Four developments for the financial services industry
While tariff policy has captured headlines, four recent regulatory reform policy developments are nevertheless significant for the financial services industry. These developments are tied to increasing presidential control over the administrative state, a topic we have previously explored. We expect further action by the federal financial agencies to follow.
Key Takeaways
- DOJ announces the end of "regulation by prosecution" for crypto.
- Treasury Secretary Scott Bessent signals a cross-agency focus on financial risk.
- The Trump Administration is trying out a seldom-used exception to allow federal agencies to quickly scrap rules bypassing notice and comment procedures.
- Treasury has announced the elimination of 15 "now-obsolete" rules. Other agencies are expected to do the same.
Recent Developments
- Deputy Attorney General memorandum ends DOJ regulation by prosecution.
On April 7, 2025, Deputy Attorney General Todd Blanche issued a Memorandum ending "regulation by prosecution" in DOJ investigations of the crypto industry. The memorandum criticizes the previous administration's approach, stating:
"The Justice Department will no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets while President Trump's actual regulators do this work outside the punitive criminal justice framework."
This marks a departure from the Biden Administration's "whole of government approach" to restrain the digital asset and blockchain industries. It follows Executive Order 14178, "Strengthening American Leadership In Digital Financial Technology," highlighting the Trump Administration's commitment to supporting digital assets and dismantling the previous Administration's policies. This adds to the trend of dismissing nearly all outstanding crypto litigation.
- Remarks by Treasury Secretary demonstrate a new focus on material financial risks over process.
On April 9, 2025, Treasury Secretary Scott Bessent made remarks before the American Bankers Association indicating that the Treasury Department intends to play a greater role in bank regulation, signaling that the deregulatory trend will be supported at the highest levels of government. Among other things, he decried the fact that "[i]n the past some regulatory actions have unduly burdened community banks or erected barriers to entry" and that "[o]ther regulatory actions have entrenched the dominant position of the largest banks." He and his team "will devote the necessary time and attention to the quite technical, substantive aspects of regulatory reform," noting there will be a new emphasis on "tailoring" of regulation to fit the size and relative risk of banks being examined.
He also emphasized a desire "to re-focus bank supervision on material financial risks"—which he described as "perhaps the single most important reform"—as opposed to process risks. He stated that there was an undue focus "on management and other governance matters" including regulators' expectations relating to internal controls.
This speech appears to support the view that Secretary Bessent acts as the quarterback of the Trump Administration's bank regulatory reform efforts, with the traditional prudential regulators marching in line following his lead. The apex of this effort may be "to define 'unsafe and unsound' by rule using more objective measures rooted in financial risk."
Notably, we recently called for very similar kinds of reform in a recent Op Ed in the Wall Street Journal.
- Treasury's elimination of 15 "now-obsolete" rules.
On April 9, 2025, the Treasury Department announced that it was taking immediate action to eliminate 15 rules and guidance materials that it characterized as ranging from "now-obsolete regulations dating back many years to regulations and guidance issued during the last Administration that placed significant burden on America's small businesses." This action seems to preview the upcoming results of the broad regulatory review mandated by the Trump Administration in February. On April 15, 2025, the Treasury Department identified in the Federal Register five of the regulations that will be repealed, on the grounds that they are either stale or redundant. The elimination of these rules does not appear to constitute substantive changes at this juncture.
- Presidential Memorandum directs the repeal of "unlawful" regulations.
In addition, the April 9, 2025, Presidential Memorandum titled "Directing the Repeal of Unlawful Regulations" is particularly notable. This is the follow-up to Executive Order 14219, "Ensuring Lawful Governance and Implementing the President's 'Department of Government Efficiency' Deregulatory Initiative" (the "Lawful Governance EO"), which mandated a comprehensive review by each government agency—including those typically thought to be "independent"—of their existing inventory of regulations and guidance for the purpose of identifying which regulations may be unconstitutional, may exceed the agency's lawful powers, or otherwise may be unlawful because they are contrary to a series of recent Supreme Court decisions.
The memorandum states that upon the completion of the 60-day regulatory review ending April 20, 2025 (or April 21, due to Easter Sunday), the agencies would begin plans to repeal them. The memorandum reinforces that this exercise represents a serious effort to clean up the existing regulatory inventory.
Swift Elimination of Rules Without Notice and Comment
The issue that has ignited the most controversy is the section of the memorandum regarding the method of repealing regulations found to be unlawful. Consistent with the Administration's actions in its first 100 days, the White House is putting a premium on speed. The Administration is using a relatively novel approach, one that appears facially grounded in the text of the Administrative Procedure Act ("APA"), but which never been used at this scale.
Typically, when a rule, especially a legislative rule, is rescinded or altered, the APA's rulemaking requirements generally apply to its repeal or amendment, unless an exception applies. However, subsection 553(b)(B) of the APA exempts from its notice-and-comment requirements when an agency "for good cause finds ... that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest."
The memorandum uses that exception to direct agency heads that in the case of "effectuating repeals of facially unlawful regulations, agency heads shall finalize rules without notice and comment, where doing so is consistent with the 'good cause' exception in the APA." The Memorandum then justifies agencies dispensing with notice-and-comment rulemaking on the basis that: (1) "retaining and enforcing facially unlawful regulations is clearly contrary to the public interest" and (2) "notice and comment proceedings are 'unnecessary' where repeal is required as a matter of law to ensure consistency with a ruling of the United States Supreme Court."
The memorandum says that following the review, agencies "shall immediately take steps to effectuate the repeal of any regulation, or the portion of any regulation, that clearly exceeds the agency's statutory authority or is otherwise unlawful." And the repeal of any such unlawful regulation "shall be accompanied by a brief statement of the reasons that the 'good cause' exception applies."
We expect litigation over who gets to determine if a particular regulation is "unlawful" and therefore subject to immediate repeal in the public interest—the agency charged with administering the regulation (whose views may be entitled to less deference post-Loper Bright) or a federal court? Either way, it would appear that this may be another opportunity for the Trump Administration to advocate its view about the Unitary Executive. Moreover, even pending a legal challenge, it would be impractical for a federal agency to enforce a rule that it has publicly declared to be unlawful. It also shows that federal agencies are acting in a manner consistent with binding Supreme Court precedent and are following the requirements of Executive Order 12866 with respect to centralized review of regulations and the determination of which existing regulations have become unjustified or unnecessary.
The tools that the Administration is using to accelerate recission of these rules appear technically sound at this point. However, much will depend on the quality of the analysis undertaken in the last 60 days that existing legislative rules are contrary to a statute, the Constitution, or the specified Supreme Court precedent. Nonetheless, the volume and speed with which the Administration is operating to rescind past regulations—some of which were adopted through notice-and-comment (and therefore carry a presumption of validity)—is consistent with the Administration's pace and volume of change since January 20, 2025. It also is an indicator that those involved in this regulatory review process (agency heads with input from DOJ and generally overseen by OMB) intend to drive significant deregulation at a pace and volume far exceeding that of the first Trump Administration. Moreover, once this process is concluded, it is likely that entire administrative programs will be dismantled as the regulation justifying the program will be gone.
The lawful governance EO also requires that with respect to those regulations identified for repeal, agency heads are to determine on a case-by-case basis, in consultation with the Director of OMB, whether to terminate enforcement proceedings brought pursuant to those regulations. Accordingly, it is likely that these deregulatory efforts will be followed by further agency staff reductions.
In short, major changes to the regulatory state are coming in substantive ways that will be measured in orders of magnitude, not increments. This may be an area in which the impact of the Trump Administration will be felt for a long time, well beyond when a new President is elected.
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