Every few years there comes along a piece of regulation, or enforced change, from which hoards of management consultants, service providers and tech companies can prosper.
The Y2K bug created an unlimited ATM for the whole software and services industry, and the infamous Sarbanes Oxley which created more audit partners than eHarmony. And just as you thought that well was running dry, we now have Dodd-Frank Act, designed to:
“Promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
With Michael Koontz, our new lead analyst for banking and financial services, now fully bedded-in, he’s found half his time is already being spent talking to clients about how to get ahead of these new regulations. Let’s hear his initial thoughts…
Dodd-Frank turns Two
Please join me in wishing Dodd-Frank “Happy Birthday.” This is the largest financial reform act in U.S. history, amassing 884 pages when it was finally signed in 2010, designed to enforce the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.
Dodd-Frank was implemented to address the financial services meltdown, that began back in 2007. In the political aftermath, Regulators were quick pass this legislation which has now morphed into the 2,000 pages and 400 separate rules that we see today. Dodd-Frank was designed to strengthen oversight of banks as well as insurance companies, mortgage companies, and brokerage firms.
Now, at the end of its second year, federal agencies have passed 221 rules. Financial institutions and insurance companies are scrambling to meet all these new requirements, while trying to anticipate the implications of rules that have yet to be finalized.
Securing the necessary resources to meet these demands is proving to be a significant challenge for both the regulatory agencies and the companies affected, and the subsequent need for strong risk management and compliance personnel is growing across the United States. Not since the scramble to meet Y2K, have financial institutions been forced to rely as heavily on management consultants and third party providers to meet compliance deadlines. That is right, Y2K, did that bring back some memories?
Adding qualified staff is already proving to be a challenge for financial institutions. For the average tier one bank, risk and compliance personnel represent about 3 percent of the total workforce. This number is expected to double as a result of the staff increases required by Dodd-Frank, but the demand for qualified staff outweighs the supply. There are 1,000’s of “risk jobs” posted on job sites all over the Internet. There is a run on talent in the U.S. if you have risk management or compliance experience on your resume.
Financial institutions will remain skeptical on outsourcing this work until they figure it out themselves but with the amount of work that is going to be required, and soon, it won’t be long before they are having these discussions with their business partners.
Both consultants and outsourcing providers will be receiving calls for help, but what most companies will find is that there is only a select few that are going to be able to step-up and support this level of work. There is work that can be outsourced, including much of the analytics and reporting functions for compliance reporting, however, the tricky part is going to be finding the provider who is capable to support the levels of both complexity and rigor to meet the banking and regulatory standards. For providers, this is going to make a SAS70 type II audit look like a walk in the park!
The full impact of Dodd-Frank is still a great unknown, but likely to be significant, and HfS is watching it closely to observe which consulting companies and outsourcing providers are able to step up and support their clients.