US Financial Regulatory Reform: Cost or Opportunity?

Accenture explores the interrelated issues, and outlines the holistic approach that will help firms to transform compliance into a lever to enable high performance.

The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most dramatic regulatory reform to be enacted in the United States since the 1930s. Due to be fully implemented by 2013, the new Act could change the competitive landscape in financial services over the next five years.

Accenture estimates that the top and most systemically important bank-holding companies, insurers and mid-size banks will bear the largest expense, spending between $100 million to $200 million each in some instances, and we estimate that the hardest-hit firms could also see profits fall between 20 percent and 30 percent.

Accenture believes that firms that do not implement change efficiently could struggle, just as we have seen firms labor under the weight of other reform such as Basel II for example. However, those firms that are already efficient with low cost-income ratios posses a strong competitive advantage.

In order to understand the impact of the Act more completely, we need to look at some of its key components:

• Derivatives businesses. Standardized over-the-counter derivatives will have to be cleared and traded on exchanges. Participants in this market will have to do a cost-benefit analysis to decide whether they have a big enough volume of business to make compliance worthwhile.
  
  
• Ban on proprietary trading. In general, federally-insured banking entities will be banned from proprietary trading on their own accounts.
  
  
• Protection against systemic risk. Systematically important firms can be required to end certain activities that threaten their financial stability. Such firms thus need to make plans for their own orderly wind down—or “funeral plan.”
  
  
• Enhanced capital requirements. The largest firms will have to increase their capital adequacy requirements to ensure that they can withstand future market challenges.
  
  
• Compensation practices. Shareholders will have to hold a non-binding vote on a company’s executive pay and golden parachutes every two to three years, and listed companies must also appoint independent compensation committees.
  
  
• A new Consumer Financial Protection Bureau. This new Bureau will regulate the provision of consumer products such as mortgages and credit cards by companies with more than $10 billion in assets. Affected firms will need to revisit their product fulfillment and servicing processes and workflows.

The new Dodd-Frank Act has many moving parts. Looking at how they fit together will be key to developing an effective compliance strategy that also sharpens competitive edge and ultimately helps achieve high performance. Affected firms will have to take a step back and form a holistic view of both their operations and strategies. Based on this view, they will then need to develop a master plan for how their businesses will look in five years.

The firms that will come out on top will need to plan what their future business opportunities and competitive advantage will be under the new regulations, imbed reform implementation into their overall business strategy, and offset implementation costs by managing risk and organizing data at an enterprise level.

Contact us to find out how Accenture can help you assess the implications of the Dodd-Frank Act—and how to use compliance as a lever to enable high performance.

Chris E. Thompson leads Accenture’s Financial Services North American Risk and Regulatory Management practice. He has extensive experience with large-scale bank and capital markets finance change programs. He has functional experience in the areas of risk management, regulation, performance management and external reporting. Chris also has a strong background in system and technical architectures relating to middle and back office systems.

Samantha Regan a senior manager in Accenture’s Financial Services North American Risk Management practice. She has over 12 years of global experience in banking and capital markets gained within industry and consulting. Samantha specializes in enterprise risk management, Basel II, credit risk, operational risk, market risk and regulatory compliance. She has been highly involved in developing Accenture’s risk and regulatory management capabilities during the past five years and is the US Regulatory lead.