Insights

2 January 2024

What does 2024 hold for financial services regulation?

Amid a torrid 2023, and looming elections, U.S. financial regulators face a tough 2024. MBK Search looks ahead at what’s on the agenda for regulators over the next year.


Securities and Exchange Commission

The SEC faces an uphill battle in finalizing its climate risk disclosure rule requiring companies to outline greenhouse gas emissions.

Critics argue that data complexity and limited control over indirect impacts excessively burden businesses, especially smaller firms. Senators from both parties have petitioned to restrict the scope to direct operational emissions instead.

Besides carveouts, legal disputes likely appear over the SEC’s authority requiring disclosures lacking immediate materiality. However, the agency believes increased exposure to climate transition risks benefits investors.

Beyond climate reporting, the SEC plans equity trade structure reforms in 2024 alongside rules guarding against conflicts of interest and client asset threats. Each policy space holds extensive cost-benefit considerations as well.


Federal Banking Regulators

Federal banking regulators face growing pressure over plans to hike capital requirements for large banks. Scheduled for completion in June, the Basel III rule updates risk assessment methods, resulting in around a 16% buffer increase industry-wide.

Regulators argue that bigger buffers build resilience against economic shocks. However, opponents say the complex overhaul risks restricting lending and slowing growth. Banks insist current capital levels already exceeded minimums before the pandemic stresses. Forecasting specific risks years out remains unreliable, with banks preferring more flexibility.

Set for finalization alongside Basel III are added debt load and resolution rules for systemically vital banks.

With the public comment ending January 16th, regulators must now sift through the economic and industry impact. Overreaching could lead to successful legal challenges from banks, but underreaching leaves oversight gaps.


Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) faces pivotal policy decisions entering 2024 across fees, privacy, and its oversight structure.

The bureau has started rulemaking to expand Fair Credit Reporting Act rules on medical debt and data broker definitions. The efforts intend to restrict certain medical reporting and increase sector transparency.

In addition, key CFPB data sharing and payment proposals await finalization dates after the comment period closes. The industry expects operational and compliance lifts in adapting to imminent policy shifts.

2024 further holds a Supreme Court ruling on the CFPB’s constitutionality in a dispute around its unilateral leadership control. A decision against the agency risks unraveling its work absent quick Congressional action.


Public Company Accounting Oversight Board

The PCAOB is mulling expanded auditor duties to flag legal noncompliance by public companies. Proposed rules mandate broader evaluations beyond direct financial impacts.

Supporters argue that capturing indirect and reputational effects helps deter misconduct. However, opponents contend that ‘scope creep’ risks legal liability for auditors lacking context beyond numbers.

Congress recently examined concerns that the changes deter appropriate risk-taking and constructive auditor relationships. Litigation over ensuing selective disclosures also appears likely.

Regulators say recent accounting scandals like Theranos show internal gatekeeping has softened, and boosting auditor obligations to uncover and report red flags earlier is beneficial. The PCAOB insists that updated professional skepticism must match modern risks. However, critics argue inherent oversight limits are against maximizing auditor liability for executive decisions.

Recent House Financial Services committee hearings echoed misgivings around selective disclosures, legal liability, and appropriate role boundaries. Additional congressional and legal challenges are expected amid the uncertainty if rules advance unchanged.

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