The Dodd-Frank Wall Street Reform and Consumer Protection Act: Unresolved Issues of Regulatory Culture and Mindset

Article excerpt

[The Dodd-Frank Act constitutes the most significant reform of financial regulation in the United States since the 1930s. Some of its provisions are bold, particularly in the areas of consumer protection and derivative trading. However, the political challenges for law reformers and regulators in the wake of the global financial crisis are far from over The Act is inchoate. The full scope and nature of the new financial regulatory system will take several years to evolve as the mandated studies and rule-making are completed and implemented. We argue that the extent to which the reforms achieve their stated objectives will depend most critically on three factors: (i) the competency, integrity and forcefulness of the federal regulators; (ii) the ability and willingness of those regulators to supervise the finance industry on an integrated basis; and (iii) whether a fundamental change in the regulatory culture and mindset is achieved.]

CONTENTS

  I Introduction
 II The Financial Regulatory Structure
III Supervision of Systemically Important Financial Institutions
     A Legislative Provisions
       1 Financial Stability Oversight Council
       2 Orderly Liquidation Authority
     B Commentary and Analysis
IV Financial Institutions
     A Legislative Provisions
       1 Insurance Companies
       2 Depository Institutions
       3 Hedge Funds and Private Equity Funds
       4 Credit Rating Agencies
     B Commentary and Analysis
       1 Volcker Rule
       2 The Hedge Fund Provisions
       3 The Rating Agency Provisions
V Capital Markets and Products
     A Legislative Provisions
       1 Securitisation
       2 Derivatives and Swap Trading
       3 Payment, Clearing and Settlement Activities
     B Commentary and Analysis
VI Executive Compensation
     A Legislative Provisions
     B Commentary and Analysis
VII Consumer Protection
     A Legislative Provisions
     B Commentary and Analysis
VIII Investor Protection
     A Legislative Provisions
     B Commentary and Analysis
       1 Intermediary Conflicts of Interest
       2 Intermediary Duty of Care
       3 Direct Investor Provisions
       4 Short Selling Provisions
  IX Regulatory Performance
   X Conclusion

I INTRODUCTION

The global financial crisis ('GFC') led to widespread calls for regulatory change in the United States ('US') and elsewhere. In June 2009, President Barack Obama introduced a proposal for a 'sweeping overhaul of the [American] financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.' (1)

The Dodd-Frank Wall Street Reform and Consumer Protection Act ('Dodd-Frank Act') (2) was signed into law by President Obama on 21 July 2010. The Act is named after two members of Congress: Representative Barney Frank, who proposed the Bill in the House of Representatives on 2 December 2009, and Senator Chris Dodd, the Chairman of the Senate Banking Committee. The long title of the Act states its purposes as being:

* to promote the financial stability of the US by improving accountability and transparency in the financial system;

* to end 'too big to fail';

* to protect the American taxpayer by ending bailouts; and

* to protect consumers from abusive financial services practices.

The purposes of the Dodd-Frank Act reflect the major political and public concerns in the US during and in the wake of the GFC:

* the collapse or near collapse of major financial institutions, which had the potential to threaten the global financial system, with devastating economic and other consequences; (3)

* the spending of massive amounts of taxpayer money to support or bail out collapsing or significantly weakened financial institutions; (4)

* the perceived excessiveness of compensation paid to finance industry executives, particularly those of failed institutions; (5) and

* the abuse of consumers of mortgage and other credit products, reflected in high levels of home foreclosures and individual indebtedness. …