For its final pièce-de-résistance, the Treasury Department has sent the last component of its financial regulatory reform legislative onslaught to Capitol Hill, even though lawmakers have supposedly gone home for recess.

Not to worry, though, it will be waiting for them when they return to Washington from vacation, or at least from all those raucous town hall meetings around the country. The legislation sent to them Tuesday courtesy of the Obama administration deals with the over-the-counter derivatives market, including the credit default swaps that led to the costly bailout of companies like AIG.

The legislation aims to guard against activities in the OTC derivatives markets that would pose excessive risk to the financial system and prevent market manipulation, fraud, insider trading, and other market abuses. The legislation would provide for standardized clearing of OTC derivatives and block OTC derivatives from being marketed inappropriately to unsophisticated parties. Good luck with that.

Another component of the Treasury's proposed financial regulatory reform legislation, creating a Consumer Financial Protection Agency, has already run into some stiff resistance on Capitol Hill and among the various financial regulators that such an agency would compete against. The new OTC derivatives legislation tries to avoid such turf battles by giving authority to both the Securities and Exchange Commission and the Commodity Futures Trading Commission, though in some cases the Treasury may still have to intervene if they can't get their regulations drawn up soon enough.

Also in the new OTC derivatives legislation are new requirements for recordkeeping and reporting on a timely basis. That could be where accountants come in.

Up to now, the derivatives market has operated on pretty much a fast and loose basis, which has allowed for a very dynamic market, but also one in which the unwary investor can lose a great deal of money very quickly. By imposing new record-keeping requirements on derivatives clearing houses, swap dealers, swap participants, and others, the legislation could open a new niche for auditors and others in the profession.

For example, in one part of the proposed legislation, each registered swap dealer and major swap participant would have to maintain daily records for each customer or counterparty for each swap transaction, and they would have to “maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions.”

The legislation promises to keep the financial industry and the accounting profession very busy indeed, not only keeping track of all those murky transactions, but also being able to reconstruct them should the SEC ever come a-calling.

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