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Trump's regulatory moratorium might leave some agencies alone

On the same day Donald Trump was inaugurated as the 45th president of the United States, his chief of staff, Reince Priebus, issued a memo to the nation's departments and agencies with a clear message: No more rulemaking.

But ambiguity in the memo's language is leaving industry observers confused over whether independent agencies — including the Consumer Financial Protection Bureau, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission — have to comply.

The order instructs the regulators to freeze any work on draft rules, stop the flow of any proposed regulations to the Federal Register and delay the implementation of any final rules by 60 days. But the memo doesn't clarify whether the independent agencies are subject to the rules since they're detached from the executive branch. An OCC spokesperson said Jan. 23 the agency is "reviewing the memo" while CFPB Director Richard Cordray said in a Wall Street Journal interview published Jan. 24 that his agency is also looking at the memo, adding no more detail.

"We're still digesting these orders and want to understand them," Cordray said. "I'm not going to get into timelines today."

But there's some precedent for an exemption from the regulatory moratorium, which was similarly implemented by Presidents Reagan, Clinton, Bush and Obama. In a 2012 report from the Congressional Research Service, the authors note that moratoria imposed by previous presidents "have generally exempted regulations issued by independent regulatory boards and commissions." Alan Kaplinsky, chair of law firm Ballard Spahr's Consumer Financial Services Group, said it's unlikely the independent agencies will have to play by the rules of the moratorium.

"I think it actually has very little application, if any, to the federal regulatory agencies that affect financial institutions. It has more application in other areas of the federal government," Kaplinsky said.

Although that could mean no disruptions for rules like the Fed's capital buffer requirements or the OCC's fintech charter, the CFPB faces a slightly more complicated situation even though it is also an independent agency. The agency's structure was deemed unconstitutional in an October court ruling, further suggesting that the agency be brought into the executive branch. Kaplinsky says the CFPB's appeal of that decision complicates the interpretation of whether or not the agency is actually independent, and consequently, subject to the moratorium. But Kaplinsky said the court is unlikely to make a decision on that appeal any time soon.

The moratorium does, however, affect executive agencies like the Department of Labor. But its most controversial finance-related rule, the fiduciary standard on the sale of retirement products, was already published as a final rule in the Federal Register in April and effective as of June 7, 2016. That makes it a final rule not subject to any freeze or delay, Marcia Wagner, founder and principal of Wagner Law Group said.

While the freeze wouldn't affect the rule itself, it could affect the Labor Department's effort to ease the rule, since its proposed exemption for larger insurance intermediaries and agents in the fixed-annuity space hasn't been finalized and effected yet.

"Actually, that's kind of humorous," Wagner said.

While the moratorium is common for new presidents, Trump has made it clear he wants to rollback regulations, saying in a Jan. 23 meeting with multiple CEOs that he wants to cut regulations by 75%.

"I have people that tell me they have more people working on regulations than they have doing product. And that’s out of control," he said in the meeting.

On the financial regulatory front, Trump will have to look to something more ambitious than a temporary moratorium to roll back the landmark regulation of the Dodd-Frank Act, said Justin Schardin, director of regulatory reform for the Bipartisan Policy Center.

"Most of Dodd-Frank has been implemented," Schardin said. "So if Trump wants to roll back those changes, it's going to require a combination of new regulators confirmed by the Senate for these agencies, and legislation."