In the wake of the 2016 US presidential election last week, there has been much speculation regarding how the finance and financial services industries could be affected. This update provides a rundown of some possible implications.

President-elect Trump has promised to "dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation." This language, found on Trump's website, seems to reflect legislation released last summer by Jeb Hensarling, the Republican chair of the U.S. House Financial Services Committee, who advocated similar replacement of the Dodd-Frank Act in his proposed legislation, the Financial Choice Act (Choice Act).

No doubt some are hoping for wholesale repeal of the Dodd-Frank Act, among other pro-finance reforms. However, the new administration is likely to find that banks and most other financial institutions impacted by Dodd-Frank and other post-crisis financial regulations lack an appetite for major rollback of these rules.

Major banks and financial institutions – many of them global – have spent billions in implementation of Dodd-Frank rules and analogous rules in other jurisdictions such as EMIR in the EU, which are moving forward regardless. Most of the rules and the systems designed to accommodate them are already in place, and it would cost these institutions billions more to dismantle this new infrastructure and go back to a pre-regulatory environment for US transactions.

Some with a more skeptical eye also point out that, with such formidable regulatory compliance obligations now in place, large financial institutions may be enjoying a barrier to entry, which prevents smaller or unregulated institutions from being able (or desiring) to compete directly with them.

Further, buy-side market participants – and to a certain extent banks – view Dodd-Frank as providing some positive benefits (though no doubt painfully achieved), including increased transparency and investor confidence in the markets. US banks would also have a hard time arguing that they are not stronger now – with more resilient balance sheets – than before the financial crisis.

That said, we can likely still expect some softening of the edges of Dodd-Frank. Certain pieces of the legislation that have not yet been finalized, such as speculative commodity position limits, for example, which has proven controversial, may be scrapped. Relief from dealer-to-dealer initial margin (IM) posting – or at least dealer-to-dealer IM segregation – could also be issued.

It also seems unlikely that the notional swap dealer threshold will ultimately be lowered from its current level of $8 billion to $3 billion in 2018, as contemplated (see Legal Update, CFTC Extends $8 Billion Swap Dealer Notional Threshold Through December 2018).

As suggested by the Choice Act, the incoming administration may also ease Dodd-Frank rules by, among other things:

The election results probably throw the securitization regulatory landscape into flux a bit. Unlike the swaps and derivatives world, in ABS, no real infrastructure was needed to implement rules such as risk retention for ABS – just a lot of brainpower (see Legal Update, C-MOA Structure May Facilitate CLO Risk Retention Compliance).

With risk retention rules set to take effect for CLOs and other types of ABS, including CMBS, this Christmas Eve, there is much apprehension in the industry, and much uncertainty regarding the future of these instruments and ability of many market participants to comply with the rules.

The LSTA and other industry groups have spent years lobbying regulators to create a high-quality qualified CLO (QCLO) exemption from the risk retention rules, to no avail (see Legal Update, LSTA Testifies to Congress on Proposed Qualified CLO Risk Retention Exemption and Practice Note, ABS Risk Retention under Dodd-Frank).

The incoming administration could offer tangible hope for relief on CLO risk retention, and perhaps other asset classes as well – such as CMBS, the latter especially, considering the president-elect's background in commercial real estate.

The incoming administration and the Republican Congress will have a chance to replace leadership of many financial regulatory bodies. Current CFTC Chairman Timothy Massad's term is due to end in April 2017, and current CFTC commissioner Giancarlo, the sole Republican on the commission, is reported to be a candidate to head the CFTC under the incoming administration.

Commissioner Giancarlo has been an outspoken critic of some of the CFTC's regulatory efforts, including, but not limited to, recent proposals to:

As a result, rulemaking in these areas may die in the proposal stages.

Another area of uncertainty under the incoming administration surrounds a recent revamp of international bank capital standards that the Basel Committee on Banking Supervision (BCBS) has been working to complete by year end (for more information on Basel IV, see Practice Note, BCBS Standards and Guidelines: "Basel IV"). The US has been pushing for strict rules to protect against future market meltdowns, while Europe and Japan have favored softer proposals.

Although the president-elect has not made any explicit statements about what he may do regarding bank regulatory capital, his broader objective to stimulate greater bank investment and lending activity may extend to the Basel rules.

Recently, critics have expressed concern that capital and liquidity requirements that are included in Basel are impeding the loan markets. It is possible that if Basel IV is not agreed upon before the incoming administration takes office, it will be stalled, possibly indefinitely in the US.