Last week, President Trump ordered a review of major banking regulations put in place following the 2008 financial crisis, largely comprising Dodd-Frank regulations. President Trump has made clear that rollbacks are a main objective for these reviews. Though the executive order only calls for a review, the Trump administration aims to make major cuts to banking regulations, largely affecting Dodd-Frank’s enforcement measures: Volcker Rule and the Consumer Financial Protection Bureau (CFPB). Here is an overview of the two main components of the Dodd-Frank banking regulations and what it means if they are cut:

The Volcker Rule

A big part of Dodd-Frank, the Volcker Rule raises capital requirements for banks and limits trading abilities. Banks are restricted from certain investment activities using their own accounts and also from retaining control over covered funds. The Volcker Rule acts to prevent speculative trading. If cut, big banks could be free to make unstable investment decisions.

Consumer Financial Protection Bureau

Another major component of Dodd-Frank, the CFPB was established by congress as a means of hands-on banking regulation and enforcement. The CFPB acts to protect consumers from aggressive and predatory investment banking and trading practices. In addition to taking legal action against unfair and deceptive practices, the CFPB also serves as an educational resources for consumers and investors. If cut, banking regulation could once again become largely decentralized and unable to accurately oversee banking practices.

Effects

Bankers and lenders laud President Trump’s decision to review current financial regulation under Dodd-Frank. Wall Street saw a noticeable bump in banking stock prices following Friday’s announcement. Despite lender and broker-dealer optimism, many consumers and regulators worry that loosened regulations will lead to a financial relapse and market crash.

Educational Resources

• See this report from Reuters for more info on President Trumps order for regulatory review
• Find out more about the CFPB by visiting their website
• Get more consumer news and tips by checking out our past blogs

Last week, the Financial Industry Regulatory Authority (FINRA) handed out a $650,000 fine to a broker-dealer in the Lincoln Financial Network. The industry watchdog group found that the independent broker-dealer in Lincoln Financial’s network allowed thousands of customers’ data to be exposed to foreign hackers. Similarly FINRA also found that Lincoln Financial Securities Corp. failed to ensure the security of their customers’ consolidated reports. Consolidated reports store essential client account information and assets. FINRA’s charge states that sensitive customer information was left vulnerable to cyber threats from 2011-2015. The failure of Lincoln Financial to secure their customers’ data led to foreign hackers exposing more than 5,400 customers’ confidential information from one of the firm’s cloud servers. Lincoln Financial Securities has neither admitted or denied guilt to the allegations. The financial securities firm has reached a settlement with FINRA for $450,000.

Who’s to Blame?

What should be troubling for consumers is Lincoln Financial’s failure to accept ethical responsibility for their lack of action in properly securing vital customer information. They have reached a financial settlement, but refuse to acknowledge fault on behalf of the firm in either instance. The Lincoln Financial Network has nearly 9000 independent broker-dealer representatives. Apparently, oversight over these independent reps is severely lacking and, with this many, there could be a whole lot more customer account databases left vulnerable to security threats. National financial securities firms need to know that simply paying a fine is not sufficient. Thousands of customers’ financial security is left in the hands of these firms and they have a responsibility to protect their customers’ information. Bringing out the checkbook is not the same as waving a magic wand. A customer’s sense of security is violated when something like this happens. Large financial securities firms need to take measures to ensure their customers’ peace-of-mind about the continued protection and retention of personal information.

Some of the nation’s top banks are facing another bad week, legally and financially as they are subjected to increased scrutiny and demand for reparations from federal regulators. Wells Fargo faces a continued inquest into the extent of its accounts fraud scandal as regional and municipal governments, including Hillsborough County, look further into their interests with the banking giant. A top financial regulator in Massachusetts is now charging Morgan Stanley with unethical conduct following a claim of a sales contest among Morgan Stanley brokers pushing securities-backed loans onto clients. Additionally, German banking giant Deutsche Bank is facing slipping stocks and credibility as it struggles to reach a conclusion with U.S. courts over an up to $14 billion fine for mis-selling mortgage-backed securities, according to a report from Reuters. The report states that Deutsche Bank’s U.S. stock-holdings fell about 2.8 percent.

Déja Vu with Morgan Stanley?

Though Morgan Stanley vehemently denies the charges put forth by William Galvin, Secretary of the Commonwealth, that the company is guilty of unethical conduct, it does not deny the existence of the sales contest. The contest involved cross-selling banking products, mostly securties-based loans, to Morgan Stanley’s brokerage clients. Glavin’s claim asserts that this cultivated a “high pressure” environment to meet contest goals that was against Morgan Stanley’s corporate policy. Morgan Stanley did suspend the contest after the contest was discovered to be inconsistent with corporate policies, but maintain that no accounts were opened without customer understanding and consent.

Tensions Running High

Public opinion and federal regulators are taking a vigorous and critical look at big banking tactics following the Wells Fargo scandal. With the aftermath of the 2008 financial crisis still looming in the economy’s rear-view, regulators and banking customers raise concerns over fundamental flaws in ethical banking procedures and continue to examine banks’ financial interests.