You Can’t Run Away from Dodd-Frank

Migrated from eDJGroupInc.com. Author: Greg Buckles. Published: 2013-06-04 09:00:21  When a client recently asked my opinion of the impact of the Dodd-Frank Act on corporate IT, I had to do that thing that consultants hate and admit that I had not even considered it. I knew that the ‘Wall Street Reform and Consumer Act’ was passed in reaction to the 2008 economic downturn, but the new requirements that I had researched all applied to my financial clients; banks, hedge funds, broker dealers or others already regulated by the SEC or CFTC. Then Dodd-Frank came up in an analyst briefing with a provider who was eager to burn analyst credits to get our perspective. That was enough for Babs Deacon and I to subject ourselves to large chunks of the 2,300 page law signed July 21, 2010 as well as an incredible array of secondary analysis scattered amongst the 13.3 million Google hits. The lack of blogs, reports or articles that actually applied to non-financial corporate IT gave the initial impression that the majority of public corporations were off the hook.  Then I found an SEC statement that described the Act as “a framework that will support an entirely new regulatory regime”. While that statement could have been a bureaucratic bombast, it got us looking at the Act’s stated intent: To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail”, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. Dodd-Frank’s concept of our financial system definitely includes public corporations and anyone playing a large enough role in the market. A more systematic breakdown of the 16 Titles and roughly 398 rulemaking requirements finalized or under proposal revealed a larger mandate for corporate transparency and governance from the top down. As the congressional studies and rulemakings are released, we think that the Act will ultimately create the most sweeping regulatory changes to modern American companies since the Sarbanes-Oxley Act of 2002. So how do these governance and transparency requirements apply to the larger market?  The key is how understanding how the vast majority of corporations have gone beyond using derivative trades to manage risk and are instead trading speculatively for profit. Before the Act, Over-the-Counter trading of securities and derivatives was essentially unregulated. We saw how well that worked out for energy markets back in 2000-2002 with the Enron trading scandals. You would think that the regulators would have locked down the energy trading market, but a 2012 study showed that over 62% of ‘hedge’ trades from 87 oil and gas companies did not meet the hedge accounting definition. The study judged that these trades were structured to generate profit rather than manage risk, the very definition of a Dodd-Frank regulated activity. With this much research time invested, we pushed beyond the easy questions and wrote a report analyzing the Act, new rules that could apply to public corporations and how they can meet these new information governance challenges with same technologies that they are investing in for eDiscovery. We started down this road with no expectations that Dodd-Frank represented a serious impact on non-financial market. With less than 40% of rules finalized as of April 1, 2013, no one can definitively scope the impact when we arrive at the Dodd-Frank destination. We learned from SOX that it is better to anticipate compliance requirements and get ahead of regulations. So if you have been asked, “What are we doing about Dodd-Frank?” or “Does Dodd-Frank apply to us?”, please join us July 11^th for an eDJ Group webinar to get our take on this topic and receive a free copy of our research report courtesy of Symantec. Greg Buckles can be reached at Greg@eDJGroupInc for offline comments or questions. His active research topics include mobile device discovery, the discovery impact of the cloud and Microsoft’s 2013 eDiscovery Center. Recent consulting engagements include managing preservation during enterprise migrations, legacy tape eliminations, retention enablement and many more.