Five years since the enactment of Dodd-Frank Act provides a poignant moment to evaluate the progress and analyse the challenges still being faced by banks looking to comply with landmark legislation. Responsibility for delivering reform lies firmly at the door of policy-makers tasked with strengthening our financial ecosystem, but to believe the progress hinges solely on the policy-makers would be short-sighted. While banks are understandably stalling on implementation measures, they too must play their part in the regulation game, not only in the interest of compliance, but to stay lean and agile in a rapidly changing regulation landscape.
As the implementation of Dodd-Frank progresses, financial companies are developing a better understanding of the legislation’s costs and implications – but equally, of its potential benefits. What is clear is that the sooner these banks put measures in place to ensure compliance, the better they’ll act to compete with their industry counter-parts.
The open-ended nature of Dodd-Frank poses its challenges, but there are very good business reasons for banks to comply. The problem is that many banks have yet to understand that when it comes to compliance, technology can play a key role in making the transition as easy as possible.
In recent years banking technology has evolved to keep pace with the changing nature of the landscape. By using banking technology, governance programmes are much more likely to work and banks will find it much easier to change their habits and comply with regulations.
Here is a brief overview of why and how trading surveillance technology can help:
The role of voice analytics
Trading environments are among the most challenging for voice recognition software. They are loud, home to low-grade quality recordings, and traders often speak a number of languages, using trade-specific terminology.
Voice analytics software is designed specifically for these unique environments. Technologies that are more effective than transcription-based analytics and are able to reconstruct the history of a trade in 30 seconds.
The result is that financial institutions have the tools to proactively assess and manage trading floors, making compliance with Dodd-Frank regulation a non-issue for their organization.
The end of working in silos
Hosting a number of conversations with compliance teams from major banks, it appears that there is little to no provision in place to transfer data across front, middle and back office functions, meaning huge swathes of data (and money) can be lost without trace.
It’s not only transferring data which is important, it’s about the front, middle and back office being able to view the data in relation to each other, rather than in silos. Each of themhave a different need, and the benefits of being able to view the data across the borders of their areas is beneficial for business intelligence.
For example, if someone in the front office is concerned with the conduct of a trader, by linking all the data from all of the sources, from HR systems to trading data, they can link the relationship between all this data and be able to closely monitor what the trader is doing right and wrong.
Seeing the force of penalties for non-compliance, with penalties severe enough to suggest those failing to prepare for Dodd-Frank regulation are preparing to fail, banks need to seriously consider incorporating the right technology to their business.
Five years after the signing of Dodd-Frank, many banks are arguably still “too-big-to-fail”. In fact, the top bank holding companies may have even become larger. It’s certainly true that the Dodd-Frank Act has given regulators new powers to pursue enforcement against banking malpractices, and that it has done so with a mix of gratitude and wariness. However,much can be learnt from the tough regulatory approach of the Dodd-Frank Act and the apparent desire to break-up the largest and most complex US banks. Dodd-Frank is a huge and complex reform and it’s by no means perfect, it has failed to reach many of its goals,especially regarding bank sizes, but it has also brought a lot of progress in some areas of financial regulation and this should not be underestimated.
With access to technology that can decode behaviours and flag potential problems early on, banks can avoid the harsh penalties and recognize that in fact compliance with Dodd-Frank and other regulations bring with it many benefits. Meeting regulation measures makes sound business sense, but these regulations alone will never be able to overcome the problem of an occasionally corrupt banking culture. Nobody likes to be regulated but that isn’t to say that regulationisn’t saving some bankers from their worst instincts. Banks may need a little help to make the transition faster and smoother, but with trading surveillance technologies to support them, they can definitely succeed.