01:23 PM
Connect Directly

The Biggest Pain Point in Dodd-Frank

So far, one rule stands out as the most burdensome in the 848-page Act.

Financial organizations big and small have been grumbling about Dodd-Frank for well over two years. Not least about having to read through 848 pages to find out what it’s really all about.

Aside from the sheer magnitude of Dodd-Frank, what is currently the biggest burden of the Act for financial institutions?

According to Kinetic Partners, the 42-page Form PF – and its 10-page glossary of 133 terms - is creating one of the most daunting and intrusive reporting obligations that has been implemented to date.

Form PF requires hedge funds and other private fund advisers that manage $150 million in assets or more to periodically provide confidential financial information to the SEC to, among other things, assist the Financial Stability Oversight Council in its assessment of systemic risk in the U.S. financial system.

The information can range from the investment strategy of each of a firm’s private funds that it advises, to the private fund’s use of leverage and counterparty exposure.

Overall, under Form PF, regulators will conduct stress tests on managers' portfolios, as they search for the answers to questions such as how a firm would be impacted by a 10 percent plunge in the S&P 500.

“Investment advisors must now ensure more than ever that they are constantly monitoring and evaluating their systems, particularly those that have undergone any modifications as this is typically where mistakes and omissions are made with these reporting specifications,” Jonathan Saxton, member of Kinetic Partners’ consulting and regulatory compliance practice in New York, said in a statement.

Still, while Form PF is definitely a burden for most, the biggest headache for financial firms might still be the uncertainty surrounding so many other rules and deadlines in Dodd-Frank, which in many cases are still waiting to be written or implemented.

According to the non-profit organization Public Citizen, regulatory agencies have missed over 79 percent of deadlines required by the law.

From Public Citizen:

Before a law can be implemented, Washington policing agencies typically translate the statute into specific guidelines to provide blueprints for carrying out Congress’s mandate. The Dodd-Frank Act requires the regulators to adopt about 400.

“To adopt a rule, an agency first drafts a proposal, drawing from its existing expertise and through consultation with experts or others with an interest in the rule. After proposing a rule, the agency then solicits public comments, most of which are submitted in writing. Some proposed rules may draw as few as a dozen comments, while others might attract 20,000 letters. The agencies then review these letters and information from meetings and other sources, and issues a final rule. The rule may take effect immediately, after a set period of time, or following a compliance period, as provided in the rule or statute.

SEC Chair Mary Schapiro defended the delays related to Dodd-Frank saying the agencies are focused on “getting the rule right,” Public Citizen notes.

In the meantime, all that financial institutions can do is speculate about what they still need to get done, and how much it will cost them to do it "right."

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

Register for Wall Street & Technology Newsletters
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.