What Is the Dodd-Frank Act?

In 2024, cybercrime surged to unprecedented levels, causing losses of €10 billion ($10.4 billion)—double the amount recorded the previous year. These escalating cyber threats expose vulnerabilities within financial systems, emphasizing the urgent need for robust regulatory frameworks to safeguard digital and economic stability.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, introduced in 2010, was a direct response to systemic risks revealed during the 2008 financial crisis. While its primary goal was to stabilize the financial system and restore consumer trust, its principles of transparency, accountability, and risk mitigation are increasingly relevant to combating cyber risks today.

In this blog, we’ll examine the origins of the Dodd-Frank Act, its key provisions, its lasting impact on financial stability, and its growing role in shaping cybersecurity practices to protect against modern cyber threats.

Background: The 2008 Financial Crisis and Its Lessons

The 2008 financial crisis revealed major flaws in how financial institutions were regulated. At the center of the crisis was the subprime mortgage market, where banks provided loans to borrowers with poor credit histories. As borrowers defaulted on these loans, the financial system faced a ripple effect. A key turning point was the collapse of Lehman Brothers, one of the largest investment banks in the U.S., which sent shockwaves through global markets. The resulting panic caused a severe economic recession, with millions losing jobs, homes, and savings. One of the main causes of the crisis was the lack of proper oversight. Financial institutions could engage in risky investments and speculative trading without adequate regulations. These practices led to massive losses and eroded public trust in the financial system. To prevent such a disaster from happening again, lawmakers introduced the Dodd-Frank Act in 2010. This legislation was designed to close regulatory loopholes, increase accountability, and establish safeguards to protect consumers and the economy.

Understanding the Dodd-Frank Act

The Dodd-Frank Act passed in 2010, is a law designed to make the financial system safer and more transparent. It was created to stop big banks and financial institutions from taking risks that could harm the entire economy, like during the 2008 financial crisis.

The Act set up new organizations, like the Financial Stability Oversight Council (FSOC), to watch for risks in the financial system and the Consumer Financial Protection Bureau (CFPB) to protect people from unfair banking and lending practices. It also made trading of complex financial products, called derivatives, more open and safer.

Dodd-Frank aims to ensure financial institutions operate responsibly and protect consumers from harm.

Key Provisions of the Dodd-Frank Act

The Dodd-Frank Act was primarily designed to ensure financial stability, promote transparency, and prevent future economic crises. However, in today’s interconnected financial landscape, cybersecurity has become an essential component of these goals. As financial institutions depend on secure digital systems, protecting against cyber threats is integral to maintaining trust and stability.

Financial Stability Oversight Council (FSOC)

The FSOC oversees large financial institutions to identify and mitigate risks that could destabilize the economy. While its main focus is on systemic financial risks, cybersecurity has become a critical area of concern.

For example, the FSOC monitors whether institutions are prepared to defend against major cyberattacks, such as ransomware or data breaches. A successful cyberattack on a major institution could disrupt operations, damage public confidence, and even pose a risk to the broader economy—making cyber resilience an integral part of financial oversight.

Volcker Rule

The Volcker Rule limits banks from engaging in speculative investments that could threaten their stability. While its primary goal is financial discipline, it indirectly emphasizes the importance of securing trading systems against cyber threats.

Trading platforms and systems are frequent targets for hackers seeking to manipulate markets or steal sensitive data. By requiring banks to closely monitor and secure these platforms, the Volcker Rule helps ensure that cyber vulnerabilities do not lead to financial instability.

Consumer Financial Protection Bureau (CFPB)

The CFPB was created to protect consumers from unfair financial practices, such as hidden fees or deceptive loan terms. Today, its scope includes enforcing data security standards to prevent cyber breaches that could expose consumer information.

For instance, institutions are required to safeguard personal and financial data from theft or misuse. A large-scale data breach not only harms consumers but also damages trust in the financial system, making cybersecurity a core aspect of the CFPB’s mission.

Stress Testing and Regulation of “Too Big to Fail” Banks

Stress tests ensure that large financial institutions can withstand severe crises without collapsing. In recent years, these tests have expanded to include cyber resilience, recognizing that cyberattacks can be as disruptive as economic shocks.

Banks must show they can withstand attacks on critical infrastructure, such as payment systems or customer databases, without endangering their operations. This ensures they remain stable even in the face of significant cybersecurity challenges.

Derivatives and Transparency Reforms

The Act reformed the trading of derivatives—complex financial products that were central to the 2008 financial crisis—by requiring transparency and accountability. These reforms also include robust cybersecurity measures for the platforms where derivatives are traded and cleared.

A breach in these systems could lead to market manipulation or widespread financial losses, highlighting the need for strong defenses against cyberattacks. By enforcing security standards, the Dodd-Frank Act ensures that technological vulnerabilities do not undermine financial stability.

A Dual Focus: Financial Stability and Cybersecurity

While the primary goal of the Dodd-Frank Act is to maintain financial stability and accountability, cybersecurity plays a growing role in achieving this objective. Securing financial systems against cyber threats is not just about protecting data—it’s about safeguarding the entire financial ecosystem from disruptions that could harm the economy.

Cybersecurity Implications of the Dodd-Frank Act

The Dodd-Frank Act emphasizes transparency and accountability, which directly impacts how financial institutions handle cybersecurity. To comply with the Act, institutions must implement strong cybersecurity measures to protect their systems and sensitive data.

Cyberattacks, such as data breaches and ransomware, pose significant risks not only to operations but also to compliance. Failing to safeguard customer information or financial systems can lead to legal penalties, financial losses, and reputational damage.

Watch the video below to see how Keepnet helped Nautilus combat ransomware and strengthen its defenses against evolving cyber threats.

Nautilus faced ongoing ransomware attacks due to a workforce with varying IT skills and cybersecurity awareness. These challenges made the organization vulnerable to cyber threats. Tools like Keepnet’s Phishing Simulator and Security Awareness Training helped Nautilus identify and address these vulnerabilities, improving employee awareness and reducing their exposure to attacks.

Criticisms and Controversies Surrounding the Dodd-Frank Act

While the Dodd-Frank Act has improved financial stability and transparency, it has also faced notable criticisms:

• Over-Regulation: Critics argue that the Act imposes excessive compliance requirements, which can hinder financial innovation. These burdens also extend to cybersecurity, where institutions must meet stringent standards for data protection and breach response. While these measures improve resilience, some institutions find the costs and complexities of maintaining compliance overwhelming.

• Impact on Smaller Banks: Smaller banks and credit unions often struggle to meet Dodd-Frank’s requirements due to limited resources. This includes implementing advanced cybersecurity systems that are necessary to comply with the Act’s emphasis on protecting sensitive data and systems. For smaller institutions, the cost of adopting and maintaining these defenses can be disproportionately high compared to larger banks.

To address these concerns, the Economic Growth, Regulatory Relief, and Consumer Protection Act (2018) eased regulatory requirements for smaller institutions while maintaining key protections for financial stability and cybersecurity. These amendments allow smaller banks to focus their resources on essential areas, including safeguarding against cyber threats, without sacrificing compliance.

By balancing the need for strong cybersecurity measures with realistic expectations for smaller institutions, regulators aim to ensure that the financial system remains secure and resilient.

The Long-Term Impact of the Dodd-Frank Act

The Dodd-Frank Act, enacted over a decade ago, has significantly strengthened the financial system by addressing critical vulnerabilities:

• Preventing Bank Failures: Stress tests required by the Act ensure that major banks can handle financial crises. These tests evaluate factors like capital reserves and risk management, helping to identify and fix weaknesses before they lead to collapse.

• Encouraging Stronger Cybersecurity: Although not explicitly about cybersecurity, Dodd-Frank’s focus on accountability has pushed financial institutions to improve data protection. Many have enhanced defenses against ransomware and phishing to protect consumer trust and meet compliance requirements.

By fostering financial stability and driving better cybersecurity practices, the Act has created a safer environment for businesses and consumers.

How Keepnet Human Risk Management Supports Compliance with the Dodd-Frank Act

The Dodd-Frank Act prioritizes and risk reduction, transparency and accountability, —principles that are closely tied to cybersecurity. To meet these standards, financial institutions must address both systemic risks and the growing threat of cyberattacks.

Keepnet Human Risk Management Platform provides solutions to help institutions comply with these requirements while strengthening their defenses.

Phishing Simulator

The Phishing Simulator equips employees with hands-on training to identify and respond to phishing attempts, one of the most common cyberattack methods targeting financial institutions. This proactive approach reduces the risk of data breaches and protects sensitive information.

Security Awareness Training and Security Behavior and Culture Program

Keepnet’s Security Awareness Training equips employees with essential cybersecurity knowledge, helping minimize human errors that often lead to breaches.

In addition, Keepnet integrates the Security Behavior and Culture Program (SBCP) to build a sustainable culture of cybersecurity within organizations. This approach reinforces positive security behaviors and fosters ongoing awareness, creating a proactive workforce that is better prepared to prevent cyber incidents.

Learn more about SBCP on our blog: What Is a Security Behavior and Culture Program (SBCP)?

Advanced Reporting

The Human Risk Management Platform generates executive-level reports that provide actionable insights into organizational risks. These reports:

• Highlight departments and employees with the highest risk scores, enabling institutions to target areas of concern.
• Offer a breakdown of high-risk behaviors, such as susceptibility to phishing or failure to complete training, so organizations can implement tailored interventions.
• Provide data-driven dashboards that simplify complex information, making it easier for executives to understand the organization's security posture and track progress over time.

Check these resources to learn more about advanced reporting and executive reports:

Outcome-Driven Metrics

The platform uses metrics to measure and evaluate the effectiveness of security awareness initiatives, ensuring improvements are tangible and sustainable. Key features include:

• Behavioral Tracking: Monitors changes in employee behavior, such as improved phishing detection or better adherence to security protocols.
• Program Effectiveness: Assesses how well security training programs achieve their objectives, identifying areas for refinement.
• Comparative Benchmarking: Provides industry benchmarks so organizations can see how their performance measures up against peers.

These metrics give institutions the ability to track long-term progress and continually refine their security strategies to align with both compliance and operational goals.

Explore more about outcome-driven metrics on our blog post: Security Behavior and Culture Metrics.

By integrating Keepnet’s tools, financial institutions can not only align with the Dodd-Frank Act’s goals of transparency and risk mitigation but also build a stronger, more secure cybersecurity foundation to protect against evolving threats.