Dodd-Frank Activity Set to Ramp Up in 2013

Terry Flanagan

A slew of regulatory activity is slated to take place as 2013 gets under way, especially in the U.S., after the Commodity Futures Trading Commission last year issued a series of no-action letters to give the industry some breathing room.

As of January 2, a total of 237 Dodd-Frank rulemaking requirement deadlines have passed, according to law firm Davis Polk’s Dodd-Frank Progress Report. Of these 237 passed deadlines, 142 (60%) have been missed and 95 (40%) have been met with finalized rules. In addition, 136 (34%) of the 398 total required rulemakings have been finalized, while 129 (32.4%) rulemaking requirements have not yet been proposed.

“New regulations, the need for multi-channel delivery, changing customer needs and the constant drumbeat for better analytics and efficiency are driving the need for change,” said Henry Hilska, director of the strategy practice at Virtusa, an IT services company.

The latest no-action letter, issued on December 31—following on from several others the CFTC had issued in October that extended until the end of 2012—involves foreign-owned U.S. banks that wish to rely on the de minimus exception to the swap dealer registration requirement.

Specifically, the CFTC said it would take no enforcement action against any U.S. bank that is wholly-owned by a foreign entity for failure to consider the swap dealing activities of its foreign affiliates, or the U.S. branches of such affiliates, with respect to swap positions executed after October 12, 2012, in determining whether the U.S. bank satisfies the de minimus exception.

Perhaps the most difficult Dodd-Frank rules relate to the internal business conduct mandates. The record keeping rules require that a swap dealer retain and be prepared to provide a complete reconstruction of trade artifacts. Also required is the ability to retrieve specific pitch decks and recorded phone conversations where trade scenarios have been discussed.

“The planning, development and implementation of new strategic solutions to the changes required during swap client onboarding are among the trends for the New Year,” Hilska said. “These solutions may be built upon existing automation or might require totally new implementations.”

The Dodd-Frank regulation in the U.S. and its equivalent, the Emir regulation in Europe, place a heavy burden on all financial entities through the introduction of important changes across the entire life cycle of OTC derivatives products.

“More deadlines will loom next year as the requirements in Europe begin to take effect,” said Robert Pickel, chief executive of the International Swaps and Derivatives Association, a trade body. “The timetable is jelling around reporting starting mid-year, reconciliation and dispute resolution in late summer and frontloading of trades into clearing later in the year.

“Clearing mandates won’t likely apply until summer 2014, but many other steps will need to be taken in anticipation of those mandates. So the short delays achieved in the U.S. through the no-action process will only lead to a compression of compliance activity globally.”

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