Glossary term
Dodd-Frank Act
Subject: Compliance and Regulation, Market Conduct and Securities
Also known as: Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act is a 2010 United States law that reformed financial regulation after the 2008 crisis, creating new oversight bodies and rules on risk-taking, derivatives, consumer finance and whistleblowing.
Explanation
Signed in July 2010, the law is long and touches many areas. It created the Financial Stability Oversight Council to watch systemic risk, the Consumer Financial Protection Bureau to supervise consumer finance, and an orderly liquidation process for failing large firms. The Volcker Rule restricts banks from proprietary trading and from owning certain funds. Derivatives rules require central clearing and reporting of many swaps. Other provisions cover shareholder votes on executive pay, clawbacks, credit rating agencies, mortgage standards and stress tests for large banks. Its whistleblower programme rewards people who report securities violations to the SEC and protects them from retaliation. Parts of the law were eased in 2018 for smaller banks. Because US rules reach foreign banks that deal there, compliance teams worldwide track it.
Example
A foreign bank with a US branch builds a Dodd-Frank compliance map. It places its trading desks under the Volcker Rule, assigns an owner for swap reporting and sets up a process to check staff pay arrangements against clawback rules. The compliance team reports each quarter to the board risk committee on gaps found and progress on fixing them.
Not to be confused with
- Sarbanes-Oxley Act (SOX)
- SOX (2002) targets corporate financial reporting and auditing after accounting scandals; Dodd-Frank (2010) targets the financial system after the crisis.