The Toll of Noncompliance

Noncompliance banking

New York, New York, September 13, 2013 – It’s no secret that many large US brokerage houses have come under scrutiny in the aftermath of the great recession, along with many of the practices that are blamed for bringing about the economic decline. As regulators continue to sort through the financial rubble and investigate these firms with a punitive eye, legal related expenses continue to amass at staggering levels.


According to today’s Wall Street Journal, in the past five years JP Morgan alone has run up a whopping tab of over $18 billion in legal related expenses. (Note: That’s $ billions – not $ millions). Facing at least seven separate investigations in areas ranging from trading oversight to mortgage bond sales to overseas hiring practices, the company continues to negotiate settlements with several different agencies, which still could lead to another $600 million in penalties. Bank of America and Citigroup, reported in the same article, face the same dilemma. In 2008 – 2012, each incurred legal related expenses  of $16.1 billion and $7.2  billion respectively. (WSJ: “Embattled JP Morgan Bulks Up Oversight,” Sept. 13, 2013).


In addition, with the SEC and FINRA now ratcheting up their regulations, it has become painfully clear to the financial industry that regulatory compliance is no longer a peripheral consideration, and measures must be taken to mitigate risk. To that end, according to the Journal, JP Morgan “plans to spend an additional $4 billion and commit 5,000 extra employees this year to clean up its risk and compliance problems, according to people close to the bank.” Without doubt, all financial firms are following suit, and corporate compliance departments are being granted greater autonomy and authority.


And contrary to the belief of many, “compliance” usually touches every employee in a company – not just its executives. For that matter, as an example, it may be easier and less conspicuous for a financial executive’s admin assistant to illegally divulge insider information than it is for an executive. For this reason and others, compliance policies need to be ubiquitous across the organization, clearly defined, well communicated, and enforceable, with the necessary resources in place to administer them. To be compliant comes at a cost, but in the final analysis, the investment may save a company from unexpected  fines, law suits and damage of reputation, which significantly out way the investment.

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Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010 the President of the United States, Barack Obama, signed into law some of the most sweeping legislation with regard to the financial markets since the Great Depression.  The question is, will this be enough? The Dodd-Frank Wall Street Reform and Consumer Protection Act, (“Dodd-Frank Act,”) creates more questions than it answers.

It has been over 70 years since the first set of comprehensive rules known as the Securities Acts of 33 and 34 were established.  According to historian David Kennedy, the Securities Acts have improved economic efficiency by making large amounts of information available to the investing public.[i] Once reforms are put into place they are often met by resistance from the industry, as nobody wants additional compliance burden.  The Dodd-Frank Act is no different in that a number of industry professionals have raised questions about this law.  In addition, the Securities Act of 34 created the Securities and Exchange Commission and the Dodd-Frank Act has created the Consumer Protection Agency.  When the Securities and Exchange Commission was created it was given broad powers to regulate the financial services industry and it is anticipated that the Consumer Protection Agency will also be granted such broad powers to regulate the financial services industry.  After the dust settles on Wall Street, will we look to the Dodd-Frank Act as we do the Securities Acts of 33 and 34?

Over the next several months we will attempt to break down the components that make up the Dodd-Frank Act and provide some real world solutions to the questions that this law will evoke.  For further information regarding H.R. 4173: Dodd-Frank Wall Street Reform and Consumer Protection Act please visit:

[i] Kennedy, David, Freedom From Fear, Oxford: New York, 1999.

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