SS&C Deliver Regulatory Update: The Effect of the Election on Financial Services Regulation

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By: Shana Bruner

To close out day one of this year’s SS&C Deliver conference, The Investment Adviser Association’s Vice President for Government Relations, Neil Simon, gave attendees a glimpse inside the beltway in this most unpredictable of election years.

Mr. Simon (who made it clear that he was not the famous playwright of the same name) noted that while there is much talk about regulation in Washington, not much is likely to get done before the new President, Senate, and Congress take office. Two of five seats on the SEC’s Commission remain unfilled, and with the expected departure of current Chair Mary Jo White, there may well be three new commissioners under the new President.

The Chairman of the House Financial Services Committee, Republican Jeb Hensarling, has introduced a bill to replace Dodd-Frank with the “Financial CHOICE Act” – CHOICE being an acronym for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.” The bill is going through the “markup” phase, but will probably not reach the House floor before the end of the current session, setting up a showdown after the 115th Congress convenes.

So where do the presidential candidates stand on financial regulation? Hillary Clinton is likely to continue President Obama’s policies, which include strengthening consumer protections and continuing the implementation of Dodd-Frank. Clinton has also called for a tax on high-frequency trading. The Republican platform, meanwhile, calls for reinstating the Glass-Steagall act that separated the investment and commercial banking industries back in the 1930s. Donald Trump himself has proposed a “moratorium” on financial regulation, although that may not be possible as some independent oversight agencies are beyond the president’s reach.

Nothing will be easy to achieve, Mr. Simon said, given the sharply divided Congress. Republicans will retain dominant control of the House. Democrats may have a chance to eke out a one-vote majority in the Senate, but control could easily flip back in the 2018 election – all in all, a recipe for continued gridlock.

The question of SEC resources continues to be an issue with the rapid growth of RIA firms. With about 500 staff to cover some 12,000 advisors, the SEC is looking for ways to extend oversight beyond the average of 10% of firms examined each year. The commission is actually considering mandatory third-party compliance assessments for advisory firms. Mr. Simon reiterated the IAA’s position that oversight of the industry should be a government function, and that bringing in third parties or self-regulating organizations (SROs) would raise issues of examiner qualifications and quality control.

In sum, Mr. Simon expects continued hyper-partisanship in Washington, incremental change at most, and a wave of “regulatory activism”. As this election year has clearly shown, however, nothing is predictable.

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