In a letter to the SEC, CFTC and the banking agencies implementing the Volcker Rule provisions of the Dodd-Frank Act, 35 House Members said that the Volcker regulations must be finalized this summer. While the proposed regulations are not perfect, acknowledged the Members, they should not be delayed or scrapped.
Rather, the Members, many of whom sponsored and co-sponsored the Volcker provisions, urged the SEC, CFTC and banking agencies to adopt the best elements from the proposal, eliminate unnecessary loopholes, draw clear lines based on objective data and observable markets, strengthen CEO and board-level accountability and public disclosure, and provide coordinated and consistent enforcement, including data sharing by regulators. They also urged the regulators to maintain and ensure ease of compliance for the overwhelming number of community and regional banks that do not engage in covered activities.
The Volcker Rule provisions of the Dodd-Frank Act (Section 619) prohibit financial institutions from engaging in proprietary trading and sponsoring and maintaining hedge funds, while permitting market making and the hedging of risk. While the vast majority of banks will be unaffected by the provisions, observed the Members, the prohibition on proprietary trading will unquestionably reduce some banks' trading. Proprietary trading, regardless of where it occurs within a bank, is prohibited by Section 619. The Members noted that the banks directly impacted by the Volcker Rule have already had nearly two years to realign their businesses to comply with the broad contours of the rule, and many have already taken steps to do so. The Dodd-Frank Act provides for an additional two years, extendable up to five years, for financial firms to come into compliance with the Volcker Rule. The House Members suggested that during this period additional guidance may be offered as new data becomes available or with respect to particular provisions that may require deeper analysis, for example, prohibited conflicts of interest or high-risk trading strategies.