It has been
two and a half years
took effect, beginning the rewrite of
rules touching every corner of the US financial system.
As DC's response to the US-instigated financial crisis, an
exhaustive set of reforms seemed inevitable. But Dodd-Frank's
numbers are staggering. The statute is 848 pages long,
consists of 1,601 sections, and requires 398 rulemakings
shared by seven regulators.
Even more telling, though, is the message underlying the
reforms. "It represents a significant philosophical change in
regulatory approach," says New York-based Morrison &
Foerster partner Anna Pinedo.
Before the crisis, regulators' prioritised the safety and
soundness of individual institutions, on an entity-by-entity
basis. Dodd-Frank introduced an overarching focus on
interconnectedness and the financial sector as a whole. Under
it, the concept of systemic risk has come into its own.
The shift was so fundamental that even if the Republicans
had been victorious in the 2012 presidential election, no one
realistically thought the statute would be repealed,
according to Pinedo. Similarly, a substantial scaling-back of
the reforms when economic conditions improve is unlikely.
"I just don't see it happening, because it involved such a
fundamental philosophical shift," Pinedo says. "It's
possible, of course. But I suspect it would be limited to
loosening around the edges."
The message is not just for those within the US.
Dodd-Frank's extraterritorial reach is unprecedented, often
placing heavy burdens on entities with only tenuous
US-connections. EU authorities have warned their US
counterparts that regulation is a
two-way street, but so far only one European regulation
covers trades in the US.
At a more practical level, Dodd-Frank has created a maze
of interconnected, vague and delayed regulations. Asked
whether the statute's number and breadth of the reforms made
this inevitable, Pinedo says no.
"It's not been the case with other legislation that has
resulted in significant changes, as legislators took their
time formulating the statutes and there was additional
opportunity for analysis and comment. But here, the process
has been really broken," she says
Despite some rough drafting and lack of understanding
about some key provisions, the bill was hurried through
Congress to hasten the government's response to the crisis.
It is a lesson in rushed-legislation. And the best example of
the end-result is the
The ban on banks' proprietary trading one of the
statute's most controversial sections was an eleventh
hour inclusion. Six months after the rule technically took
effect, there is neither a final text nor any certainty
around key definitions.
As matters of principle, Dodd-Frank's philosophical shift
and extraterritorial reach have changed the course of
financial regulation. But for lawyers doing their day-to-day
jobs, the decoding of regulations could be the statute's
For more of IFLR's 30th anniversary coverage
'Why Dodd-Frank extraterritoriality is fundamentally
'Dodd-Frank's latest quandary'
'Dodd-Frank: one year on'