Our Take: financial services regulatory update – December 6, 2024

• What happened? Over the last two weeks, President-elect Trump announced his intended nominees for several departments and agencies impacting the financial services industry:
  • Scott Bessent, founder of Key Square Capital Management, as Treasury Secretary.
  • Former SEC commissioner Paul Atkins as SEC Chair.
  • Howard Lutnick, the CEO and Chairman of Cantor Fitzgerald and the Trump Transition co-chair, as Commerce Secretary.
  • Kevin Hassett, who chaired the Council of Economic Advisors during Trump’s first administration, to be National Economic Council (NEC) Director.
  • David Sacks to the new role of White House AI and crypto czar, who will likely lead Trump’s promised crypto council.
• What are their policy positions? The nominees have shared a number of policy positions through their past roles and recent public comments:
  • Taxes. Hassett helped design the Tax Cuts and Jobs Act of 2017. Bessent said that he would prioritize making the 2017 tax cuts permanent as well as eliminating taxes on tips, social-security benefits and overtime pay.
  • Tariffs. Bessent wrote an opinion piece defending tariffs as a means of raising revenue, protecting U.S. industries, and negotiating with trading partners. Lutnick has been supportive of Trump’s intention to raise tariffs on goods from China, Canada and Mexico, saying “tariffs are an amazing tool for the president to use — we need to protect the American worker.” Hassett, however, has said that tariffs can weaken economic growth.
  • Digital assets. Atkins has helped create best practices for crypto issuances and trading as co-chair of the Token Alliance, and is a member of the Chamber of Digital Commerce's advisory board. Lutnick has also been an advocate for digital assets, saying “Bitcoin should trade the same as gold everywhere in the world without exception and without limitation.”
  • Regulation. Bessent has advocated for deregulation and Atkins has a history of supporting regulatory reform to reduce compliance burdens, including under the Sarbanes-Oxley Act. Atkins supports a principles-based approach to regulation and has been critical of the 2005 Regulation National Market System (Reg NMS).
  • Enforcement. In his previous tenure, Atkins said that big corporate penalties unduly punished shareholders who had already been hurt by the original misconduct. He also said the SEC should offer companies more transparency and predictability over enforcement probes and penalties. Atkins has argued that FSOC’s ability to designate firms as “systemically important financial institutions” (SIFIs), which subjects them to enhanced Fed regulation and oversight, is ill-suited for asset management firms due to their distinct structures and risk profiles.
• What’s next? The nominees will have confirmation hearings early in the next Congress, followed by votes out of the relevant committees (Senate Finance Committee for Treasury secretary, the Senate Commerce, Finance, and Transportation Committee for Commerce secretary, and the Senate Banking Committee for SEC chair) and full Senate confirmation votes. The NEC director and AI and crypto czar will not be subject to Senate confirmation. Once Gary Gensler steps down on January 20th, one of the current Republican commissioners will be named acting chair.

Economic and financial services positions are an oasis of consensus picks. Whereas some of Trump’s other cabinet nominations have had lukewarm receptions in the Senate and have even seen some withdrawals, his choices for the agencies affecting economic and financial services policies are notable in the relative lack of controversy around their experience and policy positions. While there will likely be some tough questioning and dissenting votes from Democratic senators, there is currently no indication that Bessent, Atkins and Lutnick will have any difficulty getting confirmed by the Republican-majority Senate.

Trump 2.0 financial services policy agenda begins to take shape. Even with a number of regulatory agency nominations still outstanding, the names announced so far provide a strong indication of the direction economic policy will take under the second Trump Administration. Perhaps the least surprising areas of consensus concern tax cuts and digital assets reform. Both topics were prominent aspects of Trump’s campaign and advocates are expecting to see rapid and substantive action. On digital assets, once Atkins is confirmed as SEC Chair, he will be able to quickly reverse policies like like Staff Accounting Bulletin (SAB) 121 classifying digital assets as liabilities and pull back on what the industry has criticized as “regulation by enforcement” in cases where the SEC has issued charges related to registration rather than fraud. He will also likely seek to clarify the SEC’s position on enforcement while Sacks works to coordinate broader Administration policy, including working with Congress to advance legislation and mediating jurisdictional disputes between the SEC and CFTC. Extending tax cuts will also take Congressional action but should be able to advance even with slim Republican majorities in both chambers. However, the Administration will need to monitor Tariffs are an area where the Administration’s official policy will need to be refined in discussions between these nominees and negotiations with trading partners. Although Trump supported and enacted tariffs during his first administration, he has announced his intent for even higher tariffs affecting a broader swath of industries and countries. However, these decisions will not occur in a vacuum as tariffs are likely to prompt retaliatory action from trading partners and pushback from U.S. companies whose supply chains would be affected.

A new regulatory and enforcement horizon at the SEC. In terms of regulation and enforcement, the Atkins nomination is the one to watch so far. He will bring his past experience with the SEC to hit the ground running and put his spin on both rulemaking philosophy and examination priorities. His advocacy for principles-based regulation and less punitive enforcement will likely facilitate innovation, including with respect to fund strategies and products. He will also likely take a more surgical approach to enforcement by prioritizing cases involving tangible investor harm and suing individual wrongdoers rather than levying hefty fines on companies. Asset and wealth managers will be breathing a sigh of relief at his appointment as he will continue to be a strong advocate against designating large non-bank entities as systemically important.