Meet the new cops on the financial services beat

During the Trump administration’s four years, the financial services industry enjoyed a “hands-off ” approach to regulation, with regulators focused more on investor education than enforcement. That’s about to change.

Gary Gensler, President Joe Biden’s nominee to chair the Securities and Exchange Commission, established himself as an enforcer when he headed the Commodity Futures Trading Commission during the Obama administration.

During his tenure at the CFTC, Gensler cracked down on financial derivatives, which were criticized for the role they played in the 2008-09 financial crisis.

Gensler’s record suggests he may support tougher requirements for brokers and other financial advisers.

As head of a Maryland financial protection commission in 2019, Gensler recommended the state mandate that all financial planners who give investment advice adhere to the fiduciary standard, which requires them to put their clients’ interests above their own. That’s a stricter requirement than an SEC rule that took effect last year, which requires broker-dealers to act in the “best interest” of their customers.

Consumer advocates say the rule doesn’t clearly define best interest and doesn’t do enough to prevent broker-dealers from promoting products with high commissions.

Gensler is also expected to support more detailed disclosures from public companies, particularly with respect to the impact climate change could have on company profits. The SEC issued guidance over a decade ago directing companies to disclose the risks of climate change, but information provided by companies has been “spotty and inconsistent,” according to Ceres, a nonprofit that promotes sustainable investing.

The SEC may also take a more active role in regulating bitcoin and other cryptocurrencies. Since 2018, Gensler has been a professor and researcher at the Massachusetts Institute of Technology, where he specialized in cryptocurrencies and supported greater oversight over the $1 trillion cryptocurrency market.

Consumers and the financial sector can also expect a more muscular Consumer Financial Protection Bureau if Rohit Chopra, Biden’s nominee to head the agency, is confirmed. Chopra, currently a member of the Federal Trade Commission, served as the CFPB’s student loan ombudsman from 2010 through 2015.

The number of CFPB enforcement actions against financial firms declined substantially under the Trump administration, particularly with respect to illegal debt-collection practices, mortgage lending and student loan services, according to a 2019 report by the Consumer Federation of America.

In addition to reversing that trend, consumer advocates hope that Chopra will expand and improve the agency’s consumer-complaint database, which allows consumers to report problems with financial institutions.

The financial services industry has argued that the database doesn’t give them a way to counter unfair grievances, and the Republican-led CFPB considered making it private.

That effort didn’t succeed. “We know that the database has been useful for consumers precisely because the complaints are public,” says Mike Litt, consumer program advocate with the U.S. Public Interest Research Group. “Financial companies are incentivized to respond and deal with the problems consumers are having.”

Gensler