The Dodd-Frank Wall Street Reform and Consumer Protection Act will soon be the law of the land, assuming Senate passage. With the President’s signature, the bill will mark the greatest legislative change to financial supervision since the 1930s.
This legislation will affect every financial institution that operates in this country, many that operate from outside this country and will also have a significant effect on commercial companies. As a result, both financial institutions and commercial companies must now begin to deal with the historic shift in U.S. banking, securities, derivatives, executive compensation, consumer protection and corporate governance that will grow out of the general framework established by the bill. While the full weight of the bill falls more heavily on large, complex financial institutions, smaller institutions will also face a more complicated and expensive regulatory framework. This memorandum, written by a broad cross-specialty team of derivatives, bank regulatory, broker-dealer, funds, corporate governance and executive compensation teams at Davis Polk, summarizes the major provisions of the bill in bullet point form. For those who would like to dip into only the sections relevant to them, the table of contents contains hyperlinks. The accompanying Davis Polk Regulatory Implementation Slides are designed to show the effectiveness and implementation timeline of these provisions.
Following the bill’s passage, the regulatory implementation phase will begin. By our count, the bill requires 243 rulemakings and 67 studies. While few provisions of the bill are effective immediately and Congress has designed the bill to become effective in stages, regulators and market participants will need to begin responding to the legislation immediately after its passage. U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty. The legislation is complicated and contains substantial ambiguities, many of which will not be resolved until regulations are adopted, and even then, many questions are likely to persist that will require consultation with the staffs of the various agencies involved. Agency rulemaking will, however, set the parameters of the new regulatory framework. The new regulatory framework will contain both new elements and elements drawn from the patchwork of current U.S. financial regulation. An understanding of the older layers of regulation will be indispensable for understanding the new law.
In addition, regulatory implementation will be a dynamic process. Market participants will change their behavior in response to the new regulations and to the rules issued by other regulators and by international bodies. The regulators will be challenged to conform the required regulations to a follow-on technical bill, as promised by Chairman Frank. We expect that there will be both severe challenges for financial institutions as well as significant market opportunities, both at home and abroad, and that regulators and market participants will be dealing with the bill’s consequences, both intended and unintended, for many years to come.