The Dodd-Frank Wall Street Reform and Consumer Protection Act is a vital piece of legislation that will come into full effect over the next few years. Its impact will be far-reaching, and it is expected to be as important for the financial services industry as the Glass-Steagall Act of 1933.
In this report, Assessing Impact of the Dodd-Frank Act on Derivatives Markets: Change Is in the Air, Celent describes the implications of the Act on the derivatives markets and its leading participants. Already, there have been a number of changes in the regulatory setup, as well as in the structure of the investment banks that dominate the derivatives industry. This report assesses the current impact and possible future developments in light of the Act.
The following table outlines the deadlines for implementation of the various elements of the Dodd-Frank Act. While the FSOC has to be instituted within three months of the enactment of the Act (21 July, 2010), derivatives and clearing regulation has to be implemented within 12 months, and the Volcker rule has to be complied with in an 18-month period. Hence, the changes discussed would come into being at different points over a two-year timeline.
Deadlines for Implementation of Dodd-Frank Act | ||
Timeframe | DFA Feature, Requirement, or Rule | Affected Entities |
Effective |
Resolution authority for orderly liquidation Federal Office of Insurance (FIO) Proxy access rule-making | Respective firms that each agency manages, for example |
Within Three Months |
Financial Stability Oversight Council Ability to break up firms that pose a “grave threat” | All firms |
Within Six Months | Shareholders’ say on pay and golden parachutes | All financial services firms |
Within Nine Months | “Skin in the game” risk retention | Banks involved in securitization |
Protect small businesses from unreasonable | Retail and commercial banks | |
Within 12 Months | Bureau of Consumer Financial Protection | All financial services firms |
Closure of the Office of Thrift Supervision | Holding companies and thrift institutions | |
Derivative clearing and swap dealer regulation | Investment banks, clearinghouses, swap trading firms | |
Mandatory registration of investment advisers | Buy side firms and consumers | |
Independent compensation committees | All firms | |
Office of Financial Research (OFR) | All firms | |
Office of the Investor Advocate (OIA) | Firms and consumers | |
Within 18 months | Volcker rule | Investment banks, hedge funds, private equity firms |
Liabilities cap on large financial firms | Large financial firms | |
Heightened standards / minimum leverage and risk-based capital requirements | Financial firms, especially investment banks | |
“Living wills” | “Too big to fail” banks | |
Remittance error resolution standards | Retail and commercial banks, consumers | |
Within 24 months | Proposed simplified mortgage disclosures | Lending institutions and consumers |
Contingent capital report and rule-making | Large interconnected financial firms | |
Source: Department of Treasury, Celent analysis
“The Dodd-Frank Act is intended to put in place the regulatory framework for the next decade and beyond,” says Anshuman Jaswal, Celent Senior Analyst and author of the report. “For there to be an ongoing revival in the financial sector, it is crucial that it actually brings about the desired, critical changes in the way the derivatives industry is run.”
