February 26, 2021

Dodd-Frank Paperwork a Bonanza for Consultants and Lawyers

That’s the fee just for parsing the proper definition of a bank-owned hedge fund. Longer and more complex regulatory missives, weighing in on who should be deemed too big to fail or how derivatives are traded, can easily cost twice as much.

These comment letters could save Wall Street banks billions of dollars if they help persuade policy makers to adopt a more lenient interpretation of the coming rules. And white-shoe law firms like Debevoise Plimpton are cranking them out by the dozen.

Call it Dodd-Frank Inc. A year after Congress passed the broadest financial overhaul since the Great Depression, the law has spawned a host of new businesses to help Wall Street comply — and capitalize — on the hundreds of new regulations.

Besides the lawyers, there are legions of corporate accountants, financial consultants, risk management advisers, turnaround artists and technology vendors all vying for their cut.

 “It is a full-employment act,” said Gregory J. Lyons, a partner at Debevoise, where a team of a half-dozen lawyers has drafted 30-plus comment letters in the last six months.

“The law is passed, but we are still reasonably early in the process,” Mr. Lyons said. “There is still a lot to be written.”

New regulation has long been one of Washington’s unofficial job creation tools. After the enactment of the Foreign Corrupt Practices Act in the late 1970s, hundreds of lawyers and accountants were hired by companies to strengthen their internal controls. The Sarbanes-Oxley Act of 2002 became a boon for the Big Four accounting firms as public corporations were forced to tighten compliance in the wake of the Enron and WorldCom scandals.

Now, the Dodd-Frank Act is quickly becoming such a gold mine that even Wall Street bankers, never ones to undercharge, are complaining that the costs are running amok.  

“It’s basically lawyers, hired guns and money,” said the chief financial officer of a major Wall Street firm, who was not authorized to speak publicly on the matter. “Everyone has an angle.”

No one yet is tracking all the money being spent to deal with Dodd-Frank (which in itself could be an entrepreneurial venture), but a back-of-the-envelope calculation puts it in the billions of dollars.

And that’s not even counting the roughly $1.9 billion spent by companies lobbying on financial issues since the regulatory overhaul was first proposed in early 2009, according to the Center for Responsive Politics.

The bulk of the lobbying tab was spent in the two years before Dodd-Frank took effect. Now firms are spending similarly eye-popping sums to comply with or battle against the rules emerging from the law. They are turning to existing companies that have started dedicated teams like the one at Debevoise Plimpton, as well as start-ups like the Invictus Consulting Group.

When Kamal Mustafa founded Invictus in early 2008, few banks underwent routine stress tests to assess their financial health. Now, the new law requires the nation’s largest banks to conduct annual stress tests, while regulators are leaning hard on smaller lenders to take similar measures. As a result, Invictus’s business — dispensing advice on how to properly administer those exams — has taken off.

“You can stress-test all you want, but somebody has to validate the results,” Mr. Mustafa said. “That’s a massive opportunity.”

Regulators from seven states — including California, New Jersey and Pennsylvania — have hired his firm, Mr. Mustafa said, and he is selectively signing up two to four new bank clients a month. Annual advisory fees start at $20,000 and can reach $100,000 or more.

With business booming, Mr. Mustafa said he planned to hire 40 to 50 former bankers in the coming months, almost quadrupling his current staff. And in May, Invictus established its first European outpost: a London office focused on overseas banks and regulators.

Article source: http://feeds.nytimes.com/click.phdo?i=e47d4ed28b42c29b5078209ff5c06947

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