New Financial Project Risks from Dodd-Frank

FinacialRisk1BubbleManGoldOnDiceby Cheryl Wilson, PMP, RMP, CCEP
Published in the Project Post-Gazette, Issue 2014-01,  Project Post-Gazette

The Dodd-Frank Act is known as the Wall Street Reform and Consumer Protection Act) of 2010 (Public Law 111-203).   In several other articles of the PPG, we covered items of interest to those in the project management and/or business analysis disciplines when dealing with this very large and expansive piece of public legislation. These are the risks that Dodd-Frank is going to present or potentially present for financial projects both inside the financial services industry and those outside.

The financial project risks that the Dodd-Frank Act is going to impose on your projects are categorized into three main groups of potential risks:

  1. Compliance risks,
  2. Cost risks, and
  3. Process change risks

Each risk or categories of risks pose their own potential for significant impact if not identified, managed through mitigation, and tracked for possible triggering into reality. These risks are not absolutes meaning that they will not have the same potential for negative impact to your project’s deliverables (our definition of project risk), but will differ from how the context in which they exist within your organization, the type of organization your project is being planned or executed, and if you are one of the newly regulated organizations that the Dodd-Frank seeks to cover.

OK, let us begin with the legal disclaimer:

The PPG is NOT offering or citing legal advice or making offer of such legal advice. We are simply trying to make our readers aware of the potential risks and actual issues that are arising from the implementation of the Dodd-Frank Act. As with a medical situation where you are enjoined to seek competent medical advice, we are also saying that much of the Dodd-Frank impact will need to be reviewed, analyzed, and reported on by your competent legal and financial experts. There we said it, and we mean it.

So what does the Dodd-Frank Act mean in terms of the above risk potentials for your projects?

First, compliance risks or the risk of not being compliant when the regulatory deadlines, many of which have passed this last January 10th, 2014, hit are those risk potentials that come about from the provisions of the Dodd-Frank Act that require newly minted rules and requirements on organizations in and about the financial services industry. The Dodd-Frank Act is the most significant regulatory change to the financial landscape in the USA since the Great Depression and all the legislation that came from that financial crisis. Our own Cheryl Wilson has discussed the compliance risks in her January 2014 column, Compliance Central. We only add that from our reading of the web sites of the newly created federal oversight bodies, they are not in a forgiving mood to those that do not comply.

Second, what are the cost risks associated with the Dodd-Frank? Depending on the type of company that you working for and the type of project on which you are either the PM, BA or project sponsor, the costs of implementing Dodd-Frank are quite undetermined – thus the risk potential. Many legal and accounting experts are indicating that the real cost of Dodd-Frank will not be known for years to come, and organizations need to prepare for them now. Waiting to see how much Dodd-Frank is going to cost in terms of new business process projects, programs for employee training and compliance, and changes to financial and accounting reporting facilities is simply not a wise course of action. We suggest that you begin now to ensure that you are fully compliant with all the new Dodd-Frank rules and regulations. A good place to start is with your local state’s Better Business Bureau. They have both the resources and the support of their national arms to aid smaller to medium sized businesses (SMB) in their need for such information. Another solid source is your state’s business improvement folks that are usually found at your state’s corporation formation web site. We found ours quite quickly here in Virginia. Also, ask your accountant, if you have one, or use the Internet for research. But be careful and double, no triple check any information you discover there for accuracy.

Finally, be aware that Dodd-Frank is going to require that in some changes you alter your internal business processes significantly in order to be in compliance with the provisions and rules of the Act. This amount of work is definitely going to vary from industry to industry with the financial and mortgage services industry taking the brunt of the changes and regulatory maelstrom. Regardless, you will need to plan for some increase in project funding for these deliverables since very few industries are going to escape the tentacles of the Dodd-Frank Act – almost everyone is going to be subject to the changes that the Consumer Financial Protection Bureau (CFPB) is going to or has already implemented. They will impact almost everyone and every organization, and CFPB is almost entirely autonomous with its own rule making ability and enforcement capabilities.

We trust that you will take our suggestions and seek the competent legal and accounting advice you will need to remain a viable organization as well as an ever increasing successful project management practitioner. Come back to the PPG each month for more valuable information and tell you friends and associates where you are gaining this knowledge. We can change the profession and make it more valuable to our clients and customers.

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