Yesterday Mr. Jen Hensarling had a hearing before the House Financial Services Committee presenting The Financial Choice Act 2.0.
At first glance, the new draft appears to have teeth. To address the theme of being tough on Wall Street, a favorite rhetorical target of both parties, the legislation would increase the maximum penalties the S.E.C. can impose for violations, including a top corporate fine of $10 million per violation. It also adds a fourth tier of penalties that triples the fine for recidivists.
However, this will ultimately result in less regulation in the upcoming 4 (8?) years, and some say that raising fines are just a way to sell a bill to congress that:
- Effectively kills off the SEC’s in-house courts, not by just killing them off, but by allowing defendants to opt out of them and by increasing the SEC’s burden of proof within them to something like mortal-lock certainty;
- prevents the SEC from barring bad actors while
- barring SEC lawsuits against bad actors if said bad actors didn’t have “adequate notice” that he or she was doing something the SEC might disapprove of;
- inserts an ombudsman within the SEC enforcement staff to make said bad actor’s cases for them;
- requires the SEC to consider whether a fine would harm shareholders, which of course it would, as shareholders are the owners of the business being fined;
forces the SEC to study the enforcement policies and practices it just gutted anyway, to see if there’s any meat left on the bones that could yet be removed.
What is important to note here is a lot of how Trump will be deregulating the financial industry by taking a more indirect approach. One method is appointing leaders at the SEC and CFTC that allow for more leeway for violations against these regulations. This is a short-term solution to deregulation, but is probably the best we can get right now in such a polarized political environment. Do you think this will help in the long-run, as well as the short, to have a freer financial market? Do you see any unforeseen consequences of this bill?
