Following his campaign promise to dismantle the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), Donald Trump issued an Executive Order on February 3, 2017 that set out “Core Principles” for regulating the financial system.  Trump proclaimed that his administration would be “doing a big number on Dodd-Frank,” yet his recent Executive Order on Core Principles appears to be more of a tempered call for analysis and review rather than an outright demolition of existing financial regulations, especially when read in light of the administration’s more drastic requirement that Executive agencies must eliminate two existing regulations for each new one that it issues.

The February 3 Executive Order lists six ostensibly reasonable, but quite broad, Core Principles to guide financial regulation, and requires the Secretary of the Treasury to consult with the heads of the member agencies of the Financial Stability Oversight Council (“FSOC”) before reporting to the President on how existing regulations promote or inhibit the Core Principles within 120 days of the Order.  The FSOC agency members are the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Treasury Department, and the Consumer Financial Protection Bureau.  Given that the Dodd-Frank Act established FSOC, designated the Secretary of the Treasury as the FSOC Chairperson, and required FSOC to provide annual reports to Congress, it is ironic that the Executive Order turns to FSOC for advice.  Moreover, 120 days is not a particularly long period of time for new teams to take over FSOC members, where there are openings, much less to stamp a new imprint on the Dodd-Frank regulatory framework.

However, the Executive Order might be interpreted as an indicator of the administration’s policy direction.  The Core Principles identified in the Executive Order mirror key principles in the “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs” Act (“CHOICE Act”) that House Financial Services Chairman Jeb Hensarling championed—a sign that the Executive and Legislative branches intend to collaborate to replace at least some Dodd-Frank provisions with CHOICE.  In an interview with Hensarling, Politico reported that the Financial Services Chairman responded optimistically to Trump’s Order and believed that Trump “set[] the table for [Congress] marking up the Financial CHOICE Act.”  The Core Principles call to “empower Americans to make independent financial decisions,” “prevent taxpayer-funded bailouts,” “foster economic growth” through “regulatory impact analysis that addresses systemic risk,” and “restore public accountability within Federal financial regulatory agencies.”  Similarly, the CHOICE Act identifies as its key principles that “every American…must have the opportunity to achieve financial independence,” “taxpayer bailouts of financial institutions must end,” “economic growth must be revitalized,” “systemic risk must be managed,” and “both Wall Street and Washington must be held accountable.”  In a difference with CHOICE, the Core Principles put additional emphasis on advancing American interests and American competitiveness in the international marketplace and on rationalizing the Federal financial regulatory framework.  CHOICE’s call for consumer protection against fraud and deception is absent in the Core Principles. Neither list of principles uses the common regulatory phrase of “safety and soundness.”

Currently, Section Three of the CHOICE Act proposes several changes to Dodd-Frank that may be of particular interest to companies providing consumer financial services.  CHOICE calls for comprehensive reform of the Consumer Financial Protection Bureau (“CFPB”), which it intends to rename the “Consumer Financial Opportunity Commission” (“CFOC”), an agency tasked with ensuring competitive markets in addition to consumer protection.  A five-member commission subject to Congressional oversight and appropriations would head the CFOC, in place of the CFPB’s current single director model.  The CFOC would be required to obtain permission before collecting personally identifiable information on consumers, and would lose the authority to prohibit bank products and services it deems “abusive.”  Presumably, the then Director of the CFPB will have the opportunity to weigh in on these issues as a member of FSOC.

The Executive Order in itself is not a significant overhaul of Dodd-Frank.  Implicit in the Executive Order’s reliance on Core Principles is the fact that the provisions of Dodd-Frank are statutory in nature and implementing regulations can not be extinguished over night. Thus, the Core Principles simply can be viewed as a policy placeholder for the re-thinking of Dodd-Frank, in terms of both potential legislative and regulatory changes. Interestingly, though, there is no mention in the Core Principles to avoiding a repeat of the circumstances that led to the financial crisis. Rather, one could read the Core Principles as an attempt to seek to avoid the enactment of legislation and regulation like Dodd-Frank.

Financial institutions monitoring legislative activity for potential updates to the CHOICE Act should also watch out for the Secretary of the Treasury’s Core Principles report—due June 2, 2017—to determine the future of financial regulation.