Highlights of the Law and Opportunities for Accounting Practitioners, Academics, and Students
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, named after the legislation's sponsors, Senator Christopher Dodd (D-Conn.) and Representative Barney Frank (DMass.). The legislative scope of this 848-page law is the most ambitious since the Great Depression. It may take years to implement the new regulations of the credit rating agencies, banks, hedge funds, buyout shops, and the $450 trillion derivatives market. The government will audit lending programs of the central banks and use the Volcker Rule to rein in speculative proprietary trading activities of big insured banks. The regulators are expected to implement many of these provisions quickly, some within the next six to 18 months.
Another major element of the legislation is the creation of an independent Consumer Financial Protection Bureau housed in the Federal Reserve Board to monitor mortgage and credit card products. Title I, subtitle A, of the legislation sets up an independent Financial Stability Oversight Council, which will help monitor "too big to fail" ' banks in order to 1) identify risks to U.S. financial stability, 2) promote market discipline, and 3) respond to emerging threats to a stable U.S. financial market. The Office of Financial Research is established by title I, subtitle B, and will collect and standardize data on financial firms and their activities. The director of the executive agency will be appointed by the President, and will aid and support the federal regulators in their monitoring activities.
Although the establishment of this office is not directly related to financial reform, the act requires each federal agency to establish an Office of Minority and Women Inclusion that would be responsible for all matters relating to diversity management, employment, and business activities.
How large is the scope of rule making? It is suggested that the total number of rules to be created exceeds 200; the SEC is expected to write approximately 90 of these rules, the Federal Reserve 54, and other agencies the rest. Some of these are onetime reports and others are periodic reports.
Examples of actions to be adopted after the enactment of the bill are: Within 12 months, the Government Accountability Office (GAO) must conduct a one-time audit of the Fed's emergency lending programs and report the findings to Congress. The SEC must adopt rules that require hedge funds, private equity managers, and investment advisors to register with the agency and make their records available for periodic examinations. The contents and format of the records are a part of the rulemaking process.
Weaknesses of the Bill
Some in the financial media have suggested that in many ways this legislation was watered down compared to previously proposed versions. They highlight that regulators are granted a great deal of discretion in enforcing some of the mies. With respect to the regulation of the $450 trillion derivatives market, the Commodity Futures Trading Commission (CFTC) and SEC can determine which derivatives users can be exempted from costly clearinghouses.
The statute also leaves much discretion to regulators to decide how much capital big banks set aside in separately capitalized affiliates they are expected to set up for some of their riskier derivatives business. A major fee assessment on big banks to create a $150 billion fund used to dismantle a failing megabank was eliminated in favor of a plan to initially use taxpayer dollars and to recover the funds later on.
Although the broad scope of the DoddFrank Act ensures that it will have an effect on many areas that accounting professionals are engaged in, the emphasis below is on selected, SEC-related reforms that may be of particular interest to CPAs. The focus is on the studies to be conducted by the SEC and the reports to be generated in connection with enlargement of the SECs scope of regulation. …