Time to revisit rushed Dodd Frank compliance?

30.09.14 Gresham

Implementation deadlines have been and gone but banks are still living in Dodd Frank’s shadow. One of the issues is that best practice hasn’t yet been agreed: the regulators still need to clarify standards. This is leaving many fumbling around in the dark for the right route to compliance.

While the regulators iron out the standards, several financial institutions have cobbled together ‘half-way house’ applications so they can tick the compliance box. Some have even resorted to Excel for a quick fix. But this can’t be a long term solution.

So how much of an issue is this lack of standardisation? Under Dodd Frank, banks must put any discrepancies in a trade with a counterparty under the microscope. Some banks are taking a literal, granular approach, creating an exception for every attribute of a trade that doesn’t match. Others are saving energy by grouping batches of similar exceptions together. It’s not yet clear which approach regulators will favour. But from this example, it’s evident that some banks are generating more work for themselves than others. The result? Increased operational cost to cope with the additional volumes of exceptions.

While uncertainty over the standards is still rife, one thing is for sure: manual processes won’t cut it when the standards are finalised or another rule comes along. To ensure they are completely compliant – fast – banks must leave spreadsheets behind and turn to automated systems that are easily adaptable and can accommodate any changes in the rules. Else they risk being overshadowed by competitors who have already adopted this approach.