For over four years after enactment of the Dodd-Frank Act (“Dodd-Frank”), President Obama and the Democratic Senate successfully blocked any changes to that act. For example, in the 113th Congress, the House passed 26 bills amending the Dodd-Frank Act, many with significant Democratic support. But none were considered by the Senate.  Now, that is all quickly changing.

In the lame-duck session following the election, Congress passed the so-called “cromnibus,” which included an important change to the bank capital floors that would have applied to insurance companies designated as systemically important financial institutions under the Collins Amendment.

One of the first bills passed in the new Congress was renewal of the Terrorism Risk Insurance Act with a key change to Dodd-Frank exempting nonfinancial “end-users” (like agriculture and energy firms) from the requirement to post collateral for derivatives trades used to hedge risks in the market.

Most recently, the House passed H.R. 37 by a vote of 271-154, making numerous changes to the Dodd-Frank Act and expanding several areas of the Jumpstart Our Business Startups Act of 2012:

• Title I—Relieves nonfinancial end-users from margin requirements;
• Title II—Exempts interaffiliate swaps from margin requirements, under certain circumstances;
• Title III—Changes Securities and Exchange Commission (“SEC”) registration thresholds for savings and loan holding companies;
• Title IV—Exempts smaller merger and acquisition brokers from SEC registration;
• Title V—Repeals mandatory indemnification requirements for swap data repositories;
• Title VI—Makes several changes to emerging-growth company regulation, including providing a grace period for emerging-growth company status and simplified financial disclosures on Form S-1, currently required under Regulation S-X;
• Title VII—Exempts emerging-growth companies from the requirement to use eXtensible Business Reporting Language (“XBRL”), as well as other smaller companies from certain XBRL requirements;
• Title VIII—Amends the “Volcker Rule” to clarify that collateralized loan obligations issued before January 31, 2014, are not required to be divested before July 21, 2017, and clarifying that holding a debt security in a collateralized loan obligation is not considered an “ownership interest” under the Volcker Rule;
• Title IX—Exempts certain advisers to small business investment companies (“SBICs”) from SEC registration requirements with respect to the provision of investment advice relating to venture capital funds and registration and reporting requirements regarding assets under management of private funds and advisers to assets under management of private funds with respect to certain registration and reporting requirements;
• Title X—Simplifies Form 10-K with a summary page and requires simplification and a study of Regulation S-K.

Note that while many of these changes continue to have substantial Democratic support, the change to the Volcker Rule that would eliminate the required divestment of certain collateralized loan obligations by banking entities has been controversial among Democrats; indeed, its inclusion is responsible for most Democrats voting against the bill.

The bill now goes to the Senate, where it is likely to pass under new Republican control. That may well draw a veto from President Obama. Under pressure from Senator Elizabeth Warren and other liberals, including former Senator Hillary Clinton, President Obama has increasingly taken a tough line on changes to Dodd-Frank.

If the bill is vetoed, congressional Republicans could either: (1) seek to attach the bill to other “must pass” legislation the President would be reluctant to veto (i.e., the strategy employed with the cromnibus bill last December); or (2) they could pass the bill without the controversial Volcker Rule amendment, increasing the chances that the bill would be signed by the President.

Despite the White House’s opposition to any legislation that would weaken key consumer protections and provisions of Dodd-Frank, changes are already being made. We expect that other issues, including Consumer Financial Protection Bureau disclosure and lending rules, bank capital requirements, and systemic risk regulation will also be included in future financial regulatory reform bills in this Congress.