Volcker Rule

What is The Volcker Rule?

The Volcker Rule (“The Rule”) is a section (619) of the Dodd-Frank Wall Street Reform and Consumer Act (“Dodd-Frank”) that imposes a number of restrictions on banking entities, most notably the prohibition of proprietary trading. The Rule, named after former Federal Reserve Chairman Paul Volcker, aims to limit risk-taking by federally insured depository institutions (IDI), prohibiting high risk speculative activities that previously created unacceptable levels of systemic risk.

When does The Volcker Rule begin?

The Rule was introduced following the 2009 financial crisis and enacted into law on July 21, 2010. Due to ongoing regulatory debate regarding the reforms, The Rule is unlikely to be in effect until July 2014 (regulators have yet to publish the final rules).

Which firms will be affected by The Volcker Rule?

Every US federally insured depository institution and any company that controls an IDI (including all bank holding companies and foreign banking organisations) will be affected by The Rule. Private investment funds with significant relationships with affected banks will also be affected .

Most global banks are likely to be affected by The Rule even if they have no presence in the US. The Rule applies where any party to a trade is resident in the US, so the following may potentially be affected:

  • Foreign subsidiaries of US companies

  • US subsidiaries of non-US banks

How will The Volcker Rule affect you?

Key points at a glance

The Rule prohibits or limits US IDIs and any company that controls an IDI from:

  • Engaging in proprietary trading

  • Acquiring or retaining any equity, partnership, or other ownership interest in a hedge fund or private equity fund

  • Sponsoring a hedge fund or a private equity fund or holding an ownership interest in a hedge fund or a private equity fund

Affected organisations will be required to establish a compliance program to address their conformity to The Rule. For those that do engage in permissible trading and investment fund activities, there are robust compliance standards that in practice should be tailored to the nature of the institution and its activities. The compliance requirements for institutions engaged in market making may be particularly burdensome.

Dodd-Frank provides for a two year conformance period; banking entities should be aware that they have four duties during this time:

  1. Prepare for full compliance on July 21, 2014

  2. Draft a conformance plan that describes how the entity will achieve this goal

  3. Demonstrate a “good faith” effort to achieve compliance during the conformance period

  4. Prepare for possible recordkeeping and reporting requirements that federal agencies may impose before July 21, 2014

Related Regulations

How can UnaVista help you with The Volcker Rule?

UnaVista can assist you in complying with a number of regulations, thereby eliminating the need to build separate solutions for each business problem. Future regulations can be addressed via the platform as required, enabling seamless evolution of your compliance solution. Examples of how UnaVista can assist with The Rule include:

Data Consolidation – UnaVista can maintain a centralised repository of all banking data (client and transactional*) to facilitate compliance with The Rule. Data can be imported from multiple disparate systems and in many different file formats. Documents (e.g. PDFs, MS Word) may also be securely stored within the system and permissioned according to users.

* UnaVista is asset class agnostic due to its flexible data model

Regulatory Reporting – our experience operating as an Approved Reporting Mechanism (ARM) for MiFID transaction reporting means that UnaVista is well placed to assist you with meeting your periodic reporting obligations for The Rule as well as other regulations (including EMIR, MiFIR, REMIT, EU Short Selling, Financial Transaction Tax and Dodd-Frank SDR Reporting ). UnaVista can facilitate the creation, evaluation, approval sign-off and submission of regulatory reports to third parties.

Reconciliation – compliance with The Rule and other regulations requires consolidating data sourced from multiple internal systems and external data vendors. UnaVista’s matching and reconciliation capabilities can facilitate such data integration processes allowing data from various sources to be centralised and reconciled using configurable matching rules. Exception management workflow, tailored to meet your individual requirements and align with your internal business processes, expedites resolution of reconciliation discrepancies.

Reference data from the source – as the UK’s national numbering agency, London Stock Exchange will allocate Legal Entity Identifiers (LEI), providing clients with a direct link to the source of the newly mandated identifiers. When combined with our Single Customer View (SCV) and Rules Engine capabilities, UnaVista delivers a strategic compliance solution to satisfy both your business and regulatory requirements.

Real-time Management Information – interactive graphical dashboards provide valuable Management Information related to regulatory compliance, exception management and operational efficiency.