February 08, 2011

But while employment rolls may not increase because of Dodd-Frank, some people may be reassigned to deal with compliance, reports Michael Haworth, partner and co-leader for Capco's capital markets group. "I haven't seen firms ramping up IT staff," he says. But, "Some organizations have moved people into a task force that handles all of the compliance demands."

IT executives, meanwhile, should not expect that a single expertise or piece of technology or off-the-shelf software will help their firms meet compliance demands, since each organization will need to approach Dodd-Frank quite differently. In fact, since Dodd-Frank collectively requires extensive reporting to improve transparency across many business units, compliance will be achieved only with a combination of data management, risk analytics and data rationalization.

"Dodd-Frank is not a technology thing," Citi's Beyman says. "And it's not a technology problem. Compliance requires more project management and rationalization of systems." The key, he adds, is that a firm has to be consistent across business units when it comes to using and reporting data.

"There isn't a vendor who can help us when it comes to this, and there aren't tools out there that can help," Beyman says. "In fact, we have more tools than I can shake a stick at, but when it comes to this, I wish we had just one of everything," rather than duplicate systems, data repositories and applications across the organization.

Capco's Small agrees that data rationalization is more important than ever for capital markets firms. "Data rationalization isn't new and people have been attempting to do it for decades," he asserts. "But there is still a massive amount of data propagation, and now that they face a large regulatory change, they realize that they have to get more intelligent about how they consume data."

Taking Ownership of Compliance

Further, Small contends, Dodd-Frank compliance is not something that can be outsourced. "As with many things, there is an increasing desire to leverage third-party products and services," he says. "Many firms are putting a great reliance on having other people solve problems that are actually the firm's problem. That concerns me. There are certain things that a firm should own, and [Dodd-Frank compliance] is one of them."

The notion that firms should control and own compliance is helping the back office -- long overlooked and often neglected -- gain prominence in many organizations. "The back office, where most of the data that is needed for Dodd-Frank compliance resides, is gaining influence," affirms Dave Kubersky, managing director for the Americas at Simcorp, a provider of investment management systems to buy-side firms. "The back office is gaining influence not only because of the focus on risk management, but because firms are realizing they can gain strategic advantage by improving the back office."

Even with the back office finally gaining some long-overdue influence and firms preparing across the board for Dodd-Frank, though, most capital markets executives still worry about the unknowns, hoping that their advance preparations will smooth Dodd-Frank compliance. "What I worry most about is what I don't know," Citi's Beyman says. "I worry about the writers of the rules underestimating what is required for the industry to comply, or that the rules are written in such a way that it is difficult to comply."

Capco's Haworth says that while regulators might have good intentions with the new Dodd-Frank rules, there may be unintended consequences. "My biggest concern is unintended consequences," he says. "The rules will cause people to make adjustments, and when everything is said and done, will the new financial marketplace actually do what it is expected to do? And will it be an improvement?"

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology.