February 08, 2011

[The Dodd-Frank Cheat Sheet: Wall Street & Technology's editors have read and simplified the massive financial reform legislation into the concise Dodd-Frank Cheat Sheet. Download your free copy today. ]

After months of speculation and debate, the Dodd-Frank Wall Street Reform and Consumer Protection Act (more easily referred to as just "Dodd-Frank") was signed into law this past July. While simply getting all of the proposed guidelines and new rules crammed into the behemoth law was a feat unto itself, now comes the really hard part: implementation and compliance.

Dodd-Frank touches practically every aspect of financial services, from hedge fund and investment adviser registration to proprietary trading, consumer protection and capital reserve limits. Almost every business unit in financial services firms will be subject to Dodd-Frank's rules in some way or another.

No doubt, the new requirements will increase the cost of doing business. But how will Dodd-Frank affect the IT organization? While the impact on firms' technology organizations will be huge, there isn't a single answer.

For capital markets IT organizations, the challenge will be to comply with Dodd-Frank's various rules as efficiently and cost effectively as possible. In order to do this, technology obviously will play a critical role in data management, business intelligence, risk analytics and knowledge management.

These technologies and processes are not new -- data management and analytics have been a priority on Wall Street for years, if not decades. When it comes to Dodd-Frank, however, the trick will be to refine the tools and processes that a firm already has and make them work for compliance.

But with much of Dodd-Frank still undefined, and with the industry waiting on the SEC, the Federal Reserve and other regulatory bodies to write the exact rules that firms must follow, in many cases all that companies can do is speculate about what they need to get done. One chief information officer at a global fund manager tells WS&T that there isn't enough information about Dodd-Frank for his firm to comment. "We still don't feel there is enough clarity around Dodd-Frank," he says, speaking on the condition of anonymity.

"The legislation is long and complex at 2,307 pages, 16 titles and 540 sections," the fund manager continues. "To back the provisions of the act, dozens of new boards, bureaus and offices must be created. By one law firm's count, it requires that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Hundreds of new regulations must be made available for comment and then implemented. The bottom line is we still aren't 100 percent sure how this will impact us, and until then we plan to keep silent on the topic."

Still, many firms are working on certain aspects of Dodd-Frank even before the final rules are written. "A lot of the specifics are not defined," says Jon Beyman, managing director of operations and technology for Citi's global institutional clients group (ICG). "With some of the rules, we are waiting until the regulations are finalized" before implementing solutions. But, Beyman notes, "There are certainly things we are doing now that will get us ready."

For instance, ICG has established connectivity to CME Group and the Intercontinental Exchange (ICE), venues where derivatives will likely be cleared once the rules governing their trading are set. "We have actually cleared trades through these systems," Beyman reports. "We are as far along as anybody on the Street on this, as there hasn't been a lot of real activity to process yet."

No Surprises

Despite the sheer volume of undefined rules, capital markets firms should be prepared -- at least conceptually -- for what will be coming down the pike as regulators slowly clarify Dodd-Frank's requirements. "We have seen regulation increasing for a number of years," says Mat Small, a partner in the technology group at business and technology consultancy Capco. "People have known Dodd-Frank was coming and the swing to greater transparency across financial services has been happening for a while."