The regulation of the financial services industry is likely to change under a Joe Biden presidency. The key question is how much, writes Jake Martin in New York.
For the progressive wing of the Democratic party, the expectations are high and the wish list is long. However, a tight margin in the Senate could complicate and drag out the appointment process.
For regulatory positions, ‘the key criteria should be a true grit for investors and a stated desire to not enter the industry afterwards,’ said Knut Rostad, president of the Institute for the Fiduciary Standard.
Rostad said that putting Gary Gensler, head of the Commodity Futures Trading Commission from 2009 to 2014, in charge of financial regulatory review was ‘a good first step’ by Biden’s transition team.
Gensler’s involvement was first reported by the Wall Street Journal last week. He is expected to oversee a team focused on regulatory agencies such as the Federal Reserve and the Securities and Exchange Commission (SEC), as part of a review process that occurs with every transition.
Gensler’s reported role in the transition ‘may well be a harbinger of a more muscular enforcement approach for all regulatory agencies,’ wrote Washington, DC-based attorneys Giovanni Prezioso and Matthew Solomon in a Monday blog post for law firm Cleary Gottlieb.
Kathy Kraninger’s status as director of the Consumer Finance Protection Bureau (CFPB) is likely in question after Biden takes office. Rostad said that Barbara Roper, director of investor protection for the Consumer Federation of America (CFA) would be a ‘great’ CFPB appointment.
Roper has long advocated for regulators to draw a line in the sand between brokers and investment advisors and for the SEC to either regulate brokers as advisors or stop them from marketing themselves as advisors.
With a 50/50 Senate, it may be challenging for Biden to appoint an SEC Chair from the ‘far left’ wing of the Democratic Party, wrote attorneys Prezioso and Solomon.
‘Nevertheless, the important role of anti-Wall Street Senators, such as Elizabeth Warren, in the campaign will likely be felt in making the appointment and in the operation and funding of the agency going forward,’ they wrote.
Rostad said that former SEC Commissioner Luis Aguilar, a George W. Bush appointee who served from 2008 to 2015, would be a strong choice for SEC chair.
Senator Elizabeth Warren (D-Mass.), former presidential candidate and fierce critic of banks and the financial services industry, would likely have been a leading candidate for Secretary of Treasury — had the Democrats made big gains in the Senate. However, with a Republican governor in Massachusetts who would likely get to choose her replacement, Warren may have to stay put.
Nonetheless, the prospects look good for the department to be run by a woman for the first time.
Lael Brainard, Federal Reserve governor and former under secretary of Treasury, has emerged as a likelier candidate for the Treasury post. (‘She doesn’t upset anyone too much,’ said a Politico analysis of Biden’s possible Cabinet picks.)
Mellody Hobson, president and co-CEO of Ariel Investments, is also a contender, with backing from some members of the Congressional Black Caucus.
Under current Labor Secretary Eugene Scalia, the Department of Labor (DOL) has finalized a rule on the use of environmental, social and governance (ESG) criteria in retirement plans and proposed an investment advice rule to accompany the SEC’s Regulation Best Interest rulemaking.
Politico has Julie Su, Secretary of the California Labor and Workforce Development Agency, pegged as a frontrunner for the Labor Secretary post. Other names, including Senator Bernie Sanders and DNC Chairman and former Obama Labor Secretary Tom Perez, have also entered the conversation.
While questions abound about what Biden’s cabinet and various other postings will fill out, the Democratic party’s 2020 platform offers a clue as to its attitude around fiduciary rulemaking. The document does not make explicit reference to Regulation Best Interest, but its message is clear.
‘Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first,’ the document reads in a section devoted to retirement policy. ‘We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing.’