Financial Services: What’s Next Under the Biden Administration?

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[co-author: Matthew McGuire]

Pillsbury partner and Public Policy group leader Elizabeth Vella Moeller recently sat down with Matthew McGuire, former Executive Director of the World Bank under President Obama, to discuss the Biden administration’s expected impact the financial services industry. Their conversation covered financial technology and regulatory trends and how companies can think strategically about risk and emerging opportunities amid a flood of new developments in Washington.

Global Commerce & Emerging Opportunity

McGuire expects continued growth of foreign investment in the U.S., calling it a macro trend that continues to drive investor strategy around the globe, despite global economic and political uncertainty.

“The U.S. has the deepest markets—the most liquid, some of the best regulated,” McGuire said. “People want to get their money into the U.S. in a lot of ways, whether that’s through real estate or investing in our public equities markets or investing in venture capital.”

The former World Bank head also points to the expansion of 5G technology as an area to watch, as its growth signals potential shifts in the global economic landscape. For instance, potential partnerships between technology companies in the U.S. and India, two of the largest economies in the world, to develop aligned 5G standards would create a competitive global market for the technology.

“This isn’t just theoretical: The U.S./India Business Counsel, which is part of the U.S. Chamber of Commerce, has been convening discussions and working on this for some months now,” McGuire said. “I think it could be very interesting to see where that goes and to see if that alliance really takes shape and starts to impact commercial markets in the 5G states.”

Another important question will be how the U.S. Department of Treasury views cryptocurrency in connection with global competition and national security, and whether the government will create a U.S. virtual currency. McGuire says China has begun testing its own virtual currency, potentially leading to its use in economies around the world, which could significantly impact the dynamics of international relations.

“Clearly, there has been a lot of ink spilled on cryptocurrencies—where is this going, are these good investments. The more interesting question to me is, at a certain point you have to wonder why government isn’t moving more into this space,” he said. “There are pros and cons, but I would definitely pay attention to that and see if the Treasury Department starts to make noise about moving in that direction.”

Strengthening AML Policy & Enforcement

In the flurry of legislative activity at the end of 2020, Congress passed the Anti-Money Laundering Act, which included major reforms to the Bank Secrecy Act, expanding requirements around beneficial ownership disclosures for holding companies, commonly referred to as shell companies. Importantly, the new requirements shift the onus for collecting beneficial ownership information from financial institutions to the federal government.

According to McGuire, though U.S. anti-money laundering laws were strengthened after 9/11, before the late 2020 reforms, there has been a concerning lack of oversight on these companies.

“The biggest conduit for money laundering globally has been people using anonymous shell companies to invest in the U.S., largely through real estate,” he said. “This has been a big, big wide-open channel a lot of people have been trying to shut down for some time. [Now], anyone who is buying assets in the U.S. has to show who ultimately controls the company or who benefits from the company that owns the assets.”

McGuire points out that the new regulations connect to a variety of global financial trends and predicts that as the U.S. develops its beneficial ownership registry and shares the information with counterpart governments, other nations will follow suit.

“This is really a coming together of a number of nations, but the U.S. is taking the lead in saying there’s no more anonymity in moving money into the U.S.,” he said. “A lot of people are not paying as much attention to it because of all of the activity that went on at the end of last year, but it is really going to reshape how some international investors think about investing in the U.S.”

Under the new regulations, companies have two years to identify beneficial owners of existing holding companies. The reforms also mandate Treasury Department reports specifically on money laundering from China, Russia and authoritarian nations. McGuire says these and other information-gathering requirements will determine how Congress will approach further, more specific interventions to prevent foreign money laundering in the U.S.

“It’s important not just to think of this as a Biden administration issue—it’s very much a bipartisan issue. On Capitol Hill, they are saying that this is one of the real priorities, and they see it as a national security issue,” he said. “I don’t want people to think that this may just go away in a couple of years if the Biden administration doesn’t continue beyond four years from now.”

He adds that trusts are a related area of risk that financial institutions and investors can get ahead of as AML reforms continue to take shape in DC, and that the topic provides a good example of how sustainable regulatory frameworks are built in an evolving political landscape.

“It’s good, old implementation: How do you actually turn this into real, pragmatic rule making?” he said. “It’s something to watch over the next year or two. We’ll see a lot of activity.”

The Road Ahead

The Washington, DC adage that “personnel is policy” has never been truer than in the first 100 days of the Biden administration. Key cabinet picks and appointments have predictably signaled that the government will increasingly focus on consumer protection and enforcement while enacting policy that supports fintech companies and financial services innovation.

And McGuire predicts that on Capitol Hill, where Democrats now enjoy a narrow Senate majority, financial services will remain a key area for regulatory and policy developments.

“You don’t have to know the Hill incredibly well to know that Senator Schumer is going to be in a key position, and he clearly has strong ties and a deep understanding of the financial services industry, having represented New York for many years now,” he said. “I think you’ve got a very open interlocutor there, but also, a lot of the people of the senior leadership on the hill understand how important financial services is to our economy as a whole.”

Ultimately, McGuire says, while the future of U.S. financial services regulation may be in flux, there is no reason to expect that global businesses and investors will not continue to focus on U.S. markets as an area of enormous opportunity.

“Having traveled in dozens of countries around the world on behalf of the U.S., I always try to remind people that everyone around the world wants to do business with us, and they want to do business like us,” McGuire says. “There is still this notion that in America, anything can happen. There is a lot of goodwill that we as American businesspeople have around the world. So, part of it is just encouraging more people to go out and engage around the world and conquer more markets and do more business.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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