations be identified for elimination. Where the regulation of shareholder voting research analysts fits with the US administration’s intent to de-regulate and eliminate red tape is not clear.

Trump administration – expect the unexpected

Executive orders do not inevitably lead to successful outcomes, as the White House found when US District Judge James Robart stayed the Protecting the Nation from Foreign Terrorist Entry  travel ban. Any new regulation or de-regulation will have to make their way through the US system as well as be allocated resources by the SEC. Given the monumental impact of rolling back Dodd-Frank, it is difficult to see if cost-benefit justification can be made. A number of US proxy advisors are already registered with the SEC as investment advisors or CRAs. Carl Ichan’s role as both special advisor to President Trump on de-regulation and simultaneously working with the Council for Investor Rights and Corporate Accountability (CIRCA) introduces a novel twist: CIRCA and Icahn have argued strongly that shareholder activism, the target of the Chamber of Commerce’s long-standing lobbying, improves corporate performance.

What do you think?