When President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Act”) on July 21, 2010, it was the most sweeping change to financial regulation in the United States since the Great Depression. Among other things, the Act created the Financial Stability Oversight Council, whose role is to identify and respond to emerging risks that may pose a threat to the U.S. financial system. Members of the Council will include the Secretary of the Treasury, the Federal Reserve Board and SEC administrators.
The Act also affects all federal financial regulatory agencies and almost every aspect of the nation’s financial services industry.
“Many organizations outside the financial services industry can benefit from implementing best practices specified in the Dodd-Frank Act,” says Jim Martin, CMA, CIA, CFE, managing director of Cendrowski Corporate Advisors. “However, the Act does not address some key concerns that may remain with today’s executives and investors. One such concern is the valuation of illiquid assets.”
Smart Business spoke with Martin about the Dodd-Frank Act, how it will affect both companies and industry, and the valuation of illiquid assets.
Who does the Act affect?
The Act applies to all public, nonbank financial companies, as well as larger public bank holding companies. However, the Act’s implications can and should be used as best practices in other types of organizations. For example, private companies can benefit by implementing risk management processes in the same vein as those discussed in the Act.
One of the provisions of the Dodd-Frank Act is the establishment of a systemic regulator to analyze financial marketwide risks. However, no organization, including those outside of the financial industry, should analyze risks in a vacuum. Companies often place significant attention on analyzing unique risks associated with their organizations. It is also important to consider the impact of industry and systemic risks and the way an organization might capitalize on the opportunities presented by those risks. Risk management processes should consider plans of action in the event that a business’s competitor falters and how the organization is prepared to capitalize on such an event. Systemic risks should also be scrutinized by an organization’s risk management process, as these may also present potential opportunities for value creation if successfully mitigated.
