On Dodd-Frank Anniversary, Questions Linger Concerning Law’s Successful Implementation

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NEW YORK—Even though landmark financial regulatory reform legislation was signed one year ago, it remains unclear whether key provisions of the law will ever be implemented because of budgetary and staffing limitations, federal agencies overwhelmed with rule-writing obligations, and members of Congress intent on diluting the law's impact, financial specialists and others told BNA in July.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203) was signed into law by President Obama on July 21, 2010, following the nation's worst financial crisis since the 1930s.

Many provisions of the law enter into force one year after enactment, or July 21, 2011. July 21 is also the law's “transfer date,” when certain powers within the federal government shift from one agency to another in accordance with the statute.

But many key Dodd-Frank provisions will not be enforced July 21 because federal agencies have not yet finalized rules interpreting the law, which has led to uncertainty in the regulated financial community. And even if the law's requirements are implemented, the specialists said federal agencies do not have the money or staff to enforce the law.

“There is a risk of slippage and derailment of the implementation process,” a lawyer who counsels large financial institutions told BNA. 

Needed: Rules to Implement Law.

Dodd-Frank made changes to the nation's financial regulatory regime intended to protect consumers from deceptive and predatory lending practices, deter U.S. financial institutions from engaging in reckless behaviors that may have helped trigger the 2008 economic recession, and construct an overarching supervisory system to detect and mitigate systemic risks posed to the U.S. financial system.

The law in many ways created a framework that federal agencies must now construct a system of regulations to implement. To do that, 11 federal agencies must finalize 235 rules, Securities Industry and Financial Markets Association President Timothy Ryan said at a July 13 SIFMA conference.

But as of July 1, just 38 rules had been made final, 26 deadlines have already been missed, and another 122 rulemakings under the law must be completed by Sept. 30, he said.

Two federal agencies given considerable new responsibilities by Dodd-Frank, the Commodity Futures Trading Commission and the Securities and Exchange Commission, both announced in June that they would not enforce Dodd-Frank rules regulating derivatives for the first time until their respective rule-writing duties implementing the law's Title VII regulating derivatives was complete. 

Implementation Cost Exceeds $1 Billion.

A July 14, 2011, Government Accountability Office report said the 11 agencies Dodd-Frank charges with implementing the law estimate they will need $1.25 billion during 2011-12 to implement the law.

Federal agencies will also need to hire 1,152 full-time equivalent employees during 2011 to carry out existing and anticipated Dodd-Frank requirements, the GAO report said. The SEC alone is requesting for Fiscal Year 2012 a total of 468 FTEs to implement Dodd-Frank and an additional 296 FTEs in FY 2013 to implement the law, according to a February 2011 document outlining the SEC's FY 2012 budget request.

The report noted that many federal agencies had difficulty estimating personnel and budget levels needed to implement the law, which hinted at what many specialists interviewed for this report concluded: It is very difficult to predict how successful the implementation of Dodd-Frank will be at this stage in its development.

“I think we're nine to 18 months away from knowing whether they're going to be able to effectively implement. This type of sweeping law, just think about how long it's taken us with our securities laws and the number of times the securities regulations have been revised over time,” Crowell & Moring LLP partner William M. O'Connor told BNA July 19. 

’Ambivalence’ by Industry.

The financial industry is “ambivalent” about the uncertainty created by the delay in implementing the law, Ryan told BNA July 13.

On the one hand, companies want the certainty that accompanies a completed rulemaking process, yet on the other hand it does not want regulators to rush to complete rulemaking obligations by what Ryan called arbitrary deadlines.

“We've had a big debate about this: Do we want to just get it done, fast? Or do we want to get it done the right way, even though it will take longer? We've opted for the latter,” Ryan said. “Don't view a missed deadline as a bad thing. It's probably a good thing,” he said to the conference audience.

Ensuring the finalized rules are effective is imperative, the specialists said. And Ryan said poor implementation of Dodd-Frank framework could “impede the flow of capital and credit, which in turn would undermine both economic growth and job creation. This would impact not just the financial markets, not just global corporations, but would have a profound impact on the lives of ordinary Americans.” 

Amending the Law.

Even though the law has not been fully implemented by regulation, congressional critics of Dodd-Frank have already demanded the rule be amended.

Senate Banking Committee ranking Republican Richard Shelby (Ala.) and 43 additional Republicans sent a letter to President Obama on May 5 stating they will not vote to confirm any presidential nominee to lead the Consumer Financial Protection Bureau, an entity created by the law, “until the structure of the Consumer Financial Protection Bureau is reformed.”

“There's no doubt this law is going to be amended. Whether that's to put more teeth into some aspects of it and to rethink some of the burdensome aspects of it, I think you're going to have a mix of both,” O'Connor said. Pepper Hamilton LLP partner Frank Mayer agreed, saying he expects Congress to be “reshaping and refining” the law by amendment over time.

But K&L Gates LLP partner Stephen J. Crimmins told BNA July 19 that he does not expect any quick changes, particularly given the current political climate in Washington. “I think in the current situation that we will not see legislation to amend it because I don't think there are enough votes to amend. I think after the worst financial crisis in 80 years the Dodd-Frank reforms—while not perfect, and while they do have some warts—were needed. I don't think there will not be the votes to amend it in the next year or two anyway.”

Crimmins also said some members of Congress opposed to Dodd-Frank are trying to denude the law's impact by pushing to strip funding for the agencies responsible for its implementation. He pointed to congressional opposition to allow the SEC to set its own budget, an authority given to several federal financial regulatory agencies, that emerged about 48 hours before Dodd-Frank was made final in conference as an example.

By Stephen Joyce