The election results are in. And with a new President, especially one that represents a party change, comes a new perspective on regulation.
Over the past 4 years, under the Biden administration, we have seen record-breaking new rules and regulations being put forth and adopted by all federal agencies, including the Securities and Exchange Commission (SEC) under Chair Gary Gensler.
In the early days of President-elect Trump’s prior term, he ushered in an era of deregulation by signing an executive order requiring that two existing rules be eliminated for every new “significant regulatory action.” During this year’s campaign, he doubled down by promising to eliminate ten rules for every new one added.
It is unlikely that the new administration will succeed in reducing the federal bureaucracy to that extent, however, in concert with majorities in the House and Senate armed with the Congressional Review Act powers and, potentially, a new SEC Chair, they will be able to implement significant change.
After a burst of initial CRA disapprovals, it will take time since eliminating a regulation requires the same Administrative Procedures Act steps as implementing one – proposal, public comment, deliberation and analysis, and then approval.
This means that the next year or two will bring more regulatory change and uncertainty for the investment management industry.
While we expect to gain additional insights and information as we move closer to Trump’s official inauguration, this blog will break down some of the critical areas we expect to be impacted by the results of the election.
A Trump Presidency: How the Election Result Will Impact Your Firm
For the financial services industry, a change in presidency, specifically moving from a democratic to a republican administration, likely means significant change for firms of all sizes.
1. Fewer rules and regulations proposed by the SEC (and other federal agencies)
Given the unprecedented level of proposed and adopted rules in the past three years, this may seem like a bright spot for many firms who have struggled to implement operational and business changes to meet the obligations of an onslaught of new regulatory requirements. However, even though many proposed and unapproved rules will likely die on the vine, and some recently approved rules will be disapproved through CRA actions, any rule approved prior to June of 2024 will remain effective until reversed by a new regulation.
The pause in regulatory activity is a great opportunity for firms to complete any rule implementation activities that are in process or behind schedule. Regardless of whether any new rules will be proposed, it is always best practice to fully and completely adopt existing rules.
Many industry groups have been critical of the pace and substance of new rules being put into place, specifically highlighting the burden felt by smaller firms who must contend with the same level of regulatory requirements as their larger counterparts. The SEC under a new chair (see below) is likely to review all pending rule proposals and will decide to revise or abandon some.
An example of one such rule we expect not to move forward:
- Outsourcing by Investment Advisers: “The proposed rule would require advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.”
2. A potential change-up in SEC leadership
While Gensler has only completed a portion of his term, Trump’s presidency could mean a change in SEC leadership.
As reported by NBC, “In public remarks for months, Trump has promised to unseat U.S. Securities and Exchange Commission Chairman Gary Gensler.
“On day one, I will fire Gary Gensler,” Trump said, referencing the Joe Biden-appointed SEC chairman who has taken an aggressive approach to crypto regulation.”
Traditionally, SEC chairpersons have voluntarily resigned if they are unaligned with an incoming administration (see Jay Clayton and Mary Jo White for recent examples), although there is no guarantee that will happen since the SEC is a so-called “independent” agency and Gensler’s term on the Commission runs through June 5, 2026. He can be removed from the Chair position and remain a member of the Commission until the end of his term – though that is unlikely.
President-elect Trump will nominate a successor that shares his deregulatory and pro-cryptocurrency agenda priorities. Several candidates have been rumored, including current SEC Commissioners Hester Peirce and Mark Uyeda, past-SEC Commissioners Paul Atkins and Dan Gallager, and past-CFTC Chairmen Chris Giancarlo and Heath Tarbert.
3. Cybersecurity will remain a focal point
One area of regulation likely to remain a priority? Cybersecurity.
As a bipartisan concern, we expect cybersecurity rules and regulations to remain focal points for regulatory bodies, which include heightened requirements, more stringent protocols for protecting sensitive client data, and increased transparency regarding breaches.
4. Crypto popularity likely to surge
The response to crypto is likely to be two-fold.
- President-elect Trump has promised to bring in a “crypto-friendly” chair to replace Gensler, which could mean fewer restrictions, regulations, and requirements.
- On the other hand, Trump’s pro-crypto stance has already resulted in a surge in bitcoin popularity, which could mean more of your employees taking part in this investment type and more risk facing your firm.
While we are still fresh from the election win, one thing is clear: a new president will mean changes to the regulatory compliance landscape. For the time being, though, our recommendation is the same as always – build, implement, and maintain a robust and resilient compliance program that serves your firm and clients well in all conditions.
As a partner to over 7,000 global firms, we take our responsibility seriously, supporting firms as they navigate this change – answering questions, providing resources and solutions, and enabling compliance with confidence.
Have more questions on the impact of the election? Schedule time to speak with one of our experts.