The Dodd Frank Wall Street Reform and Consumer Protection Act has been effective in the US since July 2010. It identified foreign financial institutions which might have a big impact on the US market and identified as those as Foreign Banking Organisations (FBOs) to be in accordance with the act.
In principle, Dodd Frank Act aims at reducing systemic risks in order to avoid ‘too-big-to-fail’ situation, which became a main concern in the US in the late 2000’s. It proposed a wide range of remedies identified in attempt to improve risk management practice in financial services, also to enhance level of protection for investors consumers in general.
Business model changes are likely to the FBOs operating in or with the US counterparties, in order to implement and operationalise the mandate. The act calls for greater risk management commitment, capital and liquidation requirement for organisations in the financial services environment. It also involves major operational processes to be re-designed to implement Volker rule and OTC Derivatives trading. Increased reporting requirement is likely to affect day-to-day operations in order to meet the new derivative trading, reporting and clearing requirements.