Considerations regarding the reorganization of the financial regulatory agencies
On March 13, 2017, President Trump issued an executive order1 intended to “improve the efficiency, effectiveness, and accountability” of the executive branch by directing Mick Mulvaney, Director of the Office of Management and Budget (OMB), to propose a plan to “reorganize governmental functions and eliminate unnecessary agencies, components of agencies, and agency programs.”
Specifically, the order directs the head of each agency to submit to the OMB, within six months of the order, a plan to reorganize the agency, if appropriate. In addition, it directs the OMB to seek public comment on a proposed plan and, within six months after the end of the comment deadline, submit the plan to President Trump for review.
Notably, the order uses the definition of “agency” under 5 U.S.C. 551 (i.e., the definition under the Administrative Procedure Act), which covers independent agencies, including the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Consumer Financial Protection Bureau (CFPB). Accordingly, it appears that these agencies will be subject to the order.
Restructuring of the financial regulatory “architecture” has been a much-debated topic for a long time, including when then-Treasury Secretary Hank Paulson released his blueprint for modernizing the financial regulatory structure in 2008 in response to the financial crisis.2 Secretary Paulson’s blueprint contemplated moving the US regulatory structure closer to a “single prudential regulator” similar to the Australian Prudential Regulation Authority (APRA) or the UK Financial Services Authority (FSA).
While the legislation that followed the financial crisis, the Dodd-Frank Act, did not include a move to a single prudential regulatory agency, it did merge the Office of Thrift Supervision (OTS) into the OCC, and organized some aspects of the regulation of “systemically important financial institutions” (SIFIs) by authorizing the FRB to be the primary regulator of SIFIs.
However, the Dodd-Frank Act also created new agencies, including the CFPB and the Office of Financial Research (OFR), while adding new functions and authorities to others (primarily the FDIC and CFTC). In addition, the Dodd-Frank Act created the Financial Stability Oversight Council (FSOC), which is chaired by the Treasury Secretary and comprised of the heads of eight financial regulatory agencies and an independent member with insurance expertise, to identify emerging risks to the US financial system.
While the Dodd-Frank Act did change some of the regulatory structure, the US regulatory structure remains complex, at least by the number of regulators—perhaps the most complex in the world—and within complexity sometimes lives inefficiencies. On the other hand, there may be some benefits in line with the agency missions.
Although it is too early to forecast what might come from this latest executive order, certain previous proposals could be used as a starting point may be re-introduced, including the potential combination of the SEC and CFTC into a single market regulator, potential combination of the FDIC and National Credit Union Association (NCUA), and potential rationalization of Dodd-Frank Act Title I and II responsibilities across the FRB, FDIC, and OCC. We also expect certain stakeholders, including Members of Congress, to use the executive order as an opportunity to discuss CFPB reform, an idea that has been proposed under past and pending legislation.
Finally, although regulatory consolidation would require new legislation and would face various challenges, the Administration could order certain changes to an individual agency’s structure or programs following OMB Director Mulvaney’s proposed plan.
As further developments occur, Deloitte will issue additional updates as appropriate.
1White House, “Presidential Executive Order on a Comprehensive Plan for Reorganizing the Executive Branch,” (March 13, 2017), available at https://www.whitehouse.gov/the-press-office/2017/03/13/presidential-executive-order-comprehensive-plan-reorganizing-executive.
2 Treasury Department, “The Department of the Treasury Blueprint for a Modernized Financial Regulatory Structure,” (March 2008), available at https://www.treasury.gov/press-center/press-releases/Documents/Blueprint.pdf.