Companies have made “little or no progress” so far in developing compliance programs for the Dodd-Frank Wall Street Reform Act, according to a newly issued report and survey.
“Despite the protracted nature of the [Dodd-Frank] process, or possibly in light of the long-delayed rulemaking (instilling doubt as to the eventuality of the regulations), many market participants have made little or no progress in developing their compliance processes or deploying the necessary technologies for compliance,” wrote Patrick Reames, managing director of Texas-based CommodityPoint, and Ed Bell, a founding member of the Global Energy Management Institute at the University of Houston.
The survey took place between April and September this year and included responses from 47 companies trading in energy products, with most located in the United States and a few in Canada, Europe and the Asia Pacific.
“The Dodd-Frank Market Survey and Report” found that companies were spending little on Dodd-Frank efforts. “Though fully 80% of the North American respondents indicated they did have some effort toward compliance underway, almost half of the respondents (those that knew their dollar spent to date) had actually spent less than $25,000 on outside services or technology to support the effort,” it said.
“More than 50% [of firms surveyed] indicated they did not have any monies budgeted for Dodd-Frank compliance” through the end of the year, the study/survey said. “Of those that said they had no budget in place, the most common entity types were those that held hard assets, including oil and gas producers and utilities, perhaps reflecting their belief that they would be classified as ‘end-users’ and exempt from many of the regulatory burdens of Dodd-Frank,” the report noted.
“Forty-five percent [of the companies surveyed] did indicate some level of budget, though of that group, budgets of less than $500,000 were most commonly noted. In total, four of our respondents (three in North American and one outside the region) noted they had budgeted more than $2 million for the effort, with three of those being very large oil and gas producers and one large financial institution.”
All in all, “there appears to be a general lack of urgency on the part of many market participants,” which is reflected by the meager budgets and scarce resources assigned to compliance efforts and little engagement with third parties, according to the study.
“Given the potential legal and financial exposures of non-compliance, we believe it is incumbent upon all levels of leadership, from risk managers to…executives, to create a culture of Dodd-Frank compliance within their companies…Unfortunately, while the regulators’ response will not be immediate, it will most likely be aggressive once in motion; and once a company is identified as one that has not been compliant in the past, that company will likely remain under CFTC [Commodity Futures Trading Commission] scrutiny for a very long time.”
While a couple of significant events occurred during the analysis and report writing phase of the research effort, they did not affect the responses and data collected for the report, Reames said. In late September, the U.S. District Court for the District of Columbia tossed out the CFTC’s controversial final rule aimed at limiting speculative trading in the swaps market (see Daily GPI, Oct. 1). “The position limit rule is vacated and remanded to the Commission for further proceeding,” wrote District Judge Robert Wilkins in the opinion.
Then the CFTC postponed from Oct. 12 to the end of the year the deadline for companies to declare their status as swap dealers (see Daily GPI, Oct. 15. “These delays , along with other appeals and lawsuits that are working their way through the court systems, continue to create a confused outlook as to how or when the new Dodd-Frank regulations would ultimately be implemented,” Reames said.
The Chicago Mercantile Exchange (CME) has filed a lawsuit in federal court in Washington, DC, against the CFTC, challenging the agency’s enforcement of its swap data record-keeping and reporting requirements under Dodd-Frank.
The CME asked the district court in D.C. to permanently enjoin the CFTC from enforcing the record-keeping/reporting requirements, arguing that the rules “would impose costly, cumbersome and duplicative requirements” on derivatives clearing organizations (see Daily GPI, Nov. 12). The requirements were due to take effect Nov. 13.
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