Beyond day one: New administration impacts on financial services

Potentially dramatic shift in the trajectory of financial services policies and supervision

Amy S. Matsuo

Amy S. Matsuo

Regulatory and ESG Insights Leader, KPMG US

+1 919-664-7100

January 20, 2021 marks the transition to a new Administration that will put forth a potentially dramatic shift in the trajectory of financial services policies and supervision on multiple fronts. The Biden/Harris team has identified core priority areas including climate change, racial equity, COVID-19, and economic recovery. These priorities have been largely echoed by the Congressional leadership in the banking committees.

Measures to effect change, many of which are in process, include the following:

  • Agency appointments. Democratic control of the executive branch and both houses of Congress will allow more pro-consumer nominees to be put forward; expect more aggressive examination and enforcement activity, directed especially toward larger entities. Nominations have been made to fill leadership positions at the Treasury (Janet Yellen), CFPB (Rohit Chopra), and SEC (Gary Gensler), all three of which have previous agency experience. Additional nominations will be required for Chair positions at the CFTC and FTC.
  • Regulatory review. Consistent with previous Administrations, President Biden will issue an Executive Order to halt or delay “midnight regulations”. Separately, final rules completed on or after August 21, 2020 may be subject to review and potentially rescinded under the Congressional Review Act. The Chairs of the House Financial Services Committee and the Senate Banking Committee have each publicly acknowledged that there are rules promulgated in the Trump Administration that they would like to reverse or rescind. Rulemakings potentially at risk might include OCC final rules on “fair access” and “true lender” as well as its interpretive letter on custody of digital assets, DOL final rules related to retirement plan fiduciaries and ESG investments, and HUD final fair housing rules related to AFFH (Affirmatively Furthering Fair Housing) and disparate impact.
  • House Financial Services Committee. In December 2020, Representative Waters detailed multiple regulations and executive orders that she believed the new Administration should reverse; these regulatory and administrative actions addressed COVID-19 response and recovery, diversity and inclusion, financial stability and climate change, consumer and investor protection, affordable housing, and international cooperation/development.
  • Senate Banking Committee. Senator Brown outlined, as part of a press briefing, upcoming priorities for the committee to include housing (including COVID-19-related evictions), climate change, racial justice, expanded financial services access for underserved/underbanked (such as through use of no-fee accounts and/or digital wallets), and heightened attention to the impact of big banks and technology firms on consumers. (American Banker, January 12, 2021)
Although legislative changes may be harder to achieve given the slim Democratic majority in the Senate, the new Administration priorities will focus the financial services industry on the following areas:

  • Climate change. The financial services regulatory agencies have only recently begun to focus on financial risks related to climate change though they generally agree that climate change poses an emerging risk to financial stability; discussions focus on standardized disclosure, data availability, risk management (by supervisors and institutions), and international cooperation/coordination. The new Administration is expected to accelerate the discussion and to encourage further developments related to stress testing, concentration risks in credit and investment portfolios, risk-weighting for “climate change-accelerating” activities, data collection, and standardized disclosure.

    International coordination is set to increase with the U.S. rejoining of the Paris Agreement; the Federal Reserve becoming a member of the Network of Central Banks and Supervisors for Greening the Financial System, and actively participating in the FSB’s TCFD (Task Force on Climate-Related Financial Disclosure) and the BCBS’ TFCR (Task Force on Climate-Related Financial Risk); and large bank leadership and adoption of international ESG-related standards such as the World Economic Forum International Business Council (WEF IBC) metrics and the Sustainability Accounting Standards Board (SASB) Standards.

    Climate change and other ESG-related issues are covered in KPMG Regulatory Insights’ Ten Key Regulatory Challenges of 2021; that section can be accessed
  • Racial equity. In response to widespread attention on racial, social, and economic disparities during 2020, the financial services regulators announced a variety of actions to understand the roots of disparities/inequities in the delivery of financial products and services within the agencies and supervised institutions, including expanding awareness, promoting diversity and inclusion, and reducing/preventing direct and indirect bias to promote fair treatment, credit access, and wealth accumulation. Regulatory attention to the use of algorithms and AI models will likely increase. Additionally, legislative consideration may again be given to extending ECOA (Equal Credit Opportunity Act) protections to the full scope of goods, services, and facilities provided by all financial institutions. Racial equity may also factor into regulatory attention toward the Community Reinvestment Act assessment of community investment, and ESG factors such as corporate leadership and innovation.

    Please see KPMG Regulatory Insights POV, Algo Risk: Mitigating potential bias, available
    here; see also the ESG and consumer/investor protections sections of KPMG Regulatory Insights’ Ten Key Regulatory Challenges of 2021, available here and here.

  • COVID-19. Eviction and foreclosure moratoriums tied to the COVID-19 response will likely be extended and, similarly, the pause on interest and principal payments for federal student loans is likely to be extended.

    Heightened attention will be directed toward financial institutions’ participation in the many COVID-19 relief and credit programs, including the SBA’s Paycheck Protection Program, with an eye toward fair access, fair treatment, and fraud prevention.

    For more discussion of compliance risk, refer to KPMG Regulatory Insights’ Ten Key Regulatory Challenges of 2021; that section can be accessed
  • Consumer/investor protections. The new Administration is widely expected to take a strong pro-consumer stance that will be generally reflected through increased enforcement and heightened attention to fair access and fair treatment across all of the product and service areas identified by the Administration and the Congressional Committee Chairs (as outlined above). In addition, financial institutions should anticipate attention to consumer/investor protections for small businesses, fair credit reporting, fair lending, sales practices, and fiduciary standards.

    The consumer and investor protections section of KPMG Regulatory Insights’ Ten Key Regulatory Challenges of 2021 can be accessed here.
  • Other
    • Sanctions and AML enforcement is expected to remain a priority, with added attention to beneficial ownership through the recently passed NDAA (National Defense Authorization Act).

      See KPMG Regulatory Insights Regulatory Alert on the NDAA here; see the Fraud and Financial Crimes section of the Ten Key Regulatory Challenges of 2021 here.
    • Continued attention will be afforded cannabis legislation and the interaction between federal and state provisions.
    • Executive and incentive compensation, an area repeatedly raised by Senator Brown, that may gain more support in light of high unemployment and stimulus funding related to COVID-19. A focus on conduct and accountability issues could be concurrently revived. The agencies have outstanding proposed rules on both of these fronts.

The full text of KPMG Regulatory Insights Ten Key Regulatory Challenges can be accessed here.

For additional information, please contact Amy Matsuo.

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