Americans for Financial Reform, a coalition of more than 200 national, state and local groups who have come together to reform the financial industry, has sent a letter to the heads of the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission, Securities and Exchange Commission, and the Secretary of the Treasury, calling for them to provide “far more extensive transparency into the implementation of the Volcker Rule’s prohibitions on proprietary trading by banking organizations.” Although AFR recognized that enforcing the statutory prohibitions of the Volcker Rule require “some degree of supervisory discretion,” the AFR’s letter continued that without extensive transparency “the public cannot have confidence that the law has been effectively implemented.”
Major uncertainties. To highlight the perceived lack of transparency, AFR noted that since the passage of the agencies’ final rule in late 2013, “regulators have failed to clearly inform the public, or even lay out a plan for clearly informing the public, as to the parameters for enforcement of the rule, the standards for compliance, the penalties for non-compliance, and the success or failure of major banking organizations in achieving compliance.” The advocacy group added, “This lack of transparency is especially significant since the Final Rule approved in 2013 left major uncertainties as to the actual, on-the-ground limits on trading and investment activities that would result from the Volcker Rule.”
Regulatory transparency. In order to provide regulatory transparency, AFR provided four specific recommendations that would provide the public and market participants with a solid evidence base for understanding the implementation of the Volcker Rule and its impact on bank trading practices. The recommendations are:
- Give an annual qualitative progress overview of Volcker Rule enforcement, including progress, violations, penalties, exceptions, escalations, and areas in which compliance must be improved.
- Release certain summary quantitative metrics governing market-making and underwriting activities at the trading desk level.
- Provide a more general overview discussion, including quantitative ranges, of trading desk risk limits and how they are determined, as well as the methodologies for estimating near-term customer demand.
- Report information on exposure to private equity and hedge funds permitted under the Volcker Rule, as well as required divestments under the rule.
For more information about the Volcker Rule, subscribe to the Banking and Finance Law Daily.
