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SEC chair to step down, clearing path for Trump to eliminate tough Wall Street regulations

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SEC chair to step down, clearing path for Trump to eliminate tough Wall Street regulations

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(c) 2016, The Washington Post · Ylan Q. Mui, Renae Merle · BUSINESS, US-GLOBAL-MARKETS · Nov 14, 2016 – 8:47 PM

Mary Jo White, the head of the Securities and Exchange Commission, announced Monday that she would step down two years before the end of her term, clearing the way for President-elect Donald Trump to reshape the way Wall Street is regulated.

The resignation creates a massive opportunity for Trump early in his term to make changes to investor protections and other Wall Street regulations, part of what is widely expected to be a broad effort by the new administration to scale back what Republicans consider cumbersome federal rules that slow economic growth.

“In the long term, it is going to be a big tilt towards free markets,” said Edward Mills, a policy analyst at investment bank FBR Capital Markets.

Trump and his advisers have taken aim at President Obama’s main regulatory response to the 2008 financial crisis – the Dodd-Frank Act, which tightened oversight of the financial industry. The most visible target is the Consumer Financial Protection Bureau, the watchdog agency that has pursued stricter rules governing debt collection, payday loans and overdraft fees.

But Trump and his advisers have also targeted a broad swath of consumer issues over the course of his campaign, from rules for online privacy to conflicts of interest among financial planners. Beyond the SEC, he could also dramatically alter the ideological landscapes at key agencies such as the Federal Communications Commission and the Federal Trade Commission, whose top officials are nearing the end of their terms.

Consumer advocates say they are bracing for a fight. Public Citizen has warned that it is prepared to sue over moves that it deems questionable. The American Civil Liberties Union was flooded with donations after it posted an ad bearing Trump’s image and the terse challenge “See you in court.” And U.S. Public Interest Research Group (U.S. PIRG) recently hired a litigation director and is beefing up its state and local field operations.

“We’ve always been at DEFCON 2, and now we’re going to DEFCON 1,” said Ed Mierzwinski, director of the consumer program and senior fellow at U.S. PIRG. “Defense is a lot of work.”

After the 2008 severe economic downturn, lawmakers and regulators across the government undertook the largest wave of reforms aimed at safeguarding American consumers since the Great Depression.

The efforts were intended to curtail predatory lending, enhance transparency within the industry and level the playing field for ordinary households dealing with complex financial products.

But the movement has generated massive costs across the banking sector, and Republicans have blamed the Dodd-Frank Act for curtailing credit to low-income Americans. A recent report by the conservative American Action Forum estimated that complying with the law has cost the industry $36 billion and 73 million hours in paperwork.

More important, Republicans have blamed the Dodd-Frank Act for impeding economic growth and dampening innovation. In addition, lenders wary of running afoul of new laws have curtailed credit to those with blemished financial histories.

“If we want strong economic growth and more freedom, we must empower Americans, not Washington bureaucrats,” Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, said this summer when he released a blueprint for undoing Dodd-Frank.

On the campaign trail, Trump made a blanket promise to overhaul the government’s entire regulatory code and halt the approval of new rules “not compelled by Congress or public safety.” He said Dodd-Frank should be “dismantled” but did not detail how.

For consumers, the centerpiece of the legislation is the Consumer Financial Protection Bureau, which recently notched a major victory when it fined Wells Fargo $100 million for allegedly opening fake accounts for its customers. Consumer advocates say the upheaval could threaten significant new rules for payday lenders, auto title loans and debt collectors. The bureau has also proposed banning what’s called mandatory arbitration clauses that limit class-action lawsuits from consumers.

In June, Trump met with Hensarling to discuss the lawmaker’s plan for disbanding Dodd-Frank and reorganizing the Consumer Financial Protection Bureau, according to a Hensarling aide. His plan calls for restructuring the agency so that it would be led by a five-member commission instead of a single director and changing the way it is funded.

But even if Trump does nothing, the agency still could face significant change. Last month, a federal appeals court ruled that the agency must be restructured so that the director can be removed at will. And no matter what happens, Director Richard Cordray’s term ends in 2018, allowing Trump to pick his successor.

“We don’t want to go back to a system that led us into the mortgage crisis,” said Lauren Saunders, associate director at the National Consumer Law Center. “I hope we have all learned from our mistakes.”

Consumer advocates are also worried about the SEC, which has two commissioner positions open.

The SEC tightened oversight of asset managers and other Wall Street firms following the financial crisis and is working on rules to promote more disclosures about executive pay. It is also reviewing the exploding use of exchange-traded funds, a popular and relatively new financial product that many people use to invest in stocks.

“The SEC is one of the central cops on the beat in the financial markets, making sure that ordinary investors are treated fairly,” said Marcus Stanley, policy director at Americans for Financial Reform. If the SEC is weakened, “it is ordinary consumers that will get hurt the most.”

At the Federal Trade Commission, Chairwoman Edith Ramirez’s term expired last year, but she has remained amid Senate gridlock in confirming new appointments. Only three seats at the agency’s five-member commission are filled, and Trump could name the lone Republican, Maureen Ohlhausen, as chairwoman. If he fills the vacant seats as well, the GOP would enjoy a majority.

His choices will help determine how the Federal Trade Commission will steer investigations on topics including data security and antitrust issues and its approach on enforcement. Democratic Commissioner Terrell McSweeny says that who Trump appoints will “speak volumes about the direction of the agency.”

The Federal Communications Commission faces a similar predicament.

Though Chairman Tom Wheeler’s term does not end for two years, Trump can appoint a new chairman within the five-member commission that leads the agency, tilting the balance of power.

One big question is whether he would appoint officials to pull back new privacy rules passed by the Federal Communications Commission last month that force Internet providers to give consumers a say in how their most sensitive personal data is used and shared. Wheeler and the agency’s two other liberal commissioners pushed the policies through over stiff Republican opposition.

And last week, the agency fired a warning shot at AT&T over its practice of letting wireless customers stream as much DirecTV (which it owns) as they want on their mobile devices without counting against data limits. Regulators’ questions about the tactic, known as “zero-rating,” are likely to become moot if the Trump administration rolls back the regulations that allow the agency to probe the practice.

Still, the letter to AT&T is a sign that Wheeler intends to push forward with his agenda in the next several months.

Wheeler “is going to keep working as long as he’s being paid by the American people to do this job,” said Gene Kimmelman, president of the consumer advocacy group Public Knowledge.

Consumer advocates said that rolling back regulatory safeguards enacted since the financial crisis would undermine Trump’s appeal to the working-class voters who helped sweep him into the Oval Office. Public Citizen President Robert Weissman said his group plans to highlight any discrepancies that may emerge between Trump’s rhetoric during the campaign and his policies once in office.

So far, he said, Trump’s appointment of lobbyists and Wall Street bankers to his transition team has not been encouraging.

“There are no illusions on our side about what we’re looking at, and we’re gearing up,” Weissman said.

Brian Fung, Andrea Peterson and Jonnelle Marte contributed to this report.

NEW YORK – Mary Jo White, the head of the Securities and Exchange Commission, announced Monday that she will step down nearly three years before the end of her term, clearing the way for President-elect Donald Trump to reshape the way Wall Street is regulated.

The SEC, which polices Wall Street and the financial markets, has been a key part of the Obama administration’s effort to rein in big banks following the 2008 financial crisis and prevent future taxpayer bailouts of the industry. The agency has pushed for more oversight of hedge funds and other asset managers, and established rules that make it more difficult for big banks to make risky bets on the markets.

White, a former federal prosecutor, is known for a no-nonsense style and attempted to beef up the agency’s enforcement efforts over the last three years, pushing for more companies to admit guilt and taking more cases to trial. But progressive Democrats were often critical of her efforts, complaining they did not go far enough.

Trump has already indicated he would usher in a period of deregulation, including dismantling 2010’s financial reform legislation, known as the Dodd Frank Act. He appointed Paul Atkins, an industry veteran, who has called Dodd Frank a “calamity,” to lead the agency’s transition.

Atkins “is a guy in general who wants to let companies do their thing and not get in the way very much,” Ian Katz, a financial policy analyst with the research firm Capital Alpha Partners, said of Atkins. “You would see a lighter touch on enforcement and a lighter hand on corporate governance issue broadly.”

Atkins served as an SEC commissioner for six years during the President George W. Bush administration. He could not immediately be reached for comment.

In addition to replacing White, Trump will be able to fill two openings on the five-member commission. Trump could also chose to ignore the more than 20-year old tradition of allowing the opposing political party to pick its own representative on the commission, one industry official said, further bolstering his influence over the agency. Also, Thomas Curry, the head of the Office of the Comptroller of the Currency, another important Wall Street regulator, has less than six months on his term. Together, the openings should give the Trump administration wide latitude to change the way Wall Street is regulated.

“It is a game changer at the SEC. The commission is going to have a very different agenda over the next four years than it would have,” said Edward Mills, a policy analyst at investment bank FBR Capital Markets. “In the long-term it is going to be a big tilt towards free markets.

White took office with high expectations. The SEC had long suffered under the popular notion that it was slow, toothless tiger. White appeared to be someone who might change that reputation. Prior to her appointment, she had been a federal prosecutor who took on the terrorists behind the bombing of the World Trade Center in 1993 and the Mafia boss John Gotti.

“You don’t want to mess with Mary Jo,” President Obama proclaimed while announcing her nomination in 2013.

White moved quickly to set a new tone at the agency. Soon after taking office, she announced the SEC would begin requiring more companies to admit guilt as part of their settlements with the agency. It was a break from the SEC’s nearly 100-year history of extracting monetary penalties from companies, which typically would neither admit or deny the charges lodged against them.

“The SEC had more leverage than it realized,” White said in a recent interview. Not requiring admissions of guilt could “undermine, at least, the perception of the strength of a settlement, the strength of its deterrence. In certain cases that public accountability, I think, is very important.”

Critics would later complain that many large banks were still able to settle SEC cases without admitting guilt and that the agency’s toughest actions were reserved for smaller banks.

The SEC also poured resources into improving its technical capabilities, hiring experts who could help it better track stock trading and catch fraud. The SEC’s technical capabilities have “really been transformed over the last three years,” White said. There have been several cases, including some involving insider trading, that would have been impossible without these advancements, she said. Examinations of trading patterns that used to take months, can now be done in hours, she said.

But in the years since, the SEC has also been overwhelmed by the task of implementing dozens of rules called for under the 2010 Dodd-Frank financial reform law and the 2012 JOBS Act, which aims to make it easier for small businesses to raise money. The 4,000-person agency has tussled repeatedly with Congress and complained that as Wall Street became more complex it needed a bigger budget to keep up

White ultimately became a target of progressive groups who questioned her resolve to crack down on Wall Street. In addition to serving as a prosecutor, White also spent years defending big banks, including Bank of America and JPMorgan Chase, as a white-collar lawyer, they noted. And while White trumpeted that she had secured settlements with nearly 90 high-level executives for financial-crisis related misdeeds, critics noted that officials at some of the country’s largest banks had emerged largely unscathed.

Last year, CREDO Action, a liberal advocacy group, sent a “Dump (Mary Jo) Truck” around Washington, D.C., to mark the anniversary of the collapse of Lehman Brothers.

Another group put up billboards in the D.C. Metro system depicting White as a superhero missing in action and asking “Where is Mary Jo White?”

White’s unpopularity among some progressive Democrats was particularly pronounced when she found herself the target of Sen. Elizabeth Warren, D-Mass.

In January, Warren issued a report arguing that U.S. companies get away with crimes that regular people don’t because of weak enforcement. The SEC “is particularly feeble, often failing to use the full range of its enforcement toolbox,” the report said.

Then in June, Warren and White faced off during a Senate Banking Committee hearing. “A year ago I called your leadership at the SEC extremely disappointing,” Warren said. “Today I am more disappointed than ever.”

White quipped: “I’m disappointed in your disappointment.”

But White’s supporters, including many industry officials, say the criticism has been unwarranted.

“As SEC chairs go, Mary Jo has been one of the very best,” said Harvey Pitt, who was SEC chairman under former President George W. Bush. “No one in that position will go un-criticized. But, in my view, the criticism has been completely unwarranted.”

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