Dodd-Frank Compliance: Why 'Wait and See' Is Not an Option

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) is widely regarded as the most ambitious regulatory reform in the U.S. financial services industry since the 1930s. Yet the act's full scope may not be clear for several years, until the various agencies it authorizes are created and staffed, and as its enabling regulations are drafted and disseminated.

Even at this early stage, however, it is clear the Dodd-Frank Act will impose significant new demands on virtually every type of financial services organization. Its impact will be especially significant in terms of the data gathering, storage, management, and reporting processes these institutions employ, as the new Office of Financial Research (OFR) is expected to create industrywide data standards to replace the various inconsistent standards currently employed in the industry.


Implementing Dodd Frank and its numerous provisions threatens to consume financial institutions for the rest of this decade. Long implementation cycle times create a huge cost both in terms of money and management focus, especially as it involves data. Keeping an eye on regulatory requirements and incorporating them over time will serve the marketplace and the regulator, increasing both the efficiency of the organization and the efficacy of the data it manages.
Rodney Nelsestuen, Senior Research Director, CEB TowerGroup


No Time to Hesitate

These new standards, and their far-reaching implications, should serve as a wake-up call to financial institutions that are hesitant to wait for the dust to settle before they decide upon an action plan.

“When it comes to the Dodd-Frank Act preparations, one of the gravest mistakes an organization can make is to wait and see what the regulations will ultimately require,” said Tapan Shah, Crowe® information management services leader. He pointed out that there is no doubt the Dodd-Frank Act will impose many new information management challenges as the OFR begins requiring significant new information at the enterprise, portfolio, and customer levels. “The exact data structure and reporting formats are still being defined, but waiting until that direction is clear will put an organization at a severe disadvantage,” he said. “‘Wait and see’ is not an option.”

For example, he added, financial institution management teams should ask themselves: If examiners were to show up today, unannounced, would we be prepared to provide them very specific client or account data if requested? Are we currently able to provide regulatory user reporting to service a variety of users at different levels? “These types of questions establish the baseline for conducting a gap analysis,” said Shah.

Common Misconceptions

As is often the case with sweeping new regulations, there are also a number of common misunderstandings regarding the Dodd-Frank Act’s effect on financial services organizations. One of the most common misconceptions is that the information management and reporting requirements will have only a minimal impact on smaller organizations.

“While many of the act’s provisions are specifically related to an institution’s size, the simple fact is the Dodd-Frank Act information management processes – however they are ultimately defined – will very quickly become the de facto standards for the industry,” said Shah. Moreover, the various size thresholds at which certain provisions apply are also subject to change, he noted. In addition, the OFR will have subpoena authority to require specific information from any regulated financial services organization, regardless of size.

Designing a Blueprint for Dodd-Frank Compliance

All of these factors reinforce a clear message for financial institutions of all sizes: Now is the time to begin preparing for the impact of the Dodd-Frank Act. Given the complexity of the information management challenges involved, it is critical to find a resource that understands the bureaucratic, enforcement, and rule-making structures associated with the Dodd-Frank Act. Such a resource should also have expertise in the necessary data-management technologies, business processes, and governance models required to design and execute a successful Dodd-Frank Act compliance initiative.


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