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2020 Election preview: Capital markets


With the election approaching, RSM is looking at the economic stakes and the key issues for various industries and sectors. This is one in our series of election previews.

The top policy issue for capital markets

A change in administration has the potential to bring about a fundamental shift in the regulatory landscape that governs capital market organizations. Joe Biden, while vice president, advocated for the passage of the Dodd-Frank reforms of the financial markets. Donald Trump, as president, advocated for the rollback of those provisions. Although the current recession is vastly different from the Great Financial Crisis, it is a safe assumption that a change in administration would bring an end to an era of regulatory relief.

If Trump wins

A victory by President Trump would ensure that the current accommodative regulatory environment carries on and that approved relief provisions over the past four years remain. If Democrats gain control of the Senate, it is unlikely that this change would affect the key regulatory agencies—the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Department of Labor—that have aided in pushing Trump’s deregulation agenda. A Democratic-controlled Congress would be unlikely to get sweeping regulatory changes or other policies approved if Trump remains in office.

If Biden wins

A victory by Joe Biden will inevitably lead to changes at the top of key regulatory agencies, and that would help him in pushing his regulatory agenda. Although the president appoints the heads of these agencies for prescribed terms, there is no guarantee that current agency leaders would serve out the full term with a new administration in place. Moreover, while a Republican-controlled Senate may limit some action on Biden’s regulatory agenda, a Democratic-controlled Senate will likely lead to other actions that will affect the profitability of capital markets organizations.

Other capital markets issues include:

Changes in prudential and market regulation in the event of a change in administration will affect capital markets organizations of all sizes and types. Biden has openly advocated for more investor protections, which may lead to a tougher fiduciary rule. Other possible regulatory related changes may include empowering the Financial Stability Oversight Council to review market activity with more scrutiny or review how companies access capital in private markets. And it won’t stop there if the Democrats win the Senate and retain the House. In that case, more significant changes are likely, including the enactment of a financial transaction tax as well as a tax on derivatives on a mark-to-market basis at ordinary income tax rates. A Republican-controlled Senate during a Biden administration, by contrast, is less likely to approve such tax changes and is more likely to heavily scrutinize regulatory agency appointees, which would deter more significant regulatory initiatives.

The Trump administration’s effect on the industry has been:

The prevailing sentiment has been positive in light of Trump’s stance that less regulation leads to more robust market participation and eases regulatory burdens for capital markets organizations. Although some had hoped for a more sweeping rollback of certain regulations when Trump took office, including some provisions of the Dodd-Frank financial markets reform, the mantra that some regulatory relief is better than none rings true when looking at the past four years.

By the numbers: $800 billion

One of the most significant measures on the table if Democrats gain control of the White House and both houses of Congress is a financial transaction tax. As proposed in the Wall Street Tax Act, a 0.1% tax on stocks, bonds and futures trades would generate roughly $800 billion over 10 years, according the Congressional Budget Office. Although the specifics of such a tax are often debated, the idea has broad support among Democrats. One reflection of this support is that six bills calling for some form of a tax on financial transactions are now before Congress.

In preparation for the outcome, capital markets companies should consider:

If there is a change in administration, it will be important to consider how that change will affect near- to midterm operations. It is almost certain that the easing of regulations and the overall favorable regulatory environment will change upon the installation of a new administration. Although such changes will not be immediate, begin to assess your organization’s operations in order to understand their implications. Should other structural changes become more likely, such as a financial transaction tax, review your organization’s technology and operating models to ensure compliance and that overall profitability is not materially affected.     


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