The Impact of Dodd-Frank on a Financial Services Industry

Executive Summary

The paper seeks to determine and assess the impacts of Dodd Frank on a financial services industry. It will focus specifically on analyzing the hedge funds industry, which is involved in the investment of finances. Dodd Frank regulations and solutions are critical in recommending quality legislative and regulatory solutions to the hedge fund crisis within the economy.

Hedge Funds Problems

The hedge fund industry has various problems relating to the occurrence of the global financial crisis. The growing sophistication of the hedge fund industries had led to adverse global financial crisis. Over the years, the hedge fund community and companies have been facing the challenges and risks associated with the turmoil of 2007 and 2009. In the pre and post global financial crisis, the hedge fund firms have faced significant adverse resilience in tackling the financial challenges facing the firms. In addition, the management of the hedge fund industry has been in crisis (Akhigbe, Martin, & Whyte, 2015). The active management crisis within the hedge fund industry includes the lack of effective corporate governance structures and models. The challenges of the management within the hedge fund industry are critical in creating appropriate solutions. Therefore, it is clear the management crisis of the hedge funds calls for effective regulation of the industry.

Regulatory/Legislative Solutions

One of the main legislative solutions involved the passing of the Dodd Frank act, which was passed by the U.S congress to deal with the implications of the hedge funds. The law calls for the hedge fund managers to register their companies with the SEC. Most importantly, the new laws and regulations would help in regulating the trading in derivates, which have impact on the numerous hedge funds. The creation and implementation of the Dodd Frank Act would assist in regulating the hedge fund through assessing their ability to develop systematic risks (Balasubramnian & Cyree, 2014). The systematic risks within the industry usually expose the funds to liquidity problems due to the adverse impacts of net asset value. The establishment of the Dodd Frank Act has put much pressure on the hedge fund managers to possess more than $150 million before registering. The regulation solutions also require that the hedge funds should maintain quality records about the funds’ investment and business programs.

Most importantly, the government has developed a new regulatory regime within the derivates markets. The new regime seeks to control the execution of swaps and securities related to the hedge funding. Under Title VII of the Dodd Frank ct, it requires that the derivates contracts should be traded over the OTC market depending on the central clearing process. In providing for systematic stability, the Financial Stability Oversight Council (FSOC) established to assist in the monitoring and maintenance of stable U.S financial system (Akhigbe et al., 2015). The council has been instrumental in the overall coordination and sharing of information among the various regulatory units.

Conclusion

In summary, the various solutions including the Dodd Frank Act were important in handling the financial crisis relating to the operations of the hedge funds within organization. I think the controls and measures of acts and regulatory programs are critical in controlling the effective management and structures within the hedge funds operations. Financial analysts suggest the Dodd Frank Act would assist in regulating the hedge fund through assessing their ability to develop systematic risks. In addition, the creation of a new regulatory regime within the derivates markets has been helpful in improving the control and management of the hedge fund advisers. The new regime seeks to control the execution of swaps and securities related to the hedge funding. Finally, the financial Stability Oversight Council (FSOC) is useful towards helping in the effective monitoring and maintenance of stable U.S financial system to protect the hedge fund investors.