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What the Financial Services Industry Might Expect from the Biden Administration

by on Financial Services. Published April 21st, 2021
What the Financial Services Industry Might Expect from the Biden Administration

The new administration’s policy agenda and agency appointments could have a considerable impact on the financial services industry 

Key Takeaways:

  • The Biden Administration’s priorities will likely drive increasing regulation of the financial services industry.
  • President Biden’s “whole of government” approach to address climate change includes new initiatives by agencies regulating the financial services industry. 
  • Other high-priority areas are expected to be consumer protection, systemic racism, financial regulation of digital assets and cryptocurrency, and private equity.
  • Many of Biden’s appointees are industry experts and public servants with ties to the Obama Administration.

Expected areas of increased regulation and legislation

Consumer protection is high on the new administration’s agenda. 

Under new leadership, the Consumer Finance Protection Board (CFPB) is expected to strengthen regulations that hold banks, mortgage servicers, and other financial institutions to more consumer-friendly standards. Consumers’ COVID-related financial hardships such as impending foreclosures, forbearances, and false credit reporting are key early action items for the CFPB. Student loan servicers and payday lenders also have the administration’s attention.

In addition, the Biden Administration’s stated commitment to addressing systemic racism will inform the activities of the CFPB and the Office of the Comptroller of the Currency (OCC), which oversees the Community Reinvestment Act (CRA). Fair lending enforcement will be a focus of the CFPB, while the Biden-appointed OCC Comptroller is expected to revise many of the CRA’s controversial provisions.

Financial regulation of digital assets and cryptocurrencies will likely tighten under the watch of Biden appointees. Decisions regarding rules governing the trading of unregistered securities should happen following the filing of the SEC’s case against Ripple Labs Inc. The SEC will also be paying attention to corporate governance mandates and disclosure requirements, particularly Environmental, Social, and Governance (ESG) criteria. 

Progressives are pushing for reforms to “rein in the private equity industry,” calling for measures that “empower workers, safeguard the financial system, and protect small businesses.” Senator Elizabeth Warren is planning to reintroduce legislation to “overhaul the buyout business model,” including increasing the responsibilities of private equity firms for the debts and pensions of their takeover targets. Such legislation has not had much success in the past, however. And private equity firms have many allies in Congress on both sides of the aisle.

The prioritization of climate change 

The Biden administration is taking “a whole of government” approach to combating climate change. This effort includes financial regulations and other mandates for the financial services industry. The Securities and Exchange Commission (SEC), the Federal Reserve, and the Treasury Department are now focusing on the risks climate change poses to the companies they regulate. 

The SEC is in the process of rewriting its disclosure guidelines for publicly traded companies, making it necessary for companies to include how climate change affects their finances. 

Treasury Chair Janet Yellin has promised that the way climate change has been addressed will “change dramatically” under her guidance. And as chair of the Financial Stability Oversight Council, she can push for stricter rules for higher-risk companies like mortgage lenders and insurers.

Federal Reserve chair Jerome Powell, an appointee of former President Trump, said that it’s “early days” in the process of laying out a framework of climate-related regulations. He specified that the effort is “more likely to develop scenarios meant to help banks understand the specific risks they face.” 

The impact of new appointments

If there is any truth to the old Washington adage that “personnel is policy,” the appointments made to date by the Biden administration speak volumes about the direction of their respective agencies. Because of agency heads’ capacity to establish regulations and shape legislation, they are extremely influential. 

Some of President Biden’s appointees in areas that will oversee the financial services industry are:

  • Treasury Secretary Janet Yellen, who served as the Federal Reserve Chair from 2014-2018, is calling for a global minimum tax, among other aggressive tax plans. 
  • Gary Gensler, President Biden’s choice for SEC chairman, was the former head of the Commodity Futures Trading Commission (CFTC), where he helped implement the Dodd-Frank reform bill.
  • Rohit Chopra, Biden’s choice to head the Consumer Finance Protection Bureau (CFPB), is expected to take a “more aggressive approach to how banks, lenders and debt collectors treat their customers.”
  • The Comptroller or head of the Office of the Comptroller of the Currency (OCC) has not been appointed as of this writing. But whoever assumes the post is likely to be far to the left of Brian Brooks, the most recently departed Comptroller.

Implications for banking and financial services

Washington watchers expect that new leadership—from the agency level to Congress and the executive branch—portend a tougher regulatory stance. The challenge for the financial services industry will be to act on these changes quickly while remaining in full compliance with evolving regulations. 

The attorneys at Johnston Clem Gifford routinely advise companies on issues related to securing capital and regulatory compliance. Our Financial Services teamworks with the world’s largest institutions as well as smaller and middle-market firms. Contact us online or by calling (214) 974-8000.