Volcker rule clarity: Waiting for Godot

May 2014


Five months after regulators released the final Volcker rule, banks are pressing ahead with their implementation efforts, but are still waiting for promised guidance to clarify the rule’s many ambiguities.

Reminiscent of last year when banks were expecting the final rule, industry commentators have already sounded false alarms regarding this guidance’s imminence. Also, despite establishing an interagency taskforce this year to reconcile supervisory views, the five regulators are again having difficulty coordinating. The only regulatory guidance issued so far has come from the OCC acting alone (through the unusual approach of a “Dear CEO” letter), which merely confirmed the rumored September 2, 2014 metrics reporting due date for the largest firms.

Behind the scenes, regulators have offered more instruction to the banks, but not much more. They have reached out individually to meet with those banks required to report their metrics in September and have provided them with baseline reporting templates. But rather than addressing banks’ specific questions about certain metrics, trading desk definitions, or compliance program expectations, the regulators are in an information gathering mode. They are trying to understand the Volcker rule’s implementation challenges, but are not providing many answers.

The reality is that Volcker is going to hit banks’ bottom lines and many are facing key business decisions in the coming year. We believe the regulators will ultimately provide some formal guidance in the form of FAQs before September 2nd, but are skeptical that this initial guidance will give banks the clarity they need. We see the next year as a learning curve for both the banks and the regulators, as both begin to understand the impact of the Volcker rule, and regulators begin to provide guidance that reconciles their policy ambitions with their hope of avoiding unintended market impact.

With or without regulatory guidance, banks have to press ahead with implementing the rule and the onus will ultimately be on them to prove that they are not engaging in prohibited activities (as we detailed in our prior brief on this topic, Volcker Shrugged). At this point, banks need to answer their own questions and establish their “Volcker compliance risk appetite” based on their understanding of the rule and its impact on their business. While not a perfect method, it is the only course to take as deadlines approach and regulatory clarity remains elusive.

This A closer look focuses on the Volcker rule’s proprietary trading elements, providing our view of (a) where banks are (and where they should be) with respect to their Volcker implementation efforts, (b) five key compliance issues banks are facing, and (c) what to expect down the road from the regulators and the industry.

Contact us

Dan Ryan
US Banking and Capital Markets Leader
Tel: +1 (646) 471 8488

Alison Gilmore
US Asset and Wealth Management Marketing Leader
Tel: +1 (646) 471 0588