COMMENT: With Trump’s win, SEC registration may wither

Trump’s victory in the presidential election is an earthquake for financial regulation, as for so many other sectors of US business, and threatens several key priorities for the industry. On the campaign trail, Trump attacked the treatment of carried-interest tax and proposed to eliminate the deductibility of corporate debt payments, two tax issues the industry has lobbied hard to protect.

But Trump’s win also opens the possibility of regulatory reform far friendlier to private equity than any considered possible with a Democrat in the White House. Industry trade groups and lobbyists think the Financial Choice Act, a bill passed two months ago by the House Financial Services Committee, will be the template for the coming reforms.

The bill is an ambitious rollback of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and would repeal the requirement of private equity registration with the Securities and Exchange Commission.

This bill “is going to be the framework of what Republicans are going to do” on regulatory reform, said Brett Palmer, president of the Small Business Investor Alliance, a trade group of lower mid-market private equity firms.

The problem, however, is that the Financial Choice Act is a messy template for reform. It was cobbled together from a number of separate Dodd-Frank rollback bills, and would dramatically alter the oversight of the entire financial industry, including private equity, in ways that haven’t been fully digested.

Several lobbyists for the financial industry and consumer groups said before the election that they hadn’t bothered to study the bill closely because it had so little chance of even making it to a vote in the House of Representatives, much less into law. The 512-page bill – whose summary alone clocks in at 126 pages – proposed so many changes that experts have trouble keeping track.

One lobbyist for the financial industry, speaking before the election, called it a statement bill from House Republicans and not a serious legislative possibility. But this unlikely bill now is the starting point for talks on regulatory reform.

“You are going to hear a lot more about the Financial Choice Act,” said Gary LaBranche, president of the Association for Corporate Growth, which represents mid-market private equity firms, on a post-election webcast with its members. The House is likely to vote on the bill, but its path through the Senate is murky, and it may be split into several separate bills, ACG said.

Whether the SEC registration rule survives this negotiation process is anybody’s guess. But even the possibility of repeal is more than private equity could have expected a week ago. Palmer of SBIA said while it is possible the rule will be deleted in full, he hopes more for tweaks, such as potentially loosening the requirements for smaller firms and scaling up the regulatory burden for bigger ones.

The American Investment Council, the largest industry lobby group, has set its sights elsewhere, said James Maloney, vice president of public affairs.

It plans to focus on preserving the current treatment of carried interest, ensuring that private equity firms aren’t required to register as broker dealers and pushing forward the Investment Advisers Modernization Act, a bill passed by the House in September that would much more modestly amend the registration requirement. The AIC expects “tailored modifications” to the regulatory regime, but it is too early to tell what form they may take, said Maloney.

Palmer said he was leery of any reforms that would “blind” limited partners or be seen as industry overreach, and that could include a repeal of firms’ requirement to register with the SEC.

Any reform “has got to pass a simple, obvious test to the man on the street: ‘Does this make sense?’” he said. “There could be a repeal, but much more likely is that they need to rationalise the rule.”

Write to Chris Cumming at chris.cumming@wsj.com

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