Regulatory Volatility during first 100 days of new adminstration in US

The new president Donald Trump who has signed multiple executive orders to cut down the regulations there is a huge regulatory volatility in the US financial markets which in turns percolates to global financial market. The fate of the financial regulations is uncertain primarily due to the style of communication of the new administration and there is always a learning curve to strike the balance between the risk and rewards of growth that he promised during his election campaign -"Putting America First".The global actions such as the "Brexit", that are also contributing to the US regulatory risk affecting the competitiveness of banks.

The US regulatory usually act locally but collaborate globally, for example, the FATCA and GATCA regulations. One of the key executive orders that Trump gave was to Dismantle the Dodd-Frank Act (DFA). US bank leaders have spoken out against dismantling DFA as the banks think that DFA has brought a check to the liquidity risk and in general market volatility.

Regulators will continue to revisit the DFA.

• Most importantly the capital and stress testing adjustments where the regulators have proposed that the banks under $ 250 billion should not be subjected to qualitative review
• Volcker Rule - Focus of the VR should shift to proprietary trading restrictions.

Banks still " Too Big to Let Fail"

President Trump signed on the following Executive orders and Memoranda in his first 100 days

• Regulatory Freeze ( 1/20/17) - Directs all the departments except OCC, FDIC and Fed not to send any new regulations to Office to Federal register (OFR) until department head appointed by president Trump reviews and approves it. Also to withdraw all the regulation which are not published. The effective date for postponing the effective regulations is still under review, which raises substantial questions about the policy.
• 2 for 1 Regulation replacements (1/30/17) - requires that for every one new federal regulation, two must be revoked and the executive order focuses on the zero net incremental cost, meaning cost of new regulations should be offset by existing rules that will be rescinded. This would go under legal review and most likely might not clear the legal hurdle to get enacted as the language of the executive order is very vague and can be interpreted in many ways.
• Core Principles regulation review (2/3/17) - This executive order principal for regulating the US financial system to review the DFA in next 120 days and submit the first report. It also lays down core principles of any regulations going forward to prevent the taxpayers funded bailouts, make regulations effective, efficient and appropriately tailored to enhance American interests in the international financial regulatory negotiations and meetings eg. Bank for International Settlements (BASEL 4) etc. and also restore the public accountability of the regulatory agencies
• Regulatory Reform Agenda Enforcement (2/24/17) - To establish a Regulatory reform task force to evaluate the existing regulations that eliminate the job creations, outdated, unnecessary, ineffective and impose a cost that exceeds the benefits and submits a report within next 90 days to the agency head.

These executive orders would have an impact on the RegTech Industry also as regulations have always been an evergreen topic and a bread earner for most of the IT firms across the globe. Banks have spent billions of dollars on the regulatory implementations and to unwind some of this would also expose them to risks at the same time incur additional cost. Having said that I think the IT and the financial industry globally would undergo a huge regulatory volatility will have to wait and see how many of these executive orders go past the legal hurdles. The impact has already started showing as the banks have put some of the projects on hold and would be in wait and watch mode until next 2-3 quarters and so would be the ancillary industries

Happy Reading! Please post your comments below.

Abhinav Gupta