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Meet or Exceed: What’s the Best Way to Approach Dodd-Frank’s Data Requirements?

Deloitte Debates

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Should we do just enough to satisfy Dodd-Frank’s data requirements and avoid future meltdowns, or should we use the new data requirements as a catalyst to improve our systems and get more business value from data?

There is no question that financial institutions will face a broad range of new data requirements as a result of the Dodd-Frank law. One question is what to do about it. Should financial institutions wait for detailed regulations to emerge and then do the bare minimum to get by? Or should they go above and beyond, using the new requirements as a catalyst to improve their overall data capabilities? Here’s a debate that is raging in C-suites within the financial services industry:

	Point	Counterpoint
Do just enough to get by. "We should do just enough to satisfy Dodd-Frank’s data requirements and avoid future meltdowns."	When it comes to providing data, there is no real advantage to being at the top of the class. Good enough is good enough.	We’re not talking about just providing data. We’re talking about using data to improve our business and drive revenue.
	Upgrading systems and data is expensive. We can’t afford to do anything extra.	Actually, we can’t afford not to. In the long run, improving our systems and data will save us money and help us grow.
	Right now, we don’t even know what the exact requirements are. Come back and talk to me when the regulations are in place.	Although we don’t know the detailed requirements, the spirit and direction of the law are clear. There is plenty we can do now to get ready.

	Point	Counterpoint
Harness the full power of data. “We should use the new data requirements as a catalyst to improve our systems and get more business value from data.”	Information is power. Simply meeting the requirements puts us at the same level as everyone else. If we want a competitive advantage, we need to do more.	We might be better off investing in other areas that give us a bigger advantage in the marketplace. Things like new products and services, global expansion and talent.
	To meet the law’s new requirements, we’ll need to upgrade our systems and data anyway. While we’re at it, why not use the opportunity to take our systems and data to the next level?	Slow down. Until the law is translated into regulations, we don’t even know what the requirements will be. We could waste a lot of time and money running down the wrong path.
	If we get in front of this, we can help shape the regulations – instead of being forced to respond to what somebody else comes up with.	It’s not worth our time to get ahead of this. Once the regulations are handed down, we can deal with them -- just like we normally do.

My Take

Dolores Atallo-Hazelgreen, Director, Deloitte & Touche LLP

One of the driving principles behind Dodd-Frank is that collecting more and better data will help prevent future meltdowns. Altruists argue that since we have to do it anyway, let's get some value. Realists worry about the required effort and expense. Both sides are valid.

To tackle the challenge, organizations should consider finding their own balance point – starting right now. Investors and the public appear to be demanding greater transparency. Taking tangible steps in that direction may help put them at ease. It can also jumpstart your organization’s efforts to create more business value from data.

Although the detailed requirements won’t be known until the law is translated into regulations, the overall direction and focus areas are clear. Here are some things you can do promptly to start getting ready.

Understand the law’s impact on your strategy and investments. At a minimum, I suggest taking a close look at the new law to better understand how your business is likely to be affected. Then incorporate what you learn into your strategic planning for business and technology investments. This will help you avoid wasting money on improvements that could become irrelevant.
Start tackling the “living will” requirement. Dodd-Frank’s “living will” requirement could be challenging to satisfy. The good news is that even though the exact details have yet to be defined, the advance preparations necessary to meet the requirement are not going to change. There’s no reason you can’t start now to map out your legal entity structure, lines of business and contractual obligations -- or to develop scenarios for your recovery plan.
Get the entire business involved. As part of your planning, consider involving key stakeholders from all parts of the business. This will not only help you make better decisions; it can help lay the groundwork for organizational buy-in once the time comes to deploy new solutions.

Trying to hit a moving target can be risky. That’s why it makes sense to focus on activities like these – positive steps that are worth taking no matter how the details shake out.

A view from our Federal Financial Services practice

Joni Swedlund, Principal, Deloitte Consulting LLP

Improved transparency is essential to help restore the public’s trust in the financial system and prevent future meltdowns. This will require better data. However, as regulators start to convert the Dodd-Frank law into detailed policies and data requirements, they should keep in mind a balance. In particular, they must find ways to obtain the necessary data and insights from financial institutions without creating an excessive burden that puts a damper on future economic growth. Here are some ideas to consider:

Collaborate with the private sector. Working with financial institutions to help define the data requirements is a win-win situation for everyone. It helps regulators understand what kinds of data financial institutions can easily provide. And it helps financial institutions understand exactly what regulators are trying to accomplish.
Aggregate data. The new Office of Financial Research (OFR) is responsible for collecting data that is important for managing systemic risk. The regulatory agencies will also continue with the collection of data to carry out their individual missions. There is an opportunity for the OFR to act as the data aggregator and combine requirements with the other regulators. Information could be shared with the appropriate agency based on the role and mandate required. This helps the financial institutions by sparing them the burden of overlapping requirements. But it also helps the agencies by providing ready access to the data they need and reducing duplication of effort. Aggregated data also makes it easier for regulators to identify systemic risks.
Make the most of what you already have. The OFR is tasked with leveraging data that already exists and to focus their data requests on identified gaps. Much of the data that regulatory agencies will need in the future is probably already being collected. Use the aggregation process to understand what you already have and to generate additional insights. Focus new data requirements on the remaining gaps.

In this day and age, it’s easy for regulators and financial institutions alike to get buried under mountains of data. Streamlining the data requirements and avoiding unnecessary duplication is in everyone’s best interest.

A view from the Financial Services industry

Randi Brosterman, Principal, Deloitte Consulting LLP

The new data requirements may help regulators evaluate financial institutions on an apples-to-apples basis. This may help make the financial system more predictable and less volatile, which most people would agree is a good thing.

Dealing with Dodd-Frank may not be nearly as painful if firms can find a way to use the information gathered as a springboard to strengthen their competitive position and overall performance. For example, enterprise level information requirements, which look across the institution, have many similarities to the requirements of customer relationship management (CRM). And let’s face it: when it comes to extracting business value from data, many financial institutions may not have capitalized on this treasure.\

Remember the old saying: If you aren’t playing offense, you’re playing defense. It might be smart to get in front of this and help shape the regulations, instead of waiting for regulators and other companies to impose their requirements on you.

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