Leading US finance lawyers analyse the impact of the act on their industry. By Andrew Pugh
For law firms with a high volume of clients in the financial services industry, the Dodd-Frank Act, which reforms US financial regulations and was signed into law by President Barack Obama last week, could have as big an impact on them as it does their clients.
While instructions have picked up steadily since the act was first mooted when Obama came to power, firms are now preparing themselves for the deluge of instructions expected to come their way.
The act impacts on practices well beyond regulation and enforcement, affecting areas such as derivatives, hedge funds, private equity and executive compensation. The Lawyer contacted some of the leading US financial regulation practitioners to get their thoughts on the act and how it will affect them.
As expected, their responses were mixed. Some have been busy making lateral hires while others have worked to integrate their regulatory and finance practices. One thing almost all agreed on, however, was that their workload was about to pick up significantly – and that the fallout could last for years to come.
Do you expect to see work volumes rise as a result of the Dodd-Frank Act?
Randall Guynn, financial institutions head, Davis Polk & Wardell: “We’ve been active advising the Securities Industry and Financial Markets Association and several leading US and non-US banks on financial regulatory reform. Those representations have kept us very busy during the past year, but we expect our work to increase substantially during the regulatory implementation phase.”
Richard Alexander, finance partner, Arnold & Porter: “It’s difficult to predict how much work will increase but it’s clear that clients are spending time evaluating the implications of the legislation – both short- and long-term. The enactment of the bill is only the beginning of the process because the real requirements will be set forth in regulations yet to be developed and promulgated. That process, in some cases, will take up to 18 months.”
Paul Lee, banking co-chair, Debevoise & Plimpton: “We’ve been actively engaged for various clients in analysing and following the legislation since last summer when the first drafts of the Treasury Bill were released, right up to the final changes made by the House Senate Conference Committee in June 2010. But the work over the past year represents only the first, albeit important, part of this process. The next step will be extensive rule-making processes and study processes called for by the legislation. This rule-making process will likely extend anywhere from 18 months to 36 months in certain cases.”
Ernest Patrikis, bank and insurance regulatory partner, White & Case: “I expect the Dodd-Frank Act to result in an increase in work over the next several years. Initially, questions will arise regarding the statutes and its ambiguities and alternative interpretations. The federal supervisory/regulatory agencies have been granted a great deal of discretion that will be reflected in proposed regulations. Those regulatory proposals will result in increased activity.”
William Sweet, finance and regulatory partner, Skadden: “My practice focuses on financial services regulation, which is the predominant theme of the bill. We’ve seen, and expect to continue to see, a significant increase in client demand for advice on matters covered by the Dodd-Frank Act.”
Bradley Sabel, finance and regulatory partner, Shearman & Sterling: “Although near-term work volume isn’t likely to expand significantly, we expect that the volume of work relating to the bill will pick up as proposed regulations are issued for comment and adopted, and even more so when final regulations are issued.”
What practice areas will benefit most from the bill and why?
RG: “The areas that will be most active initially will be our financial regulatory, Washington DC, investment management, derivatives, global collateral management, M&A and financial enforcement practices.”
RA: “The areas most impacted are financial services, consumer protection, derivatives, bankruptcy and executive compensation.”
PL: “Because the Dodd-Frank Act touches so many substantive areas of practice, we envision that virtually all of our corporate areas of practice will be involved in assisting clients in dealing with the new rules. Thus, in addition to already strong demands on our regulatory practice group, we see significant calls for help from our derivatives group, broker-dealer group, hedge funds group, private equity group and insurance industry group.”
EP: “My partner derivatives parishioners have an enormous task in front of them advising on the portion of the Dodd-Frank Act affecting the over-the-counter market in derivatives. To the extent that a client company is designated as a systemic non-bank financial company, that client will need a good deal of assistance in preparing for Federal Reserve supervision. Our securitisation practitioners will also need to assist clients working their way through new requirements.”
WS: “Practice areas involving Federal Reserve Bank, Commodities Futures Trading Commission and Securities Exchange Commission regulation, as well as practices subject to the other federal banking regulators, including the Federal Deposit Insurance Corporation and the Treasury, since the act is largely focused on these agencies.”
BS: “Derivatives, investment funds, executive compensation and bank regulatory and possibly bankruptcy, due to the prompt resolution mechanism for non-bank holding companies of financial firms.”
Will any practice areas need to be restructured to handle the implications of the act?
RG: “No, but we’ve strengthened our financial regulatory and enforcement and Washington DC practices substantially since mid-2008. Our financial regulatory and enforcement and Washington DC practices will need to coordinate with our investment management, derivatives, global collateral management and M&A practices to meet client demand.”
RA: “I don’t anticipate any major restructuring of practice groups or departments in US law firms, although the marketing of law firm expertise suggests that firms are creating cross-disciplinary units.”
PL: “Anticipating the likelihood of game-changing legislation in the financial sector, last summer we expanded our financial regulatory practice team by adding two partners, Greg Lyons in New York and Satish Kini in Washington DC, and integrating our regulatory advisory practices for our bank, insurance, broker-dealer, hedge fund and private equity clients.”
EP: “I don’t foresee any need to reorganise to address issues presented by the bill. What will be needed is to ensure good communications across practice groups and that started as the bill progressed through Congress.”
WS: “Firms that weren’t accustomed to fielding multi-disciplinary teams across a range of regulatory and transactional areas will have to think about remodelling their approach to serving their clients.”
BS: “Our view at this time is that restructuring our current platform doesn’t appear necessary to handle the implications of the bill.”