In 2018, there may be a decrease in regulatory activity as U.S. regulators apply a lighter touch.
In the years after the Financial Crisis, regulators seeking to make up for past failures and exercising new powers aggressively pursued actions against companies and their D&Os around the world. In 2018, there may be a decrease in regulatory activity as U.S. regulators apply a lighter touch.
The business-friendly Trump Administration has sought to decrease the amount of government regulation on financial institutions and other businesses, and Congress is working towards eliminating rules and agencies created under the Dodd Frank Act that were intended to prevent another financial crisis. New legislation was recently introduced that would decrease the level of scrutiny of large banks. Republicans have sought to weaken or eliminate the Consumer Financial Protection Bureau ("CFPB") which was designed to protect consumers from abusive practices by financial institutions. Trump appointed a new acting director of the CFPB, Mick Mulvaney, who has reportedly called the CFPB a "joke" and said he wished it did not exist.
Trump's anti-regulation approach is already impacting the number of regulatory actions. For example, during its fiscal year ending on September 30, 2017, the SEC brought 17.6% fewer actions, assessed 15.5% lower sanctions and pursued 33% fewer actions against public companies than in its prior year. The Office of the Comptroller of the Currency, a tenacious regulator under the Obama administration, has made it easier for banks to offer high interest payday loans and softened its policy for punishing discriminatory lending practices.
While these developments suggest that D&O insurers may see fewer claims in the short term, deregulation could ultimately result in higher exposures if improper activity in the financial markets is undeterred, as occurred in the years leading up to the Financial Crisis.