Expect the SEC to focus more on rolling back regulation and less on enforcing securities laws under a Trump administration
Companies are preparing for the transition too, although what they can expect may be hard to determine.
What will the SEC look like under President-Elect Trump? Securities lawyers say it's tougher to predict than a usual transition between the political parties, since Trump doesn't have a political history to go by. "It's very hard to say exactly what his priorities will be, since he doesn't have the track record as a political figure," says Eric Chaffee, a law professor at the University of Toledo College of Law, who specializes in securities law. "He's had support from a wide variety of people with different interests," he says.
For internal auditors, an SEC that departs greatly from its regulatory and enforcement agenda under Obama could mean big changes as well. The environment at the SEC has an impact on audit planning and prioritizing risk-management objectives. If the SEC becomes less interested in the intense enforcement of bribery and corruption laws, for example, companies may want to devote resources planned for anti-bribery and corruption programs elsewhere. That's not to say they should no longer care about those things, of course, and a strong enforcement environment may persist in other countries, but limited resources means prioritizing the risks that are most pressing. Regulatory risk could take on a whole different complexion under a Trump Administration.
According to Chaffee, Trump has at times called for different policies on regulating business and some that are even at odds with each other. "The issue with Trump is that he campaigned on 'draining the swamp,' but he seems to pick a lot of insiders to guide his policy decisions," says Chaffee.
Still, most securities law experts and those that follow business regulation expect to see the Trump administration take a much softer stance on regulation. Indeed, Trump has said that he will make rolling back some of the provisions of the Dodd-Frank Act—the legislative response to the Financial Crisis of 2008—a priority.
"Dodd-Frank has made it impossible for bankers to function," the President-Elect told Reuters back in May on the campaign trail. "It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop," said Trump. When asked what provisions he would take aim at, he said: "It will be close to dismantling of Dodd-Frank."
Changing of the Guard
First, Trump will need to appoint a successor to current SEC chairman, Mary Jo White, who said she would step down at the end of the Obama Administration after nearly four years on the job. Who will replace her is anyone's guess, but Trump has already given some hints and it's not likely to be someone who favors reigning in the banks or enacting investor protections.
Trump tapped former Republican SEC commissioner Paul Atkins to lead the transition at the SEC and other financial agencies. In the past, Atkins has argued that enforcement fines are too stiff and for reduced regulation. Atkins is already among those rumored as potential picks to helm the SEC as chairman. Other potential picks could be current Republic commissioner Michael Piwowar.
No Hurry to Finish Dodd-Frank
For whomever Trump taps to lead the SEC, dismantling Dodd-Frank won't be easy. For a wholesale repeal of the law, he would likely need legislative action, which could be tough with only a slim majority for Republicans in the Senate. "It's hard for the President to have too much impact in this area without having the support of Congress," says Chaffee.
Still an SEC under Trump could ease regulation without the help of Congress. For one, there are still provisions of Dodd-Frank and other laws that where the rules to carry out the law haven't been written. He could also ease up on enforcement of existing rules. Two that might get much less attention from an SEC under Trump are the Conflict Minerals rule, which requires companies to provide details on their use of certain metals mined in the war-torn Congo region of Africa, and the CEO Pay Ratio Rule, which requires companies to disclose CEO compensation as a ratio to the pay of the median employee.
"There are a lot of ways the SEC impact regulation," says Chaffee. "They can make the rules toothless or set requirements that don't really meet the original intent of the law."