President Trump’s executive order, signed January 30 of this year places Dodd-Frank squarely in the administration’s cross hairs. The impact of this executive order would not be so daunting if the legislative process had not been outsourced to the Federal agencies charged with implementing the legislators’ perceived wishes through regulation—a defect that future lawmakers might want to amend.
The driving force behind all that is wrong with Dodd-Frank is regulation rather than law. As a result, the President is using his legal authority to undo these regulations. It is this legislative shortcoming, which allows the President to act as he sees fit for the economic well-being of the country.
A Modest Beginning
Although the loophole is a large one, Trump seems content, at least for the moment, to halt the promulgation of new regulations by mandating that two be withdrawn for each new one that is promulgated. This executive order will act as a powerful brake against the proliferation of new regulations. However, what happens if undesirable regulations remain in force?
The answer rests, in part, with the results achieved under the mandates that follow in Sections 2 and 3 of the executive order. In short, this demands a review by agency heads of existing and repealed regulations to ensure that increases in regulatory costs to the private sector are held to zero. Any deviations must be approved by the Director of the Office of Management and Budget unless the offending regulation is required by law or preapproved by said Director.
However, the teeth bared in this executive order can be found in Section 2, subsection (d) that states, “The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.”
Going Forward
Clearly, the President can choose the latter course and require reductions in the total regulatory costs of sundry Federal agencies, but, for now, he seems content with the “make-one-lose two” approach.
Nonetheless, the law firm of Cole-Frieman & Mallon LLP, in a letter to clients, friends and associates, stated that, “While a repeal of Dodd-Frank is unlikely, the coming months may bring a number of deregulatory changes.”
The firm’s letter touches on several regulatory initiatives but one is of particular interest to the hedge fund industry. It reminds us that California’s Public Investment Fund Disclosure Requirements have been in effect since January 1, 2017. This legislation mandates additional disclosures from hedge funds and other alternative investment funds that handle investments from California’s state and local public pension and retirement systems. If your firm has investments of this type, be prepared to respond to questions regarding fund fees, expenses, and performance that may go beyond the levels of transparency to which your firm is accustomed.
What About Hedge Fund Jobs?
Readers in the compliance arm of the hedge fund industry may be feeling some level of insecurity. Be assured that these concerns are likely without merit. In fact, compliance personnel will probably find themselves busier than ever as they digest the impact new, as well as repealed regulations, will have on their firms. Then there are always the states to contend with, as we have seen with California. One might even find himself in a position to seek a salary increase.
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