Regulatory easing in financial services

In 2017, President Donald Trump pledged to shake up post-crisis regulation with moves that included an overhaul of the Dodd-Frank Act. Though that hasn’t happened, leaders of the agencies that oversee financial services have started to streamline some of the rules enacted following the 2008-2009 financial crisis. The upshot: A regulatory landscape that is much more favorable to financial services firms is slowly emerging.

A look back

Changing referees. In 2017, the Trump administration began its financial services regulatory reform efforts by making appointments to the heads of federal regulatory agencies. It has taken a while, but new leaders are in place at most agencies. Much of Trump’s wish list can be directly enacted by these agencies.

Review and relaxation. Regulators announced reviews and made changes during 2017 through targeted guidance:

  • For banks below $250 billion in assets, regulators will no longer object to a firm’s capital plans based on “qualitative deficiencies.”
  • The agencies overseeing the Volcker rule, which limits a firm’s proprietary trading, will conduct a review of its provisions. 
  • The Department of Labor delayed implementation of its fiduciary rule, a key change for the asset management industry, and it is still considering further actions.
  • The number and dollar amount of penalties levied by the Securities and Exchange Commission (SEC) fell to a four-year low.

International Financial Reporting Standards (IFRS) 17. A global accounting board in 2017 set standards for insurance contracts.  The framework could prompt firms to redesign products and incentive policies, and it may alter forecasting and business planning.

“We’re hearing a new tune on oversight from this administration and seeing regulatory pressure ease. Now, firms can look at how they can use emerging technologies to comply with existing requirements at a lower cost.”

- Adam Gilbert, US Financial Services Advisory Regulatory Leader

The road ahead

Enduring legacy. Trump has had an unusual opportunity to make appointments that will likely leave a lasting regulatory mark. There are still several key positions to fill at the Fed, the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB). In 2018, we’ll see these appointees start to put their own stamp on the regulatory environment. For what this might look like, see the Treasury Department reports: a series of proposals on financial deregulation.

Election distraction. We expect only modest bills to pass in 2018 as lawmakers focus on midterm elections. There may well be some easing of the Dodd-Frank rules, such as raising the threshold for designating a firm as a systemically important financial institution (SIFI). Smaller banks will likely see the bulk of any additional regulatory relief.

Make it simple. In 2018, the Commodity Futures Trading Commission (CFTC) will continue its review of the swaps reporting rules, which we expect to lead to more simplified reporting. Similarly, we expect the SEC to concentrate its enforcement efforts around big moves rather than small hits. In both cases, regulators are providing more clarity as to where firms should focus their regulatory resources.

What to consider

Greener pastures. Following the financial crisis, many financial institutions strengthened their compliance programs in a rush to meet regulator mandates and avoid fines and sanctions. As regulatory pressure eases, consider how you might make your compliance investments more efficient, particularly given new advances in RegTech, automation, and machine learning. These innovations reach into areas from loan origination to monitoring against fraud, insider trading, and money laundering.

A few exceptions: IFRS 17, CECL, and cybersecurity. While many firms may be breathing easier, regulators are paying more attention in a few areas. Insurers should fully understand the changes and put an IFRS 17 plan together quickly. The SEC has made it clear that robo-advisers are subject to the same regulatory framework as traditional advisers. You’ll want to review investment models, disclosures, and compliance programs. The Financial Accounting Standards Board’s (FASB’s) new credit losses standard, the current expected credit loss (CECL) model, may present implementation challenges. You’ll need to think through changes that may be necessary to your processes, systems, and controls in order to implement the CECL model, as well as governance and controls.  Cybersecurity is also under the microscope in every industry, with the stakes much higher in financial services. Make sure you have a detailed, tested plan to defend against—and respond to—cyberthreats.

“Trump has been able to remake the financial services agencies and in 2018 he’ll have the ability to almost completely remake the Fed’s Board of Governors.”

- Michael Alix, US Financial Services Advisory Risk Leader

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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 taxassurance, 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 resolve complex issues, identify opportunities, and deliver value to your business.

Contact us

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

Michael Alix
US Financial Services Advisory Risk Leader
Tel: +1 (646) 471 3724
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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