Volcker Rule: impacts for banks operating outside the US, and meeting the July 2012 requirements

A number of US businesses have made significant progress in dealing with the Volcker Rule, and activity and focus in banks that have non-US businesses is now increasing too.

The Volcker Rule prevents any banking entity from engaging in proprietary trading or acquiring or retaining an ownership interest in, or sponsoring, or having certain relationships with, a hedge fund or private equity fund, unless an exemption applies. A number of banks will get captured even if they have no presence in the US, or they do not see themselves as undertaking activity within the scope of the Rule.

The proposed Rule, as it currently stands, requires an affected bank to have a compliance programme designed to address actual or potential activities covered by the Volcker Rule in place by 21 July 2012. It is difficult to anticipate how the Rule will ultimately play out, but we expect that most of the key provisions and restrictions will remain as they currently stand.

Banks operating outside the US should be doing the following things before July 2012, even if it appears that the deadline may change:

1. Understand your potential exposure to the Volcker Rule: Conduct a preliminary ‘vulnerability assessment’ to identify the trading/business areas most impacted or sensitive to the Volcker prohibitions.
2. Assess your readiness for the reporting and compliance obligations for 21 July 2012: Review the bank’s current metric reporting capabilities against the future requirements.
3. Design the future control requirements: Analyse the gaps between the requirements and the bank’s current policies, reporting and other relevant controls within the Front Office, Risk Management, Finance, Operations, Compliance and Technology functions

Since the Dodd Frank Act was passed, PwC has been helping many firms assess the impact of the Volcker Rule, and we are currently working with several banks as they assess the impact of the Volcker Rule on their US and non-US businesses.

Our specialists have performed reviews of a number of businesses within banks to find out if their activities qualify for any of the exemptions, as well as to identify data, reporting and compliance gaps. We continue to help many top financial institutions in their overall regulatory reform management and implementation efforts around the Dodd Frank Act, for example around swaps data reporting, and derivatives central clearing among other issues.