Deciphering key provisions of the Dodd-Frank Financial Reform Act
by AccountingWEB on
As regulators begin the rule-making process for the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), it is estimated that the act mandates nearly 250 regulations and 70 studies.
"The legislation is just the beginning of what is likely to be a long journey," said Dennis Hild, an associate director of Financial Services Regulatory Affairs within Crowe Horwath LLP's Risk Consulting practice. Crowe Horwath is one of the largest public accounting and consulting firms in the U.S.
"With the Republican party gaining control of the House of Representatives, which will bring a new leader of the House Financial Services Committee, we could see a delay in the issuance of a technical corrections bill for Dodd-Frank," Hild said.
He added that the GOP-controlled House might also look to incorporate legislative amendments to change the structure of the Bureau of Consumer Financial Protection, one of Dodd-Frank's primary provisions.
"As the House transitions from a Democratic to Republican majority, and the rule-making process gets underway, financial institutions should use this time to connect with regulators and legislators," Hild said.
According to Hild, major provisions of the bill include:
Consumer protection – Dodd-Frank creates the Bureau of Consumer Financial Protection. The autonomous bureau will have extensive authority to regulate consumer financial products and services, enforce compliance with federal consumer financial laws, and ensure that markets for such products and services are "fair, transparent, and competitive."
Systemic risk oversight – Dodd-Frank also establishes the Financial Stability Oversight Council (FSOC) to focus on identifying and monitoring systemic risks posed by financial firms and by financial activities and practices. The act establishes a new regulatory and supervisory framework for large, interconnected banking organizations and certain nonbank financial companies. Additionally, to help identify emerging risks to financial stability, the FSOC can direct, and request data and analyses from, the newly created Office of Financial Research (OFR) housed within the Treasury.
Elimination of the Office of Thrift Supervision – The existing regulatory structure remains largely intact, with the exception of the elimination of the Office of Thrift Supervision (OTS). Its operations will be merged into other federal banking agencies. These changes are certain to have an impact on the safety and soundness examinations for banks currently regulated by the OTS as the primary regulatory authority of thrift-chartered banks gets transitioned to the Office of the Comptroller of the Currency (OCC) in July 2011.
Executive compensation – Dodd-Frank places more emphasis on shareholder's input on executive compensation and any golden parachute payments in connection with a change in control. In addition, the act specifies the requirements for claw-back policies and additional disclosure of performance-based pay and internal equity ratios. It also imposes new independence standards for compensation committees and their advisers. "Following the banking crisis, executive compensation was regulated in 2009 by the Troubled Asset Relief Program and the Security and Exchanges Commission. Dodd-Frank reinforces how important this issue is to regulators, so institutions should be examining their pay practices," said Pat Cole, a senior manager in Crowe's Audit and Financial Advisory practice, who specializes in human resources consulting for financial institutions.
Capital requirements – Dodd-Frank restricts the ability of banks to apply trust-preferred securities (TPS) toward regulatory capital requirements. This provision, however, permits small-bank holding companies to continue to issue TPS and include them as Tier 1 capital. According to Hild, the requirement is less onerous than previous proposals because it grandfathers Tier 1 capital treatment for TPS issued before May 19, 2010, for bank holding companies with assets of less than $15 billion. On a related front, the Basel Committee on Banking Supervision reached agreement in September on new reforms that are likely to result in substantially increased bank regulatory capital requirements. The new Basel III framework, which was further endorsed by the G20 at its recent meeting, is scheduled to be implemented between January 2013 and January 2015. U.S. regulators will have until Jan. 1, 2013, to issue Basel III implementing regulations and determine applicability for U.S. banks.
You may like these other stories...
Camp Hopes Estate Tax Will Be on Its Way OutAn article in Bloomberg said that Republicans are considering voting this year to repeal the U.S. estate tax, according to House Ways and Means Chairman Dave Camp (R.-Mich.). He...
Read more from Larry Perry here and in the Today's World of Audits archive.Learning "how" to audit cash is mainly learning "when" to audit cash and to "what extent" cash auditing procedures...
Senate Takes Different Approach from House for Highway and Bridge FundEarlier this week, according to a New York Times article, the Senate agreed to fill the coffers of the fund that pays for highway and bridge repairs with...
Upcoming CPE Webinars
FRF for SMEs Series--Measurement and Disclosure Principles for various Consolidations and Business Combinations, Part 4B
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
In this session we'll review best practices for how to generate interest in your firm’s services.
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.