01.31.2017
By Rob Daly

SEC and CFTC Avert EO

Monday’s executive order to reduce industry rules and regulation likely will not make a dent in existing Dodd-Frank and other major market regulations, say experts.

The executive order only affects cabinet-level departments and executive agencies like the Federal Aviation Administration, according to John Collins, a partner at law firm Steptoe & Johnson. “It would not affect independent agencies like the U.S. Securities and Exchange Commission, the Federal Reserve, and the Commodity Futures Trading Commission.”

For those departments and agencies that fall under the executive order’s purview, the order instructs each agency head that the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero. However, there are workarounds if the rules are required by law or are consistent with advice provided in writing by the Director of the Office of Management and Budget.

For every subsequent fiscal year, each agency head will need to “identify for each regulation that increases incremental cost, the offsetting regulations and provide the agencies best approximation to the total cost or savings associated with each new regulation or repealed regulation.”

Although the independent market regulators are not required to follow the executive order, they may keep in step with the other agencies and departments, suggested Matthew Kulkin, a fellow partner at Steptoe & Johnson.

“We’ve seen recent media reports with that independent agencies, have said that they plan to comply with the spirit of White House executive orders, including a regulation freeze,” he said.

“If you think about it in terms of the Department of Labor’s fiduciary duty role, it might have some chilling effect on introducing the regulation if the reality of the process of repealing other regulations seems unfeasible,” added Carolyn Walsh, a partner at Steptoe & Johnson.

It may take a while before the capital markets see the actual result of the executive order since the new administration still needs to fill several department and agency vacancies, according to Collins.

“Even if the order applied to independent agencies, the Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency will continue to be led by Obama appointees until their terms expire,” he said. “And the SEC and CFTC each have only one Democrat and one Republican, which will require a consensus for any rulemaking,” he said.

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