Prepare Now for the Tsunami of New Rules

Nearly two years after the worst of the financial crisis of 2008, financial regulatory reform legislation has been signed into law by President Obama. The Dodd-Frank Act of 2010 officially became law yesterday in a signing ceremony at the Ronald Reagan Building in Washington, DC.  Weighing in at over 2,000 pages, the new Act is chock full of mind numbing details.  However, the most important details are still yet to come. The Act provides authority for regulatory bodies such as the Federal Reserve to create new rules for financial institutions to follow. This will serve to significantly increase the compliance risk for these companies.  Here is what the Wall Street Journal reported yesterday.

The legislation is a major revamp of U.S. financial-market oversight, streamlining regulation and giving agencies such as the Fed much broader authority to deal with the most complex financial institutions. Many of the new rules will depend on regulators to write specific restrictions and regulations, and Bernanke said the onus is on officials to ensure that they are “sufficiently tough that the risk of another crisis is very low.”

Financial services companies should brace themselves for an onslaught of new rules and also should ensure they have the appropriate infrastructure to respond in a quick and efficient way. Much like the formation of a tsunami, the Act is essentially the earthquake preceding the gigantic wave.