The start of the 2012 Presidential Debates last night marked the beginning of the end of the elections here in the US.
During what was the most-tweeted event in US political history, presidential hopeful, Governor Mitt Romney, focused heavily on his plans for Healthcare/Medicare reform, tax reform and job creation, as well as the national deficit. Meanwhile, President Obama defended The Patient Protection and Affordable Care Act – aka the ‘ObamaCare’ healthcare policy – and the financial reforms enacted under his presidency such as The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). He also highlighted his track-record on foreign policy and education.
No matter what your party affiliation, this is possibly one of the most important elections in recent memory, and voters will be listening closely in the run up to Election Day on November 6 to see which plan for the future will be set into motion.
The primary concern for the financial services industry is the impact of the elections on financial reform. But while government spending, job creation, and tax policy are anything but small concerns in light of the national deficit, it is the continuation versus the repeal of Dodd-Frank that will be attracting close attention from financial institutions.
Reshaping Wall Street
Signed into law in 2010, Dodd-Frank introduced a number of new regulations designed to increase transparency, minimize risk and put in place controls to improve consumer protection. The main points debated live last night were: has Dodd-Frank accomplished what it set out to do and, if repealed by a Romney Administration, what would replace it?
Governor Romney said that while regulation is essential, it can hurt the economy when it is excessive and that he did not believe big banks should be designated as being too big to fail. President Obama rebutted that Dodd-Frank was necessary to better manage future risk and avoid the need for a bailout. Some of the key issues Dodd-Frank is designed to address are:
- SEC Registration: Investment Advisors/Private Fund Advisors previously exempt from regulation have been required to register with the Securities Exchange Commission (SEC), placing increased oversight on the hedge fund industry.
- SEC Exams: The SEC’s budget has been increased, resulting in a rise in the number of annual broker-dealer and investment advisor exams and a new wave of sweep exams focused on the private equity industry. Whistleblowers have been incentivized and protected to report potential illicit activity, and while not tying back to Dodd-Frank specifically, there has also been an increase in Financial Crime Enforcement. Over the last two years, several major financial institutions have been investigated and some penalized heavily for insider trading, rogue trading, fraud, money laundering and vulnerability to cyber-attacks.
- The Consumer Financial Protection Bureau, formed under Dodd-Frank, has detailed its accomplishments in its latest report.
- In an effort to adhere to the Volcker Rule, many large banks have begun to spin off their proprietary trading arms to redistribute risk as mandated by what has proved to be a highly-controversial piece of legislation.
- Commodity Futures Trading Commission (CFTC) and Derivatives Regulation has taken shape slowly to increase transparency on naturally opaque instruments.
- A Consolidated Audit Trail has been proposed to address market flashes and crashes following the SEC’s study of the ‘flash crash’ of May 6,2010 and remains on the agenda as an ongoing initiative.
The key question for Wall Street is whether or not all of this financial regulation and oversight has made the US economy and financial markets stronger and consumers safer?
While the answer is still up for debate, as both candidates pointed out, two very different paths lie ahead for the US.