Project 2025’s planned bonfire of the regulators ignites uncertainty

Project 2025, the 920-page plan that calls for a bonfire of most regulatory agencies, has ignited uncertainty among banks’ compliance departments and legal teams. While in public President Trump has distanced himself from Project 2025, his early executive orders have largely followed the plan, and compliance teams are now poring over it in preparation for upheaval.

The policy document of conservative think-tank The Heritage Foundation — which recommends either the elimination or the consolidation of the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Federal Reserve, the National Credit Union Administration, and the Consumer Financial Protection Bureau (CSFB) — could usher in untold risk.

Project 2025 blamed the Securities and Exchange Commission (SEC) for what it called “nearly nine decades of rushed and haphazard amendments”, while the new Department of Government Efficiency (DOGE) wants to undo many SEC rules, and vast portions of the Federal Register, in just 18 months. 

“Banks would be struck with uncertainty if Project 2025 proposals to gut regulators come to fruition,” said research firm S&P Global. “Moreover, oscillating between policies led by Democrats and Republicans is, in itself, difficult and costly for the bank industry.”

Regulated firms that have invested in compliance and strategy under the incumbent agencies would need to adjust to a new order. While they step up lobbying to halt unwanted rule changes, many are also creating contingency plans. The largest finance firms have teams of dozens of regulatory experts mapping out the potential impact of the sweeping government revamp.

Overly ambitious

The chance of such a revamp happening appears limited, however, according to experts. There was little noticeable impact from the first Trump term’s splashy “one in, two out” executive order requiring agencies to dump two rules for every new one passed, for example. Only 22% of his executive orders cleared court challenges, the New York University law school’s Institute for Policy Integrity reported. That was half the Clinton administration win rate, and far less than most recent presidents. The broad-brush attack on red tape fell short of its own ambitions, regulatory experts said.

Trump’s vow to “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures and restructure federal agencies” could fall victim to the same over-ambition. But the possibility of dramatic change cannot be dismissed, and the win rate could rise in an era of increasingly right-leaning courts, new Republican majorities in both houses, and a second-term White House team that is more experienced overall.

Compliance and risk managers want clarity, because “regulations affect how virtually everything is produced or delivered in our economy”, said the Brookings Institute in the report by Robert Litan and Peter Shane, “Trump’s regulatory housecleaning won’t be easy”.

Talk versus action

In times of technological change and markets like the present one, the demand to fill regulatory gaps surges. The Elon Musk-led DOGE spearheading the regulatory revamp will have its hands full just keeping up with the explosive growth of generative artificial intelligence (AI).

With Musk, DOGE has a renowned tech figure and early investor in AI ventures, but also a controversial one whose outspoken views have erupted into feuds with regulators and industry competitors. Already, co-director Vivek Ramaswamy has left DOGE over what he called “different approaches”.

Any top-down executive action will bring scrutiny and concerns over fairness, along with legal challenges. A US court quickly reversed one of Trump’s first government downsizing actions — the freezing of US grants and aid — for instance.

This suggests that the months ahead will be characterised by much uncertainty. Executive orders on eliminating diversity in hiring, for example, could chill many firms’ diversity, equity and inclusion (DEI) initiatives. However, they could face court challenges, too. Firms watching Musk and Trump will need to learn quickly how to weigh talk versus action.

“Some businesses that have invested heavily in complying with the rules to be rescinded may be upset enough to challenge the rescissions in court, if only to protect their competitive advantage over other firms, especially newer firms, not yet in compliance,” said the Brookings report.

To be sure, there is bipartisan support for reducing the complexity of US financial regulation, which has caused harm when “simultaneous regulations try to tackle common objectives, sometimes producing complex interactions,” said consultancy Oliver Wyman, in a recent report commissioned by the American Bankers Association.