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Dodd-Frank changes likely under Trump

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Despite criticism during the presidential campaign of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Trump administration is unlikely to seek its wholesale repeal, although certain segments of it may be subject to significant change, experts say.

Last week, President-elect Donald Trump’s selection to lead the U.S. Treasury, Steven Mnuchin, and his commerce secretary nominee, Wilbur Ross, criticized the law as being too complicated and said it cuts bank lending.

The 2010 legislation was approved in the wake of the financial crisis, which led to some 4 million families losing their homes and another 4.5 million being put into foreclosure or finding themselves seriously behind on their mortgage payments.

These experts say particularly vulnerable to change are provisions related to the Consumer Financial Protection Bureau. There may also be a change in the “systemically important financial institution” designation introduced under Dodd-Frank, among others.

Any changes could come in the form of some combination of action by President-elect Trump and Congress, they say.
Meanwhile, the potential impact of any changes on directors and officers liability and on insurance rates is now unclear.

A full repeal of Dodd-Frank is unlikely because there are many parts “that do make sense and are useful,” said Vikram Sidhu, a partner with Clyde & Co. L.L.P. in New York.

While there may be significant changes, “it won’t get completely repealed, so you won’t have 900 pages of law and thousands of pages of regulations completely struck down in one strike,” he said.

“The financial services community has spent billions of dollars gearing up to comply, and it would be disruptive at this point to repeal it en masse,” said Howard Schweitzer, a member of law firm Cozen O’Connor in Washington.

“However, like any law that gets passed, there are a whole bunch of areas where they’re going to revisit it,” Mr. Schweitzer said. 

Now that President-elect Trump is going to be in the White House “he’s kind of softened the rhetoric from repealing to making changes,” said Kevin LaCroix, executive vice president of RT ProExec, a division of R-T Specialty L.L.C., in Beachwood, Ohio.

Experts specifically point to the Consumer Financial Protection Bureau, which is intended to make consumer finance markets operate more effectively, as a likely Trump administration target because of its structure and activities.

“I don’t think it’s going away,” but it is in need of reform, Mr. Schweitzer said of the CFPB. “Most regulatory agencies are overseen by a bipartisan commission or board,” he said. The CFPB, though, is run by a single executive, director Richard Cordray.

Another issue, he said, is that it is funded out of the Federal Reserve Board’s budget, rather than through Congressional appropriations, “so Congress doesn’t have the traditional power of the purse-type controls” and the checks and balances its members want. 

Furthermore, the board has “played a much bigger role than had perhaps been expected. It’s been very strong,” said William G. Passannante, a shareholder with Anderson Kill P.C. in New York. “They’ve seen themselves as having a very strong mandate,” he said.

The bureau said last week that as of Nov. 1, it has handled 1,035,200 complaints. 

Mr. Passannante said one proposed approach has been to replace the director with a commission, although “exactly what shape” develops with a new Congress and president is “anyone’s guess.” 

Mr. Sidhu said also he anticipates a “significant overhaul” of the systemically important financial institution designation.

The SIFI designations now “cast an overly broad net” that includes 35 banks and three insurers — American International Group Inc., Prudential Financial Inc. and MetLife Inc., he said.

Meanwhile, the U.S. House of Representatives passed a bill last week that aims to change the way financial institutions are deemed to be systemic risks. 

The House passed H.R. 6392, the Systemic Risk Designation Act of 2016, which would remove what companies and business associations argue is an arbitrary size threshold of $50 billion and base a final determination of an institution's risk on criteria set out in Section 113 of Dodd-Frank.

How changes to Dodd-Frank will impact D&O insurance remains unclear. “If you look at what the apparent tendencies are about the incoming Congress and the incoming administrator, one would expect that there might be a decrease in D&O liability because of a relatively less assertive regulatory environment,” said Mr. Passannante.

However, it is too early to tell what impact any changes will have on D&O rates, said Tom Kennedy, senior vice president of public D&O for North America at Allied World Insurance Co. in New York. “We’re going to have to watch what happens with litigation trends” over the next six to 12 months, he said.