U.S. financial services policy shift

More rules, regulations, executive actions to impact investing in 2023

The 2023 US Congress will shift global investment policies from both the Democratic-ruled Senate and the Republican-ruled House. With a 51-49 Senate, the Democrats hold a true majority and can lead more aggressively. To discuss the U.S. regulatory landscape, Drew Carrington facilitated a policy discussion with Dean Sackett of Polaris Capital, and Dan Murphy and Andy Lewin of BGR Group. I wanted to share their outlook for financial services policy in the year ahead:

More oversight throughout the investment industry for Environmental, Social and Governance (ESG); Diversity, Equity and Inclusion (DEI); and other high-profile, cultural investments, as part of Republican policy. The Investor Democracy is Expected (INDEX) Act will receive new light. They think Senate Democrats will likely push back, while asset managers appear whipsawed between the two political parties.

Senate Democrats will try to hold financial institutions, asset managers, and others to any NetZero emissions pledges that they previously made. Democratic states (e.g., New York, Illinois, and California) have started pushing back against ending the NetZero pledges.

Regulators will issue rules, executive actions, and resistance against existing policies and laws. The increasing regulatory environment with relevant agencies will likely exercise and possibly exceed their maximum authority, including the Federal Communications Commission, the Department of Labor, Consumer Financial Protection Bureau, Department of Labor, Department of Treasury, and the Securities and Exchange Commission (SEC).

Cryptocurrency (crypto), digital assets, and housing will likely rank top of the agenda for the Senate Banking Committee. The SEC will likely finalize rules pertaining to crypto, cyber notification, and climate disclosure in 2023. The Financial Stability Oversight Council could designate crypto-exchange chairs and others as systemically important and subject these entities to greater regulation and requirements.

Opportunities will arise in alternative and retail investments, and in the capital formation space. The U.S. Equal Opportunity for All Investors Act of 2021 will help expand who can qualify to invest in certain private offerings and securities.

From the farm bill to raising the federal debt limit, the group expects Senate Democrats to largely align with President Joe Biden. Divided government requires bipartisan agreement to progress policies and fund legislation. This power dynamic last occurred in 2011 when we experienced the 2011 Debt Ceiling Crisis and its financial and macroeconomic impacts. The 2023 outlook includes increasing monitoring for possible legislative and regulatory changes that guide how we serve our clients, invest in portfolios, and respond to regulatory situations.

Stephen Dover, CFA, is Franklin Templeton’s Chief Market Strategist and Head of the Franklin Templeton Investment Institute. Originally published in Stephen Dover’s LinkedIn Newsletter Global Market Perspectives. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

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