In a recent letter to clients, friends and associates, the prestigious firm of Cole-Frieman & Mallon LLP, warned readers of the potential Trump’s Executive Order, signed January 30, 2017, holds for changes to Dodd-Frank.
In the days following the firm’s letter, the House Financial Services Committee passed a replacement for the Dodd-Frank Wall Street Reform and Consumer Protection Act, which will be forwarded to the full House for debate. It is known as The Financial CHOICE Act and is sponsored by Texas Congressman Jed Hensarling. A Republican, Hensarling is also the House Financial Services Committee’s chair.
The Discussion Draft of H. R. 10 is just shy of 600 pages. The most enjoyable reading for the broader financial sector, and for hedge funds in particular, begins on page 104 of the download. For those choosing not to download the Discussion Draft, here are the highlights.
According to the draft, regulators, who are broadly defined and include banking regulators, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC), will be required to do the following:
1) Issue a statement explaining the need for the regulation,
2) Explain why the private market is unable to address the problem,
3) Analyze the negative impacts of the regulation,
4) Make an effort to quantify the costs and benefits (including economic costs and benefits) that arise from the regulation,
5) Provide an explanation of predicted changes resulting from the adoption of the regulation, and finally,
6) Disclose the metrics used by the regulators to determine the regulation’s impact.
Number five is perhaps the most significant of this list.
Making Life Difficult
Obviously, this bill would make the work of regulators considerably more difficult, as it would make the passage of rules a daunting prospect. Most in the financial sector will view this positively. One might reasonably make the argument that the American people, in general, are fed-up to their back teeth with un-elected bureaucrats creating rules and regulations that affect their everyday lives and livelihoods.
It is wholly reasonable to demand that regulators meet a high bar when it comes to regulations with the potential to cost millions in compliance costs, negatively impact economic growth, and threaten American jobs.
The vote in the House Financial Services Committee was 30 to 26 in favor of passage. This vote was entirely along party lines with not a single amendment offered or yea vote cast by the Democrats.
Committee minority leader, Maxine Waters (D-CA) stated that the “Choice Act is too flawed to be considered for markup, and Democrats will not offer any amendments and will move to dispense [with] this political theater.”
Of course, Republicans have the majority in both the House and the Senate, making passage of this bill at least a possibility. One thing is certain; President Trump’s Executive Order places severe obstacles in the path of regulators. But will Republican legislators learn the hard lessons taught by Obama’s executive orders—they rarely survive the term of the President? Given this stark reality, Congress needs to push for the swift passage of this legislation.