More on Biden, Compliance, and 2021

Today we pivot back to the incoming Biden Administration and what corporate compliance officers should anticipate as we all plan budgets and priorities for 2021. We have more insight now into who might lead important regulatory agencies under President Biden, and into what policy goals or enforcement efforts a Biden Administration would be able to emphasize first. 

So from those insights, what can we deduce about the implications for compliance and risk management programs? A few things. 

First let’s start with the people. As you may have heard, President-elect Biden has tapped Gary Gensler to lead the transition team for the Securities and Exchange Commission, the Federal Reserve, and other financial industry regulators. Gensler was chairman of the Commodities & Futures Trading Commission during much of the Obama Administration. 

Others working alongside Gensler include Leandra English, former deputy director of the Consumer Financial Protection Bureau (who is heading a CFPB landing team); Damon Silvers, special counsel for the AFL-CIO; and Michael Barr, a former Treasury Department official who helped to implement the Dodd-Frank Act in the early 2010s. Barr is serving on a Treasury Department team led by Don Graves, another Obama Administration alum who these days is head of corporate responsibility at KeyBank. 

Plus, one early rumor about who might serve as chairman of the SEC: Preet Bharara, former U.S. attorney for the Southern District of New York, now quasi-media mogul with his Stay Tuned podcast. 

Those are a lot of names likely to leave Wall Street players with indigestion. They are pro-enforcement, pro-shareholder rights, and pro-consumer. 

To lead the Justice Department transition team Biden has tapped Christopher Schroeder. Schroeder led the department’s Office of Legal Counsel in the first few years of the Obama Administration, and lately has been teaching law at Duke University. Another notable name on the team is Neil MacBride, who was an aide to Biden in the president-elect’s Senate days, later U.S. attorney for the Eastern District of Virginia. Apparently McBride is seen as lead contender to be deputy attorney general, where he’d play a key role in shaping Justice Department enforcement policy.

OSHA compliance would fall under the Labor Department transition team. We know that the Labor Department team is led by Chris Lu, a former deputy labor secretary during the Obama Administration. We don’t know who will review OSHA specifically. We do know Biden is talking about revived OSHA enforcement, including an “emergency standard” for safe work environments during the covid crisis. 

Not all of these folks will take positions in the new administration, although many could. All of them will shape the policy changes to come — including approaches to regulatory enforcement, and that’s what compliance officers need to anticipate. 

Biden Administration Priorities

An important point for compliance officers to remember is that the Biden Administration won’t be able to enact major legislative reforms, because Democrats won’t have firm control of Congress. Even if they win those run-off Senate seats in Georgia (a longshot at best), Democrats would still have a razor-thin majority. Sweeping legislative reforms would be painstakingly slow to craft, and jeopardize Democrats’ position in the 2022 midterms. 

So we’re not likely to see big changes in federal law any time soon. Therefore we should ask a different question: Where would the Biden Administration have the most freedom to push its agenda via executive action? And what would that mean for compliance programs?

We can already posit a few reasonable guesses. 

Climate Change and Racial Equity Disclosures

It’s no secret that Biden wants to address climate change and systemic racism more forcefully. One way his Administration could do that would be through more corporate disclosures required by the SEC.  

The SEC already does have a rule requiring companies to disclose material risks from climate change — but that rule was adopted in 2010, wasn’t terribly specific, and has never been enforced. New leadership could adopt a clarifying rule, perhaps with a standardized disclosure framework that companies would need to follow. In fact, better climate change disclosure was the subject of a lengthy statement Democratic SEC commissioner Allison Lee gave in January. (Lee is likely to be acting SEC chair until Biden gets a permanent chair confirmed, by the way.)

The SEC also adopted new “human capital” disclosure requirements in August, supposedly to address at least some concerns about racial equity and diversity in Corporate America. Again, the required disclosures aren’t specific; they don’t even cite diversity as a specific subject for disclosure. Lee issued a statement about this rule too, as did fellow Democratic commissioner Caroline Crenshaw. 

I watch both of these issues because they are subjects where the interests of the Biden Administration and Democrats in Congress align. For example, the House Financial Services Committee has held several hearings about diversity and inclusion in the banking sector. Any time Biden can take actions that also placate progressives in Congress, that gets several things done for him at once; so those issues are more likely to see action. 

So if I were a compliance or risk officer, I’d be thinking about how to put more structure around the climate and racial equity issues in my organization: how to capture better data, update policies, make better disclosures, and hone executive communications about why these subjects are important. For starters, review ESG disclosure frameworks and consider which ones might be best for you.

Financial Industry Supervision

This is another area where Biden can act on his own, via more rigorous regulatory examinations of compliance and risk management programs. 

For example, the Trump Administration relaxed supervision of medium-sized banks over the last four years. The Biden Administration could revisit the wisdom of that decision, especially given how the pandemic has hammered commercial real estate loans and brought some banks’ balance sheets under pressure. We could see tougher scenarios for the stress tests regulators perform on banks, or more rigorous examinations generally.

I’ve also been intrigued by the Office of the Comptroller of the Currency. The OCC has imposed several notable enforcement actions lately (such as that $400 million whammy against Citigroup) faulting banks for how they manage their compliance and operating risks. The OCC is run these days by an acting director, Brian Brooks, so Biden will be able to replace him in fairly short order.

More attention to risk and compliance programs is very much in the Biden Administration’s interest, because it supports the Treasury Department’s goal of a stronger financial system. (See pandemic, above, stressing lots of smaller banks.) So if I were a risk or compliance officer in banking, I’d be watching this closely.

We could say the same for the CFPB (I’ll bet right now that Leandra English ends up running this agency); or the Office of Compliance Inspections and Examinations at the SEC. The Biden Administration will be able to push its priorities through a more rigorous examination and enforcement process. Compliance officers need to anticipate that.

And Whither Compliance Programs?

As I said in my first Biden Administration post, I believe that the importance of strong compliance programs will only increase during the Biden Administration — mostly because they never really declined in importance during the Trump Administration. The need for companies to demonstrate strong compliance capabilities if they want to avoid an unpleasant enforcement action will continue unabated.

For example, the Trump Administration talked a lot about better data analytics and more compliance program access to relevant data; I don’t see a scenario where the Biden Administration would say less analytics and data would be OK. 

So by all means, push for more budget, or better tech, or a seat at the table, or whatever it is you need. You’re still going to need those things now. The path regulators want companies to take for strong compliance programs was laid down well and firmly by Trump Administration people, and that path is here to stay.