In an article with the International Comparative Legal Guide, Guidehouse's Managing Director and Financial Services Advisory and Compliance Practice Leader Ellen Zimiles and Managing Director and Head of Investigations Claiborne Porter discuss the current administration's regulatory and enforcement agenda.
The Trump administration has been lauded by some for ushering in a new era of deregulation. Executives with long-term vision, however, recognize that regulations can “snap back” just as quickly as they are weakened, leaving companies that have slashed compliance budgets and personnel at a disadvantage in the current climate of continuing regulatory enforcement. In short, the financial and reputational costs of addressing regulatory snapback — ramping up the compliance program, hiring more personnel, and restarting the hard task of creating a “culture of compliance” — far outweigh any feel-good initial cost savings that might be gained from scaling back compliance programs.
The Current Administration’s Regulatory and Enforcement Agenda
President Trump crystallized his administration’s stance on regulation in June 2017, stating “[w]e will get rid of the redundancy and duplication that wastes your time and your money.” Indeed, Executive Order 13,771’s two-for-one policy, which requires federal agencies to identify two regulations to eliminate for each new regulation issued, solidified a new era of deregulation. The Trump administration has begun curtailing rules in several major economic sectors, including the financial, energy, telecom, and healthcare sectors. In the financial sector, recent changes include revisions to the Sarbanes-Oxley Act and the Dodd-Frank Act, while the Consumer Financial Protection Bureau (CFPB) is uncertain of its future and mission. The repeal of net neutrality and internet privacy rules heralds a less-regulated telecom sector, and changes to defined standards of essential health benefits and qualified health plans reflect an easing of healthcare sector regulations. These changes, along with a multitude of changes to lesser-known regulations, show deregulation spanning a clear majority of the entire economy.
At the same time the Executive Branch is curtailing regulations and beating the very familiar drum of deregulation, it is also issuing executive orders that call for greater enforcement of certain laws, including those relating to money laundering, consumer fraud, and violent crime. For example, just 10 days after issuance of Executive Order 13,771’s two-for-one policy, President Trump issued Executive Order 13,773, which aims to, “strengthen enforcement of Federal law,” to combat corruption, cybercrime, financial crimes, and money laundering. Similarly, on July 11, 2018, more than 18 months after issuance of Executive Order 13,773, the administration issued Executive Order 13,844, which orders the creation of a task force to guard against consumer fraud and to protect market integrity. Executive Order 13,844 is, however, written so broadly that it impacts every major industry and business sector in the United States, and only time will tell if it ends up having any impact.
Congressional Attitude Toward Deregulation
Traditional stereotypes that Republicans propose and Democrats oppose deregulation do not always hold true. For instance, Sen. Elizabeth Warren, D-Mass., signaled a willingness to ease capital restraints on small regional and community banks and Democratic Senators Mark Warner, Tim Kaine, and Heidi Heitkamp, and 13 others, voted in favor of legislation that scales back federal oversight under the Dodd-Frank Act. Likewise, Republican Senators Richard Shelby and Bob Corker called for better CFPB oversight of financial institutions in the wake of recent bank scandals. Republican Senators Chuck Grassley, John Cornyn and Orrin Hatch broadly support anti-money laundering laws, and put forth a bipartisan bill to modernize and close loopholes in the existing anti-money laundering regulations. In addition, Republican Representatives Scott Taylor and Carlos Curbelo, among others, oppose EPA cuts favoring the energy industry and Republican Representatives Mike Coffman and Susan Collins opposed the Federal Communications Commission’s repeal of net neutrality. As these examples show, support for regulatory pause does not fall cleanly along party lines, which makes future regulatory and law enforcement priorities all the more difficult for corporate compliance departments to predict.
Thinking Critically About Compliance Cutback
Following through on the lure of deep cuts in compliance spending when no one is looking is short-sighted and costlier in the long run, especially when there is so much uncertainty in current regulatory, law enforcement, and legislative priorities. Moreover, the U.S. is no longer the only country that is aggressively investigating and penalizing companies that maintain poor compliance programs. Organizations that “stay the course” and keep their compliance function robust are better able to weather non-U.S. regulatory inquiries and the potential for regulatory snapback.