New regulatory reform and its possible effect beyond first intent

Contributor: Eileen VanScoy

Dealing with reforms as they migrate through the financial services industry

The Dodd-Frank Wall Street Reform and Consumer Protection Act and its amendments (H.R. 4173) became law in July 2010. This legislation already generates more financial industry-wide press and concern than any other reform measure passed in the past seven decades. With its numerous reforms in various stages of analysis and refinement, it will be months — and, in some cases, years — before the industry realizes the law’s full impact. Regardless, financial organizations must begin addressing compliance now.

To date, the industry generally understands that the majority of reforms introduced by the act are intended to affect the largest financial institutions most. This focus is due to larger organizations’ proven ability to destabilize both the financial services industry as a whole, as well as worldwide economies. For the same overarching reasons, large non-financial services firms providing financial services now also will be required to conform to the act’s oversight requirements and reforms. The law has several break points for institution size, and for the provisions that apply within each size band, (assets >$50 billion, >$10 billion, <$15 billion, etc.). Even foreign banking organizations of a certain size doing business in the United States will fall subject to the new reform provisions as well.

While not written to target smaller institutions, it is more than likely that many of the provisions and most of the law’s initial regulatory impact will find their way across and down market. Organizations below the tier-one level then will face additional costs and compliance burdens that pose significant challenges. In many cases, these organizations will need to delay funding revenue and growth initiatives in favor of compliance.

To meet the reform challenge, smaller organizations should implement a mitigation strategy. Their strategy may include outsourcing or partnering with solution providers who have robust compliance capabilities and regulatory expertise already in place. As many organizations’ core, network capabilities also are found inadequate or non-compliant over succeeding years, investments to replace legacy systems will show an expected increase.

Transition periods to new platforms may seem costly and disruptive to some. However, the upgrades will help overhaul the data access capabilities, flexibility and agility of countless financial organizations — helping them to meet regulatory reporting requirements. A side benefit arising from these compliance investments will include tangible improvements in customer access interfaces, and self-service capabilities.

What is your approach to dealing with the new reforms? Do you feel you have the internal expertise and capabilities to comply, or will you look to solution providers and other industry experts for assistance?

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