FEBRUARY 8, 2017
SIDLEY UPDATE
Trump Executive Actions Forecast Major Potential Changes to
Financial Industry Regulation
On February 3, President Trump issued a pair of executive actions that together constitute the first official
statements from the new administration on how President Trump’s frequent criticism of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the broader financial regulatory
climate following the financial crisis may be translated into actual reform efforts. The first, an executive
order (Executive Order) 1, sets out seven “Core Principles” to serve as broad guideposts for regulatory reform
without making any specific policy recommendations. Second, President Trump issued a separate
memorandum (Memorandum) 2 directing the Department of Labor (DOL) to re-examine the “Fiduciary
Rule” 3 it issued in April 2016 and to revise or rescind the rule as necessary following this re-examination if
the DOL finds that the Fiduciary Rule will have an adverse impact on or is inconsistent with the priorities of
President Trump’s administration, as described in the Memorandum. As written, the Fiduciary Rule would
significantly expand who, by virtue of providing “investment advice” for a fee to plans, plan fiduciaries, plan
participants or beneficiaries, individual retirement accounts (IRA), or IRA owners, is considered a
“fiduciary” for purposes of the Employee Retirement Income Security Act of 1974 and the prohibited
transaction provision of the Internal Revenue Code of 1986, thereby materially affecting, among other
things, the manner by which financial advisors can recommend proprietary investments or receive certain
types of transaction-based compensation.
A Trump Framework for Financial Regulation
Since announcing his candidacy, President Trump has expressed a desire to make significant changes to the
financial regulatory framework established by the Dodd-Frank Act and related initiatives following the crisis.
The Executive Order states that it shall be Trump administration policy “to regulate the United States
financial system in a manner consistent with” the following seven Core Principles:
•
Empower Americans to make independent financial decisions and informed choices in the
marketplace, save for retirement, and build individual wealth;
1 The Executive Order has not yet been published in the Federal Register. See Presidential Executive Order on Core Principles for Regulating
the United States Financial System, February 3, 2017, available at https://www.whitehouse.gov/the-press-office/2017/02/03/presidentialexecutive-order-core-principles-regulating-united-states
Presidential Memorandum on Fiduciary Duty Rule, February 3, 2017, available at https://www.whitehouse.gov/the-pressoffice/2017/02/03/presidential-memorandum-fiduciary-duty-rule
2
3
“Definition of the Term ‘Fiduciary’; Conflict of Interest Rule—Retirement Investment Advice,” 81 Fed. Reg. 20,946 (Apr. 8, 2016).
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SIDLEY UPDATE
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•
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;
•
Make regulation efficient, effective, and appropriately tailored; and
•
Restore public accountability within Federal financial regulatory agencies and rationalize the Federal
financial regulatory framework.
The Executive Order also directs the Secretary of the Treasury to consult with the heads of each of the
member agencies of the Financial Stability Oversight Council (FSOC) and report to the President within 120
days of the Executive Order “on the extent to which existing laws, treaties, regulations, guidance, reporting
and recordkeeping requirements, and other Government policies promote the Core Principles and what
actions have been taken, and are currently being taken, to promote and support the Core Principles.” Going
forward, the Treasury Secretary must periodically report to the President pursuant to the same instructions.
The Executive Order is unlikely to have an immediate impact on the laws and regulations that financial
institutions must abide by on a day-to-day basis, but it may influence future reform. The White House has
directed regulatory review to run through FSOC, a panel of financial regulators headed by the Treasury
Secretary that is broadly tasked with identifying systemic risks to the financial system. Recent statements
from the Director of the White House National Economic Council, Gary Cohn, also appear to be focused on
the process for identifying financial system risk, with explicit calls for further review of the Orderly
Liquidation Authority in Title II of the Dodd-Frank Act, the extent to which non-banks should be designated
“systemically important financial institutions,” and the living wills process for large banks, among others. 4
Others have speculated that the Volcker Rule may also be a target of any reform efforts.
Fiduciary Rule Faces Uncertain Future
The Memorandum requires the DOL to conduct an examination to review the Fiduciary Rule, with specific
consideration of:
•
Whether the anticipated applicability of the Fiduciary 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 the anticipated applicability of the Fiduciary Rule has resulted in dislocations or
disruptions within the retirement services industry that may adversely affect investors or retirees;
and
Michael C. Bender & Damian Paletta, Donald Trump Plans to Undo Dodd-Frank Law, Fiduciary Rule: White House Adviser Gary Cohn Says
Banks Burdened by Rules Added After Financial Crisis, Wall Street Journal (Feb. 3, 2017), available at https://www.wsj.com/articles/trumpmovesto-undo-dodd-frank-law-1486101602?tesla=y.
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•
Whether the Fiduciary 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.
The Memorandum expresses President’s Trump concern that the Fiduciary Rule “may significantly alter the
manner in which Americans can receive financial advice, and may not be consistent with the policies of my
Administration.” If the Labor Secretary makes an affirmative determination of any of the above criteria or
finds the Fiduciary Rule inconsistent with any administration priority, the Labor Secretary is directed to
rescind, revise or propose a new rule to remedy the shortcoming.
Ostensibly, the Memorandum only calls for a review of the Fiduciary Rule, but the White House has given
strong indications that it disagrees with the Fiduciary Rule as written. It is unlikely that the Fiduciary Rule
will take effect on April 10, 2017, as currently scheduled. While nothing in the Memorandum specifically
calls for a delay to its implementation, the DOL has already indicated it will consider its legal options to
delay the applicability date in order to comply with the Memorandum. 5 An earlier draft of the Memorandum
reportedly had included language regarding a delay, but that language did not appear in the final version.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work or
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Sidley Banking and Financial Services Practice
The Banking and Financial Services Practice group offers counseling, transaction and litigation services to domestic and
non-U.S. financial institutions and their holding companies, as well as securities, insurance, finance, mortgage and diversified
companies that provide financial services. We also represent all sectors of the payments industry, including payment networks
and processors, money transmitters, and payers and payees in various systems. We represent financial services clients before
the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau and state regulatory
agencies, as well as financial services regulators in other jurisdictions where we have offices. In addition, we represent clients
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U.S. Department of Labor, US Department of Labor to Evaluate Fiduciary Rule (Feb. 3, 2017), available at
https://www.dol.gov/newsroom/releases/opa/opa20170203.
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