Regulatory environment in financial services

From PwC's Financial Services Institute

Compared to the rest of the world, the global competitiveness of the US financial services sector has never been stronger. Despite (or because of) the pains of Dodd-Frank and its related rules, the industry has made substantial improvements. Most US financial institutions have transformed their balance sheets, structure, and business models to compete in the post-crisis regulatory world. With a new administration ahead, financial institutions are now thinking strategically about what’s next.

A look back

New rules, new standards. Regulations continue to be a top priority for financial institutions. In the past year, there has been a particular focus on:

  • Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Test. While post-stress test results for this year were better than last year’s, the Fed noted that complex firms continue to lag in several areas—specifically, risk identification, self-assessment of weaknesses (a governance issue), and internal controls.
  • Resolution planning. In April 2016, the Fed and the FDIC deemed five of the eight largest US banks’ 2015 resolution plans not credible. Smaller banks were off the hook this year with a one year delay on their next resolution plan filing.
  • The DOL fiduciary duty rule. On April 6, the DOL released the long-awaited fiduciary regulatory package which sets a new standard for advice given to retirement investors. Under this final package, financial advisors who provide investment advice will face limits on receiving commission-based compensation. With up to 50% of US retail financial assets in retirement accounts, the impact of the rule will be widespread across asset managers, broker dealers, and insurance companies. The industry has already made significant progress toward compliance with the rule.
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7 Day Yield Special Edition: Banking regulations and the new administration

PwC's Financial Services Advisory Leader, Dan Ryan, discusses the U.S. banking system's regulatory mosaic, and how changes in the administration might have an impact.

“With the new administration, we think small institutions can expect supervisory requirements to ease up. The largest banks are likely to see fewer enforcement actions too, but the changes may not come as quickly.”

Bill Lewis Global Financial Services Risk and Regulation Leader

The road ahead

Many questions, few answers, and a lot of uncertainty. In our paper Donald Trump's victory: Ten key points, we offer the following predictions about financial regulations under the new administration:

1. Dodd-Frank will not be repealed.

2. However, some targeted Dodd-Frank rollback by Congress will occur.

3. President-elect Trump’s broadest impact on financial regulation will come from his appointments to the federal agencies.

4. Stress testing and resolution expectations will continue easing for smaller banks and stop rising for the largest ones.

5. Priority Fed rulemakings will proceed, but other rulemakings are far less likely.

6. The SEC will likely complete its derivatives rules this year.

7. Asset management rules will be hard for the SEC to complete.

8. The DOL’s fiduciary duty rule will remain intact, but compliance deadlines face delay.

9. The FSOC will likely shift its mission toward identifying opportunities for deregulation.

10. AML and sanctions regulation will stay on course.

What to consider

The regulatory environment will continue to evolve in 2017 and beyond. To thrive in the middle of complexity, you’ll have to be ready to adapt.

Prepare for the DOL fiduciary duty rule. While the April 10, 2017 compliance deadline may change under the new administration, you should continue your work to meet the rule’s requirements and consider the DOL’s recently released FAQs for further guidance.

Continue stress testing and resolution planning. Both Republicans and Democrats have pressured the Fed and FDIC for years to address possible big bank failures. We predict that expectations for the larger banks will stop rising. But large firms still have to address the deficiencies and shortcomings in both capital stress testing and resolution planning that the agencies have recently identified. Meanwhile, regional banks shouldn’t take the one year delay on their 2016 resolution plan filing as an opportunity to put pencils down. The December 2017 deadline will be here soon enough.

“The DOL fiduciary duty rule is about customer protection, transparency, and eliminating conflicts of interest. While the timing of complying with the rule might change under the new administration, as of now we expect the core framework to remain intact.”

Adam Gilbert US Financial Services Risk and Regulatory Co-Leader

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PwC’s Michael Alix and John Garvey discuss the election results and what they could mean for financial services. The next four years will bring change, but financial institutions can expect to continue improvement in governance and controls. Still unknown: how President-elect Trump will handle the Volcker Rule and other key policies. The Republican-led White House and Congress could have the industry rethinking some key assumptions. 

How PwC can help

Our teams in asset and wealth managementbanking and capital markets, and insurance are helping our clients tackle the biggest issues facing the financial services industry. With professionals across tax, assurance, and advisory practices, we can help you find ways to thrive even in a period of uncertainty. Whether you're preparing for regulatory changes, putting FinTech/InsurTech to work, or rethinking your human capital strategy, we work together with you to deliver value to your business.

For more information on how PwC can help with the regulatory environment, reach out to one of our leaders below or explore our US Financial Services Regulatory practice.

Contact us

Adam Gilbert
US Financial Services Advisory Regulatory Leader
Tel: +1 (646) 471 5806
Email

Bill Lewis
Global FS Risk & Regulation Leader
Tel: +1 (703) 918 1433
Email

Marie Carr
Global Growth Strategy, US Financial Services Practice
Tel: +1 (312) 298 6823
Email

Cathryn Marsh
Leader, Financial Services Institute
Tel: +1 (720) 931 7836
Email

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