February 6, 2017

Regulatory Reform Cometh! Trump’s Executive Order

On Friday, President Trump issued this Executive Order calling for a comprehensive review of Dodd-Frank. Here’s the pertinent language which applies to a broad swath of laws & regulations – including, but not necessarily limited to – Dodd-Frank:

Directive to the Secretary of the Treasury. The Secretary of the Treasury shall consult with the heads of the member agencies of the Financial Stability Oversight Council and shall report to the President within 120 days of the date of this order (and periodically thereafter) on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles. That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.

The “Core Principles” referenced in this directive are set forth in the first section of the Order:

It shall be the policy of my Administration to regulate the United States financial system in a manner consistent with the following principles of regulation, which shall be known as the Core Principles:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Here’s some analysis from “Mark Borges’ Blog“: It’s all very general in nature – but within the next four months (presumably sometime around the end of May), the Treasury Department will be delivering its report and (again presumably) it will address whether (and to what extent) Dodd-Frank promotes or does not promote the Core Principles. I expect that this report will cover the various executive compensation-related provisions of Dodd-Frank, including the CEO pay ratio requirement. While it’s still too early to know what this all means – or how it will play out, the Order clearly signals the start of the long-promised re-working of the law. This will likely include the repeal of some provisions, the modification and amendment of others, and, possibly, the survival of some provisions intact.

Also, it is being reported that Representative Jeb Hensarling (R-TX), Chair of the House Financial Services Committee and the catalyst behind last year’s Financial Choice Act, is expected to unveil legislation soon that will “overhaul” Dodd-Frank.

So, events appear to be picking up. Further, given the recent activity out of the White House, it’s entirely possible to that the Administration will want to demonstrate some degree of immediate progress on revamping the current law. If that’s the case, could a repeal – or delay – of the CEO pay ratio rule be in our immediate future?

Death of the SEC’s Resource Extraction Rule: R.I.P.

On Friday, the Senate passed a resolution under the “Congressional Review Act” that disapproves the SEC’s rule on resource extraction payments. As noted in this blog – citing this article – the vote was conducted pre-dawn! The House had already passed the resolution – so the rule is no longer in effect once the President signs it. The rule had a tortured history from the beginning, leaving it vulnerable to action under the Congressional Review Act…

Keir Gumbs notes: Interesting stuff. There is still a statutory mandate for resource extraction disclosures. Unclear what will happen if the rule is repealed & the mandate stands. The irony is that they only re-adopted it after they were ordered to by a federal court. Technically, the SEC will be required to move forward on the rule again until the relevant provision of Dodd-Frank is removed.

Given the recent change in Administration, it is doubtful that the SEC will pick this up again, which means that global transparency activists will have to pursue other means to get US companies to disclose this information. Notably, there is a comparable obligation in the EU that many US companies will have to comply with even though the US rules have been (or will be) repealed.

Form F-7: Green Light for Canadian Companies

From Paul Dudek of Latham & Watkins: On Friday, Corp Fin issued this no-action letter relating to MJDS Form F-7 rights offers by Canadian companies. Canadian securities regs were revised in 2015 – and there was a question as to whether companies could use F-7 with offers under the new regs. The Staff confirmed that rights offers under the new regs could be registered on a Form F-7. The incoming letter notes the number of Canadian rights offers taking place which have not been registered under the MJDS. This clarification could encourage more Canadian issuers to extend their rights offers to US holders through the MJDS.

Broc Romanek