The Cost of Compliance


Mark McCartney

Analyst II

The financial crisis in 2008 left in its wake repercussions across the financial sector. In response a number of financial reforms were legislated. One major piece of legislation was the Dodd-Frank Wall Street Reform and Consumer Protection Act. In 2010, this Act formed what was at the foremost of legislation implemented by the Obama administration in an attempt to mend the broken system and steer the financial ship back to calmer waters.

The Act in itself greatly exceeds any previous US regulation of financial markets and stands firmly above all other legislation enacted during the Obama administration with the sheer volume of rules and restrictions put in place.

The graph below puts into perspective just how many new restrictions were added by the Dodd-Frank Act versus all other laws passed by the Obama administration from 2009 to 2014 and shows how in this time a total of almost 28,000 new restrictions were put in place, some five times as many as any other law passed in the same period:


The Dodd-Frank Act, with its numerous provisions laid out over thousands of pages, was planned to be implemented over a period of several years and intended to reduce the risk that exists in the U.S. financial system. Section 165 of the Dodd-Frank Act requires large banks to submit a resolution plan, popularly known as “Living Wills” that show how these banks can be resolved in an act of bankruptcy.

Unlike when non- financial companies enter bankruptcy where their losses can be inflicted upon their shareholders and creditors, the financial crisis of 2008 reminded everyone how big banks are different. One large bank’s difficulties can prompt creditors to flee other banks, in turn setting off chain reaction chaos throughout the whole financial system.

In an attempt to reduce the panic which ensued from the crisis in 2008 and the bankruptcy of a number of “big banks”, living wills are intended to be used to give banks and their regulators a clear view of the bank’s operations along with its assets and liabilities should anything similar occur again.

Fast forward to April 2016, the Federal Reserve and the Federal Deposit Insurance Corporation stated that five of the eight largest US banks do not have a credible plan in place for how they would wind down operations should, like in 2008, a global financial crisis occur.

This would suggest that if another crisis were to shake the world’s financial system, the government would need to bail out the largest banks in an attempt to avoid the chaos witnessed eight years previously. 

These findings are also the topic of national debate with the danger that the failure of the big banks poses a great risk to the U.S and wider global economy. The 2016 presidential election campaign has seen politicians debate the effect that another crisis would have and how the banks should be treated, with certain senators calling for the biggest banks to be broken up, a call which has been criticized by the Democratic presidential nominee, Hillary Clinton.

In the heat of the criticisms and debates over the futures of the largest banks, it is therefore now more important than ever for them to conform to regulations and create and install better plans for how they would face another crisis.

An important part of the act is the requirement of strict record keeping by the banks. In 2008 institutions had no record of their QFC (Qualified Financial Contracts) exposure meaning regulators did not have information readily available as to where the bank’s exposure truly lay.

Under section 210 of the Dodd-Frank Act, banks must now maintain records and information in common data format of end of day QFC positions. Effectively, banks need to standardise and centralise all QFCs and ensure they are up to date. This means that receivers have data readily available to analyse and therefore accurately estimate financial and operational impact on the bank and markets should they enter bankruptcy.

Inevitably there is a cost to compliance. In six years, the cost of Dodd-Frank compliance is said to have added $36billion in related expenses and 61 million paperwork hours with costs reaching a peak in 2016 (see graph below). These added costs have burdened banks of all sizes which has ultimately been passed down to consumers.

Along with the financial cost, the hours of paperwork and administration that are needed for compliance is a difficult process for the banks to undertake along with continuing day to day operations in an ever changing global landscape.

One method banks could use in order to stay on top of regulations is to utilise an outsource solution. This could allow daily operations to run as normal with compliance and regulatory matters a non-distraction in terms of costs and man hours. Finding a solution such as an outsourced financial services company can solve these problems.

FinTrU are readily available to assist in a number of areas which will help institutions get back on top of their living wills and meet regulatory requirements.

FinTrU has teams experienced in the review and capture of information from a wide portfolio of derivative agreements, which include ISDA, CSA, Prime Brokerage, PRIMO, MRA, MSLA etc. for a number of bank stakeholders in compliance with recordkeeping requirements for Qualified Financial Contracts.

Providing a high quality, cost effective service, banks have a source which can help stem the flow of billions of dollars already spent on regulatory procedures and at the same time receive a high quality service which is already experienced in a number of regulatory activities.

To squash the “too big to fail” beliefs, an outsource solution such as FinTrU can be an extremely useful tool to utilise and help get the big banks “back on top”.

Mark McCartney

Mark joined FinTrU in 2015. Mark has since worked as part of Legal services team in FinTrU alongside the Bank Resource Management (BRM) team of a Tier-1 Investment Bank.

Mark is a BSc Hons Economics graduate from The University of Ulster.  Keen to develop a career in financial services, Mark subsequently came on board with FinTrU from his previous role in a market research firm. 


Within his current role as part of the Legal Services team, Mark’s key focus is to review OTC derivative agreements for the bank’s internal stakeholders on the Dodd Frank Act recordkeeping requirements for QFCs (Qualified Financial Contracts).  


Mark is responsible for the review and capture of the client’s exposures in each agreement, ensuring all matters are responded to in a timely manner and escalating where necessary for resolution.


Mark has knowledge and experience with ISDA and CSA documentation along with a wider portfolio of agreements such as PBAs, MRAs, MSLAs, OSLAs etc. Mark also works alongside the BRM team to assist with account creation and updates.


Mark continues to participate in weekly calls with the bank’s legal project team in New York to update on the impact of regulations relating to OTC Derivatives.