Since Donald Trump’s shocking victory in the U.S. presidential election, there has been a sense of inevitability around de-regulating the capital markets and broader financial sector. Pundits on K Street and Wall Street have spent months proclaiming that Obama-era regulations will be systematically discarded. But when one looks past the headlines and rhetoric, it appears the regulatory climate is not changing all that much.
Of course, the natural question is: Why have President Trump and a Republican-controlled Congress failed to fulfill their pledges to aggressively de-regulate? The answer speaks volumes about how politics and public relations often supersede policy.
For starters, a rising number of Americans currently oppose rolling back the Dodd-Frank Act and related rules. A February poll conducted by Quinnipiac University revealed that half of roughly 1,600 voters surveyed want more—not less—regulation of financial institutions, representing a 4 percent uptick since the last time voters were polled by the college on the topic in 2016.
Main Street sentiment is evidently not lost on Trump. His April executive orders, which were promoted in the press as attacks on Dodd-Frank, are really just directives to have the Treasury Department “review” the Orderly Liquidation Authority and Financial Stability Oversight Council. Even promises to halt the Labor Department’s hotly contested fiduciary standard for investment advisers turned out to be just bluster now that the rule is slated for implementation.
Within the broader regulatory apparatus, one continues to find more consistency than change. The Consumer Financial Protection Bureau, which has drawn the wrath of Republicans for years, remains intact and on pace to pursue dozens of enforcement cases this year. The Trump administration has also not acted on loud calls to oust Richard Cordray from the CFPB director role.
The Securities and Exchange Commission might be pulling back on small “broken windows” cases, but major enforcement actions and probes remain in full swing. The SEC’s reported pipeline of investigations currently includes a major examination of how hedge fund managers have been valuing bonds and illiquid securities. Given new Chairman Jay Clayton’s pedigree as a litigator, market participants should anticipate additional headline-grabbing cases to be brought in the years ahead.
When it comes to legislation, Capitol Hill remains log-jammed despite Republicans chairing both the House Financial Services Committee and Senate Banking Committee. Rep. Jeb Hensarling’s revised Financial CHOICE Act appears incompatible with mainstream constituents’ views and would have little chance of clearing the Senate. The same goes for bills aimed at overhauling mortgage giants Fannie Mae and Freddie Mac. Ironically, there has been more bipartisan support for the Stronger Enforcement of Civil Penalties Act of 2017, which would raise penalties for violations brought by the SEC.
Looking ahead, the prospects for de-regulation remain murky. Trump and congressional leaders have a finite amount of political capital that they need to spend judiciously. From healthcare reform and border defense to infrastructure spending and tax cuts, there are numerous priorities that presently rank ahead of cutting financial sector red tape.
This lack of near-term clarity does not mean, however, that financial institutions and asset managers should be turning their backs on the Beltway. Keeping an ear to the ground for policy intelligence, planning for all conceivable political scenarios and engaging with influential D.C. stakeholders to convey priorities remains even more essential. Isolated lobbying behind closed doors is clearly not going to be enough to secure wins.
Beyond taking proactive steps, the current landscape also suggests that firms must continue to brace for reputational attacks and regulatory issues that can shake their businesses. In the last few weeks alone, members of Congress proposed new rules to curb activist shareholders and federal officials brought a major insider trading case against Deerfield Management. The negative impact associated with these types of actions is only growing due to an expanding Beltway press pool and the rise of social media.
With all this context in mind, now is the time for sector participants to think about how vocal they should be in the debates that matter most to their success and reputations.
Greg Marose is a vice president with Sloane & Company, a strategic communications and public affairs firm. He advises a variety of asset managers and financial institutions on regulatory matters, corporate positioning and special situations.
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