Since 2024, the Trump administration has been actively exploring the consolidation of the United States’ federal financial regulators.
According to Corlytics, initial discussions about restructuring major institutions, including the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), began last year. Now, these proposals seem closer than ever to becoming a reality.
This move has elicited a varied response from the banking community. While some industry professionals see it as a chance for a more efficient regulatory framework, others are concerned about its impact on the independence and efficacy of financial oversight.
For RegTech firms, this restructuring presents both challenges and opportunities. The potential merger of key organisations such as the FDIC, OCC, Consumer Financial Protection Bureau (CFPB), and Commodity Futures Trading Commission (CFTC) suggests that while there may be fewer regulatory bodies to deal with, the transition could lead to significant uncertainty. This might include changes in regulations, shifts in reporting requirements, and alterations in agency responsibilities.
With these changes, there is likely to be a spike in demand for automated compliance solutions. A consolidation of data/reporting standards by regulators may drive a need for standardisation across the sector.
Additionally, regulatory agencies might centralise their databases, requiring RegTech companies to modify how they access, organise, and manage data sourced from regulator websites.
If the administration opts to deregulate certain aspects, such as loosening the Bank Secrecy Act requirements, updates to regulatory monitoring information could become less frequent. However, financial institutions will still need robust systems to keep abreast of regulatory developments.
A reduction in federal oversight might also elevate the role of state regulators, such as the NYDFS and California DFPI, compelling financial institutions to seek guidance at the state level, thus increasing the demand for state-specific compliance support.
What should RegTech firms do in response? They need to stay informed about agency consolidations and evolving regulations, update their APIs and data sources accordingly, enhance their state-level regulation coverage, and assist clients in navigating these changes.
Recent trends in the Economic Policy Uncertainty Index: Financial Regulation from the Federal Reserve Bank of St. Louis highlight the increasing uncertainty in financial regulation, with index readings of 112.08 in October 2024, falling to 92.68 in November, and further to 46.48 in December.
Trump’s initiative might not just reshape US financial regulation but could also influence global regulatory frameworks, potentially leading to shifts that could affect international RegTech markets. This necessitates a keen focus on agility and adaptability for RegTech firms operating across jurisdictions.
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