Last Month the United States (US) and the world watched with bated breath as Vice President Joseph R. Biden, Jr. was declared the winner of the US presidential election. While President Donald Trump has yet to concede and continues to make his case in court, all 50 states have now certified Biden as the winner, and it is a foregone conclusion that we will have a new administration deciding the course of action for the next four years. As we look ahead, we thought we would take a bit of time to speculate on what this will mean for Financial Services from a Regulatory standpoint and what impact this will have as far as growth in Compliance and Risk over the next four years.
Speculation as to what the Biden Administration will do really revolves around two paths: will this be the centrist leaning, coalition-building Biden like his track record suggests or will his administration lean towards the left and embrace the burgeoning progressive wing of the Democratic Party? So far, with nominees to his Cabinet as well as through comments to the press suggest that Biden will be making a serious effort to build a centrist coalition, inviting ideas from both the right, and left of the political divide. It is also worth noting that with, at best a 50/50 Senate, Biden’s hands will likely be tied as far as significant pieces of legislation or enforcement actions will go.
The big question every financial institution is asking themselves right now is what this new Administration will mean as far as regulation goes. It is no secret that past Democratic administrations tended to focus on increased regulatory oversight; Obama’s administration gave us transformative legislation in Dodd-Frank and the CFPB (Consumer Financial Protection Bureau), as two examples. What will be interesting to watch is to what extent might Biden’s team might go in building on those policies. Under Trump, the SEC (Securities and Exchange Commission) maintained a very strong enforcement program and it is expected that the Biden Administration will continue that approach, with a particular focus on financial institutions and Wall Street. We do know that former CFTC (Commodity Futures Trading Commission) chair Gary Gensler is part of Biden’s transition team and is reportedly a potential nominee to head up the SEC, it also could be a signal to expect a tougher enforcement approach across all regulatory agencies. Biden has already said that his SEC will push ESG (Environmental, Social and Governance factors) and climate change related risk alerts, guidance, and rulemaking, very likely requiring companies to disclose how these risks affect their bottom line. As a result, familiarity with ESG rules and regulations will be in high demand for the foreseeable future.
Regardless of what happens with the SEC, it is extremely likely that there will be new leadership at the Department of Justice which will mean more aggressive enforcement on financial and corporate fraud, especially fraud related to Pandemic and recession related trends. It is also reasonable to assume that there will be a renewed focus on FCPA (Foreign Corrupt Practices Act), sanctions, cyber-crime, and AML (Anti-Money Laundering) related actions. In turn, this would likely mush a push for bolstering AML and Financial Crime teams in large and small financial institutions.
Much has been made of Biden’s pick for Secretary of Treasury, Janet Yellen. If her tenure as Chair of the Federal Reserve is any indication, this could be great news for economic recovery. Yellen enjoys broad support among investors as they are familiar with her body of work: the economy boomed during her tenure at the fed from 2014 – 2018. She is also shown a willingness for big enforcement actions. Yellen’s final act at the Fed was imposing sanctions against Wells Fargo. If nominated as Treasury head, we expect a similar path. Expect to see increased hiring as a result from the big banks.
Biden has also suggested the creation of a Public Credit Reporting Agency which would compete directly with the three major credit reporting bureaus. If created, that would be seismic shift in how credit reporting works. Under the proposal, a new task force would be created within the CFPB and federally backed lenders, including mortgage originators, would be required to use the new agency’s reports to evaluate applicants for credit.
Of course, all of this is speculation at this point, but one thing remains clear: the incoming Biden Administration will likely build upon the work of the last Democratic administration, of which Biden was obviously a part of. This will likely mean increased scrutiny of the financial services sector, with a key emphasis on its impact on the consumer. We expect the industry to respond with increased hiring across all areas including Financial Crime, Advisory, and Surveillance.