A major topic of interest in the business press, cable news and C-Span is the confusion bordering on chaos relating to the pending implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act passed last July.
A Senate Banking Committee hearing May 12 featured testimony from the head of the Federal Reserve, a deputy treasury secretary and the current heads of the Securities and Exchange Commission, Federal Deposit Insurance Corp., Commodity Futures Trading Commission and the Office of the Comptroller of the Currency. The session was not re-assuring to the business community eagerly waiting to find out when and how the new regulations will impact both their current operations and especially future planning.
It cannot be said that many business sectors view the possible future regulatory environment with enthusiasm, but, the devil known is often better than the one unknown.
Several major factors create the current uncertainties. First is that all of the six major regulatory agencies have important vacancies at the leadership level. The legislation signed nearly one year ago specified that the agencies have until January 2012 to conduct studies, seek outside commentary and implement the final regulations. None of the current leaders see this being accomplished.
The head of FDIC, recognized as one of the most effective leaders in dealing with the banking and mortgage crises, leaves June 30 and no replacement has even been nominated. The Office of the Comptroller of the Currency is now led by a temporary assignee, no replacement nominated.
The lack of permanent leadership creates a significant handicap at a time when action is being demanded.
Ben S. Bernanke, the Federal Reserve chairman who is operating without an important vice chairman, feels current regulators will need to make subjective decisions in some cases. This approach will not sit well with Republican leaders in the House who are holding back funding for new staff, office space and equipment requests. The Republican House attitude is, “If we cannot kill Dodd-Frank we are going to starve it!”
The Senate is holding back confirmations even causing one President Obama nominee to withdraw his name. So, it would seem a tsunami wave can be faintly seen on the horizon with no clarity as to how big it is, when it will hit and what is inside it.
The name of the game is uncertainty.
Many organizations are turning new or renewed attention to operational risk management with new emphasis on compliance. ORM often focuses on human aspects and compliance will be of special importance if, as expected, the regulations impact every aspect of internal controls and policies and procedures focusing on ethical behavior and training personnel.
Every business, small, medium and large, should take this hiatus to review their board policies and procedures relating to risk management ”“especially the organizational structure within the management team and its current and expected levels of competency to deal with a deluge of new regulations.
We have been 10 years living with the costs and re-organizations required by Sarbanes-Oxley. Hopefully, integration of new regulations, procedures and IT systems will not be as expensive, complicated or disruptive as was with SOX. Taking the time to plan now may make hopeful goals more likely.
Let”™s tread water thoughtfully and with a planned purposefulness.
John Alan James is professor of management and corporate governance, Lubin School of Business, Pace University, New York City. He also served as the first director of International Business Economic Development for the state of Connecticut. Reach him at jjames@pace.edu.
