Dodd-Frank at six months: intensive rule-making in 2011 highlights the need for financial services institutions to assess, mobilize and implement change

  • Share

New York, 2 February 2011 – The Dodd-Frank Wall Street Reform and Consumer Protection Act reached its half-year mark on 21 January 2011. Over the past six months, the process of setting up new regulatory agencies and formulating rules to guide the financial services sector has begun. According to an analysis by EY, titled, Positioning for change: US financial reform six months later, as rule-making activity accelerates toward the approaching one-year anniversary — when many final rules are supposed to be put in place — early mobilization will become ever more critical.

“We are in the early stages of the Dodd-Frank implementation, but the work already done by the regulators reinforces the breadth and depth of these new standards,” said Hank Prybylski, Advisory Leader, Financial Services, Ernst & Young LLP. “As the rule-making accelerates throughout 2011, institutions will need to monitor developments closely, continue to execute multi-disciplinary impact assessments and focus on priority implementation projects.”

The industry’s response so far
Financial firms are at different stages in their responses to Dodd-Frank. However, a number of best practices and key priorities have emerged.

  • Assessing and anticipating impact. Many of the largest firms have already started conducting impact assessments and creating roadmaps and governance structures to guide their compliance efforts. Large non-bank holding companies are focusing on what it means to be labeled systemically important, which would introduce heightened regulatory oversight.
  • Mobilizing response programs. An increasing number of the largest financial services institutions are establishing robust governance and program management offices to oversee and manage their response to the Act. Given the volume and pace of rule-making, institutions are building effective processes to identify, assess and respond to emerging requirements on a sustained basis over an extended period.
  • Starting priority implementations. Institutions have prioritized responses and begun implementation, especially around pending mandates related to over-the-counter derivatives.

The next six months
At this point, it is important for institutions to have an effective program in place to deal with evolving regulatory requirements, particularly in these six areas.

  1. Program management. Firms must establish and sustain processes and governance functions that address the immediate effect of Dodd-Frank across their businesses and monitor and promptly respond to emerging regulatory change.
  2. Derivatives and swap clearing. With many new regulations due to take effect in July 2011, firms must quickly evaluate implementation options, as well as long-term business strategies.
  3. The Office of Financial Research and regulatory reporting impact on data. This new agency has broad authority to gather data, and early indications are that it intends to take a proactive approach to its collection and analysis. Institutions may need to enhance data and reference standards in order to quickly produce granular, transaction-level information.
  4. Prudential supervision of Systemically Important Financial Institutions (SIFIs). Firms designated as SIFIs must fully understand their new requirements, which will include expanded reporting, additional capital and liquidity standards, development of recovery and resolution plans, stress testing and improvements to overall risk management and governance structures.
  5. IT and data management. Demand for data is pervasive throughout Dodd-Frank. Institutions will need to focus on the quality of data on transactions, counterparties, customer and legal entity; enhanced data integration across risk, finance and operations; data sourcing and independent validation; data governance; and aligning IT project and business as usual activities with emerging requirements.
  6. Consumer protection. Organizations should monitor the developments at the new Consumer Financial Protection Agency (CFPA) and other relevant agencies. While the CFPA will not be operational until later in 2011, consumer protection continues to be a matter of heightened regulatory focus in general.

“The first six months of the Dodd-Frank Act have shown us that complying with it demands changes across the enterprise,” said Prybylski. “This legislation has many moving parts and requires that many stakeholders work together. In a lot of cases, this means that financial institutions will need to undertake well-coordinated, multi-year projects to assimilate Dodd-Frank requirements effectively. Some firms have already accomplished a great deal in six months, even though many of the legislation’s specific implementation requirements remain to be defined. The institutions that secure a head start on this work are likely to be the ones to gain a competitive advantage when all is said and done.”

To read the full report, Positioning for change: six months later, please visit: www.ey.com/us/financialservices.

EY is a leader in serving the global financial services marketplace
Nearly 35,000 EY financial services professionals around the world provide integrated assurance, tax, transaction and advisory services to our asset management, banking, capital markets and insurance clients.  In the Americas, EY is the only public accounting organization with a separate business unit dedicated to the financial services marketplace. Created in 2000, the Americas Financial Services Office today includes more than 4,000 professionals at member firms in over 50 locations throughout the US, the Caribbean and Latin America.

EY professionals in our financial services practices worldwide align with key global industry groups, including EY's Global Asset Management Center, its Global Banking & Capital Markets Center, its Global Insurance Center and its Global Private Equity Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and regulations in order to help our clients address key issues. Our practitioners span many disciplines and provide a well-rounded understanding of business issues and challenges, as well as integrated services to our clients.

With a global presence and industry-focused advice, EY’s financial services professionals provide high-quality assurance, tax, transaction and advisory services, including operations, process improvement, risk and technology, to financial services companies worldwide.  

It's how EY makes a difference.

About EY
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com

EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by Ernst & Young LLP, a US client-serving member firm of Ernst & Young Global Limited.

###