The Dodd-Frank Wall Street Reform and Consumer Protection Act is momentous. According to Davis-Polk,
- It represents the greatest legislative change to financial supervision since the 1930s (few would argue on that score)
- 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.
David Brooks nicely summed up the scope of the bill in historical perspective:
The law that originally created the Federal Reserve was a mere 31 pages. The Sarbanes-Oxley banking reform act, passed in 2002, was only 66 pages. But the 2010 financial reform law was 2,319 pages, an intricately engineered technocratic apparatus. As Mark J. Perry of the American Enterprise Institute noted, the financial reform law is seven times longer than the last five pieces of banking legislation combined.
Once again, government experts were told to take a complex, decentralized system — in this case the financial markets — and impose rules, rationality and order. The law creates one über-panel, the Financial Stability Oversight Council. It directs government experts to write rules in 243 separate areas.
And most importantly by far for you, Dear Readers (back to Davis Polk):
- 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. An understanding of the older layers of regulation will be indispensable for understanding the new law.
I’m not sure how to state the last point any more clearly than Davis Polk has, but to be blunt about the economic implications of the bill for firms with substantial financial services and/or regulatory practices, this is the greatest thing since Sarbanes-Oxley.
If you want a merely 130-page synopsis, here’s the ur-text from Davis Polk. And, for those of you into graphics:, here’s the presentation, from our same faithful authors, of the implementation timelines. (Forewarned–I hope you like mice type. But comprehensiveness is a far more than offsetting virtue.)
But here at Adam Smith, Esq., we’re not into the business of pointing you towards resources and walking away.
Rather, we point out the complexity–and, better yet, undefined nature–of the Dodd Frank Gift To Financial Services Lawyers bill because it can keep many lawyers busy for a long time: (a) participating in the regulatory build-out of the law; (b) educating their clients on what it means; (c) helping clients implement compliance; and (d) monitoring litigation that will inevitably ensue.
This alone is not, of course, anything that will remotely relieve us of dealing with the grave and enduring repercussions of The Great Reset, but it does constitute a small ray of practice-area specific economic hope.
Indeed, The Lawyer just published “US firms prepare for heavy workload as Dodd-Frank Act comes into force,” with the following juicy quotes:
Randall Guynn, financial institutions head, Davis Polk & Wardell: “We’ve been active advising the Securities Industry and Financial Markets Association and several leading US and non-US banks on financial regulatory reform. Those representations have kept us very busy during the past year, but we expect our work to increase substantially during the regulatory implementation phase.”
Ernest Patrikis, bank and insurance regulatory partner, White & Case: “I expect the Dodd-Frank Act to result in an increase in work over the next several years. Initially, questions will arise regarding the statutes and its ambiguities and alternative interpretations. The federal supervisory/regulatory agencies have been granted a great deal of discretion that will be reflected in proposed regulations. Those regulatory proposals will result in increased activity.”
William Sweet, finance and regulatory partner, Skadden: “My practice focuses on financial services regulation, which is the predominant theme of the bill. We’ve seen, and expect to continue to see, a significant increase in client demand for advice on matters covered by the Dodd-Frank Act.”
Bradley Sabel, finance and regulatory partner, Shearman & Sterling: “Although near-term work volume isn’t likely to expand significantly, we expect that the volume of work relating to the bill will pick up as proposed regulations are issued for comment and adopted, and even more so when final regulations are issued.”
The bad news?
The law itself, of course. That is to say, precisely the compliance overhead I have been celebrating above.
I am far from a free market absolutist–no one who took their studies of economics seriously can be–but there are useful extra-market governmental interventions to address externalities, and then there are exercises in throwing sand in the gears, creating regulatory friction, and offering rent-seeking opportunities. The jury is firmly out, but I worry that this law may overweight towards the latter.
As a great friend of mine, and head of the securities law practice at a major New York firm, said years ago about Sarbanes-Oxley: “As a law, I hate it, but as a partner in my firm, it’s GREAT!”
Ladies and gentlemen, start your engines.
