What’s On TAP For Financial Services In A Trump Administration?

The first step to understanding what may happen to the financial services industry under a Trump administration is to know what we don’t know. Because of his rhetoric on the campaign trail, we can’t assume President-elect Trump’s nominees who are Wall Street veterans — including Steve Mnuchin for Treasury Secretary and Gary Cohn to be director of the National Economic Council — will actually be friendly to Wall Street. We can’t assume Trump’s overall sentiment against regulatory growth will extend to banks and non-bank financial institutions. Even if rules and agencies are repealed or changed, we can’t assume anything about how fast or how far Trump will go.

What we do know are the battle lines between different sectors of the financial services industry when it comes to policy and how Trump’s personnel decisions could impact those debates. How the different parts of the financial services sector use their influence to make their case could determine which sides the incoming administration takes; in fact, the many factions within Trump’s orbit could be so divided on some issues that the status quo holds. After all, because Trump was elected without the traditional sources of campaign support in the Beltway, he may not be willing to lend his political capital to regulatory items on the industry’s wish list.

So, here are the three battle lines to watch within financial services policy as we transition into the Trump administration:

Traditional Banks Vs. Fintech On New Regulations: Despite the Trump administration’s general urge to deregulate several sectors of our economy, new regulations on fintech may take shape during the next four years. A coalition of tech firms has called for a new Treasury undersecretary for technology to be created, specifically to oversee the creation of smart, practical regulations of the newly created industry. In December, Obama’s Currency Comptroller Thomas Curry announced his office would begin working on regulation for the fintech industry, signaling plans for companies to apply for membership to and operate under a national charter. Traditional banks want to see fintech companies held to the same standards they must comply with as opposed to a specific fintech charter, which could have special carve-outs. Any rule on this proposal is unlikely to be finalized before Curry’s term ends in April and Trump’s team has yet to announce who they will tap to replace him. But, former Currency Comptroller John Dugan, who served from 2005 to 2010 and was criticized for siding with banks too often, has been mentioned as a potential pick. How the Trump administration chooses to address this growing industry will pit traditional banking against fintech companies, and may even pit specific financial firms against each other within industry sectors.

Investment Banks Vs. Community Banks On CFPB And Dodd-Frank: President-elect Trump has made no secret of his intention to take apart the Dodd-Frank Act. And, Treasury Secretary Nominee Steve Mnuchin called ending the Consumer Financial Protection Bureau — a key part of Dodd-Frank — a top priority. But, experts do not believe the agency will be dissolved. A recent court ruling found the agency’s structure unconstitutional, which could force the agency to operate as part of the executive branch instead of as an independent agency. This change would pave the way for the incoming administration to oust and replace CFPB head Richard Cordray before his term expires in 2018, although Trump has yet not commented on this as a possibility. Removing Cordray would give the new administration an opportunity to limit the agency’s activity by appointing an ally or not appointing a new head at all. As part of The Administration Project at Delve, we’ve been following potential replacements for Cordray, including former Republican SEC commissioner Paul Atkins, who has previously referred to Dodd-Frank as a “calamity” and will likely bring his strong views on limited government to the job. The wrinkle here is that Wall Street has accepted the new Dodd-Frank environment they work in while community financial institutions have been chomping at the bit for full repeal of this law and the complete disappearance of CFPB. The devil will be in the details of how Trump ultimately chooses to approach Dodd-Frank; he could side with community banks and other industries that have financing arms (i.e. car dealers and medical offices) through a full-throated reversal of the law, or with investment banks who may reap benefits from working within the law’s regulatory and bureaucratic structure.

Independent Financial Advisers Vs. Brand Name Management Companies On The Fiduciary Rule: Obama’s Department of Labor pushed through the “fiduciary rule,” a measure outlawing commission-based compensation for financial management and insurance advisors. The policy compelled advisors to sign a “best interest contract,” forcing investors into an up-front fee system. Key members of the Trump transition’s Labor Department landing team, including Manhattan Institute senior fellow Diana Furchtgott-Roth and Americans for Limited Government’s general counsel Nathan Mehrens, have vocally criticized the rule as a complex, 395-page “power grab.” Brand name financial management companies with offices across the country are most likely settling into this ‘new normal,’ while independent financial advisors and small family-owned firms are looking to kill this rule immediately. New leadership at Labor — including Trump’s nominees for Secretary of Labor Andy Puzder — will most likely do the heavy lifting on any change. Delaying the rule indefinitely or dropping the government’s legal defense of the regulation in current lawsuits would be the most likely move in the next administration. But, brand name management companies may look to amending the rule instead in order to keep a competitive advantage over independent financial advisers.

The large question here is whether or not there will be the political will from the Oval Office to take on reforms the press will report as taking away important protections for consumers. Given the personnel decisions the transition team has made, that question, like the ones above, remain unanswered. This type of uncertainty is why Delve launched the The Administration Project, to help companies and causes navigate the uncharted territory of the new administration. To learn more, click here.

Jeff Berkowitz is the Founder and CEO of Delve, a Washington-based competitive intelligence and issue management firm helping companies and causes achieve and leverage an information advantage in overcoming their policy, political, and business challenges. He formerly oversaw research and messaging operations for The White House, U.S. Department of State, Republican National Committee, and the George W. Bush and Rudy Giuliani presidential campaigns.