With the administration’s heightened focus on the COVID-19 pandemic, the economy, climate change and racial equity, financial services generally has not been an early priority on the Biden agenda, except where there is an intersection in one of these four policy areas or broader Democratic Party priorities. Moreover, several of the financial regulatory agencies still have acting or newly appointed leaders, meaning that their agendas have not yet been set. Issues receiving regulatory attention have included climate-related risks to the financial system; disclosure of ESG matters; consumer protection; and racial equity, financial inclusion and access.
Activity has been particularly high with respect to combating climate change. The Treasury Department, Federal Reserve Board (FRB) and Office of the Comptroller of the Currency (OCC) are examining how climate change may pose risks to and opportunities for the financial system. The Securities and Exchange Commission (SEC) also is reviewing how capital market participants are currently addressing climate and other ESG issues, and it has issued a request for comment on whether and how the SEC should require disclosures in these areas from public companies. At its first meeting of 2021, the Financial Stability Oversight Council (FSOC), which is led by Treasury and comprises the leaders of the financial regulatory agencies, one of the key priorities announced was addressing the impact of climate risk on financial stability. Republicans in Congress have challenged some of these efforts, questioning whether climate-related considerations fall within the regulators’ authority.
Several agencies also have begun to roll back certain policies and measures viewed as deregulatory that were taken under the Trump Administration. This includes the Department of Labor, which announced it would not enforce rules that made it more difficult for fiduciaries to consider ESG factors when investing and voting proxies on behalf of the pension funds they manage.
Outside of Biden’s priorities, regulators have had to respond to recent market developments that raise investor protection and market structure concerns, such as the boom in special purpose acquisition companies (SPACs) and the volatile trading of certain high-profile stocks driven by social media. The recent collapse of a family-owned fund that brought about large losses at major banks also is prompting reviews by the SEC, FRB and Commodity Futures Trading Commission (CFTC) about potential weaknesses in the financial system. This includes an FRB examination of risk management failures at its supervised banks.
Another area of activity for the federal banking agencies is the consideration of using technology in the financial sector. Agencies including the FRB, OCC and Consumer Financial Protection Bureau issued a request for input on how the use of artificial intelligence (AI) by financial institutions may pose risks to the businesses and consumers they serve and the challenges in developing, adopting or managing AI.
In Congress, both committees with jurisdiction over financial services also are focusing on the Biden priorities: Senate Banking, Housing and Urban Affairs Chairman Sherrod Brown (D-Ohio) has focused his committee’s agenda heavily on housing-related issues and equity, including COVID-19-related relief, strengthening federal housing authorities, assistance for underserved and minority communities, and climate change and its related impacts on areas within the committee’s jurisdiction. House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) has maintained her committee’s focus on responding to the COVID-19 pandemic and its impact, as well as ensuring that the financial system is fair and that consumers and investors are protected.