Of keen interest to everyone in private equity: the US Securities and Exchange Commission’s focus is likely to switch from implementing the Dodd-Frank Act to unravelling it.
Confirmation the Dodd-Frank Act will be dismantled in the first year of the Trump presidency came from House Financial Services Committee chair Jeb Hensarling in the first week of 2017.
In an interview with CNBC, Hensarling said undoing the 2010 act, which includes the Volcker Rule, was a “top 10 priority” for the incoming administration. The Securities and Exchange Commission’s agenda has been dominated by the implementation of the Act’s widespread reforms, which saw private equity firms dragged into its net.
For example, in 2011, firms with more than $150 million in assets were required to register with the agency. This meant they were subject to surprise examinations by the SEC and required to file reports about the size and strategy of their funds, conflicts of interest, disciplinary history and the identities of any key gatekeepers including auditors or prime brokers.
Now, subject to Senate approval, Jay Clayton will be charged with unraveling the Act and setting a new agenda as head of the SEC.
Clayton was nominated for the position, which is being vacated by Mary Jo White at the end of the Obama administration, by president-elect Donald Trump. In the nomination statement, Trump highlighted a constant campaign theme: the need to deregulate American financial services.
“We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers,” he said.
Former Sullivan & Cromwell lawyer Clayton, who counts Goldman Sachs and Oaktree Capital among his previous clients, said under his stewardship the regulator would focus on promoting growth.
“We will carefully monitor our financial sector, as we set policy that encourages American companies to do what they do best: create jobs,” he said.
It’s widely believed this will translate into looser regulations for companies, allowing them to raise cash more easily.
While regulatory rollback is anticipated under the new administration, at the time of writing it is business as usual. Indeed, in its list of examination priorities for 2017, the agency’s Office of Compliance Inspections and Examinations reiterates its commitment to continue examining private fund advisers and scrutinising managers of public pension money.
Other areas on the SEC’s watch are not expected to change under the new leader.
It would be politically difficult for Congress to eliminate rewards for whistleblowers, for example, while the enforcement division will continue to investigate and prosecute fraud cases no matter who is in charge.
Of course, Clayton’s appointment, while it may be good for private equity, did not win universal approval. “It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep president-elect Trump’s promise to ‘stop big banks and hedge funds from getting away with murder’,” Ohio Senator Sherrod Brown, who sits on the banking committee, said.
Brown’s remarks are a reminder that, even if the regulators won’t be watching, the public, press and – especially – LPs will.