The 2007-2008 financial crisis brought about “the most comprehensive set of reforms to our financial system since the Great Depression.” according to the U.S. Department of the Treasury, but as the amount of data increased, technology had to step in to help firms comply with the increased regulation.
Brief Background on the Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) was brought in to enhance the CFTC’s regulatory authority to oversee the more than $400 trillion swaps market. The bill, brought in under the Obama administration in 2010, was designed to put an end to the institutions deemed “too-big-to-fail” and prevent another financial crisis. The Dodd-Frank Act brings in the regulation of Swaps products, which were at the center of the financial crisis alongside the subprime mortgage market.
Some of the key components of the Dodd Frank Act include the Financial Stability Oversight Council (FSOC), the Volker Rule to restrict certain investment strategies, the Consumer Financial Protection Bureau to prevent predatory mortgage lending, the SEC Office of credit ratings and a whistleblowing scheme. Arguably one of the most resource intensive rules was Title VII, which imposed new registration requirements and increased reporting requirements, granting the CFTC authority over swaps, apart from security-based swaps, which are regulated by the SEC.
Tackling the $50 billion problem
The Dodd-Frank Act is thought to have doubled the number of regulations for U.S banks, increasing their compliance costs by over 50$ billion per year. These costs range from auditing and consulting to data processing and legal fees, all of which have arguably increased exponentially with growing audit trails and record-keeping requirements. It is also reported to have disproportionately affected small banks, which still had to adhere to the rules despite not being “too-big-to-fail”.
Firms have managed the increase in regulation by hiring larger compliance teams, outsourcing compliance or legal services and adopting regulatory technology however, with employees generating more data possible to manually audit effectively, it’s clear better measures need to be put in place. While the US regulators announce easing of the Volker Rule and the Financial News reports banks are reducing the compliance headcount, automated regulatory technology (RegTech) is now more essential than ever to ensure sufficient supervision and control.
It takes $50,000 to manually reconstruct a trade
That equates to an annual spend of approximately $50M associated with manual reconstructions. Trade Reconstruction is a Dodd-Frank requirement under Title VII stating that when called for, all records, including communications, relating to a trade should be sent to the Regulator within 72-hours of the request.
VoxSmart’s Trade Reconstruction technology was built to solve this exact problem and has been helping firms meet these strict timelines across their globally traded swaps business.
Trade Reconstruction drives value beyond compliance
Automatic Trade Reconstruction helps compliance and other areas of the business clearly see the activity around a trade, allowing them to perform reporting quickly and efficiently, saving time and money across the entire business:
- Perform Faster Investigations
Trades can be reconstructed in minutes and users can quickly review important details that were discussed before the trade was executed.
- Give your team more autonomy
No need to coordinate between various teams to collect and organize data from different sources and then try to sift through unrelated communications to construct the communication timeline. Have all the information you need at a click of a button.
- Clearly see the bigger picture
VoxSmart’s user-friendly software shows a timeline of all communication sources and trading activity. This capability can be leveraged by many areas of the firm to avoid future trade breaks or stop litigations before they become too costly.
If you're interested in hearing more about how VoxSmart can help your firm significantly reduce the cost and resources spent on trade reconstructions, get in touch for a demo.