Volcker Rule
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Volcker Rule

Representative Engagements

The Volcker rule has received more public, congressional, and regulatory attention than any other aspect of the Dodd-Frank Act. Its complexity is widely noted, but the greater challenge for financial institutions goes beyond determining what the language says to interpreting what regulators mean.

 

The final regulation applies to an entire industry; each company is left now with the formidable task of deciphering regulatory intent — and then determining how that intent will affect the many highly specialized activities at the heart of the Volcker rule.

Promontory has extensive knowledge of the Volcker rule and a strong conceptual understanding of the steps companies must take to achieve compliance. Our focus is on helping companies translate the regulatory requirements into quantifiable consequences — from enterprisewide strategy to trading-desk operations. We emphasize tailored solutions that address the particular challenges each company faces, whether in initial assessment, plan implementation, evaluation, or in all three stages.

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Custom Solutions

The Volcker rule does not allow for a one-size-fits-all compliance paradigm. Successful implementation will require compliance programs designed to address each firm’s specific business activities and the associated risks.

  • Large U.S. Banks: Large U.S. banks with significant projects underway can look to Promontory for assistance with validation and testing, as well as with special projects.
  • Midsize/Small Banks: Midsize and smaller banks looking for guidance on risk assessments, project planning, and building compliance programs can turn to Promontory. We help companies achieve full compliance without unnecessary compliance burden or expense.
  • Foreign Banks: Foreign banks can seek Promontory’s expertise on the unique aspects of the Volcker rule, including the exemption related to activities solely outside of the United States.

Meeting Regulatory Expectations

The details of complying with the Volcker rule will be determined by interactions between regulators, supervisors, financial institutions, and other stakeholders. Promontory is uniquely situated to provide strategic advice to companies at every stage of the compliance process. Our services include disciplined project management, whether the project encompasses the entire compliance process or discrete steps within it.

We develop solutions tailored to meet the full range of industry needs:

Getting Started

  • Governance infrastructure, including steering-committee setup
  • Regulatory risk assessment; assessment of business activities for compliance exposure
  • Special considerations for illiquid products
  • Frameworks for demonstrating reasonably expected near-term demand and risk-mitigating
  • Evaluation and documentation of exemptions such as liquidity risk management

Establishing the Conformance Period Plan

  • Compliance plans tailored to specific needs of a banking entity
    • Comprehensive plan for large U.S. banks and some midsize firms
    • Targeted plan for midsize and small firms with limited trading activity
    • Activity-specific plan for foreign banking organizations
  • Training for roles and responsibilities in each of the three lines of defense: business, independent risk management, and internal audit
  • Independent review of existing conformance plan
  • Peer benchmarking: comparison with regulatory expectations and industry best practices
  • Supervisory engagement: engaging with examiners, staying abreast of regulatory guidance, and adjusting actions as needed
  • Requesting a conformance-period extension

Developing the Compliance Program

  • Board-level reporting and credible challenge
  • Management oversight and validation
  • Desk-level policies and procedures
  • Consistency of trading limits and risk appetite
  • Limit escalation and authorization policies
  • Valuation control practices
  • Model-risk oversight and governance
  • Compensation framework
  • CEO attestation and supporting records
  • Independent risk management and internal audit
  • Metrics and reporting for internal and regulatory purposes
  • Ongoing independent testing

Representative Engagements

  • Volcker rule implementation: A global financial organization engaged Promontory to assist it in executing its entitywide Volcker-compliance plan. The project scope included helping the institution to implement Volcker in a way that reflected regulatory intent and working with the company’s Volcker teams to assist with interpretation, provisioning of staff, and designing policies and processes to support compliance. 
  • Strategic and tactical planning: For a global financial institution, Promontory advised and assisted in strategic and tactical planning related to the implications of supervisory standards proposed to implement the Volcker rule. We also advised on the development of comment letters on the initial Volcker rule proposal. 
  • Volcker regulation impact assessment for large global hedge fund: Promontory reviewed the proposed Volcker rule to assess its potential impact on a hedge fund that has significant foreign bank investments. Promontory suggested changes to the proposed Volcker rule — to clarify the intended restrictions on foreign bank investments — that were incorporated into a comment letter and talking points for the client’s discussions with legislators. 
  • Education and advocacy advisory efforts for large U.S. trade association: A large U.S. trade association retained Promontory to advise on education and advocacy efforts related to the Volcker rule. We advised on proprietary trading and investment activities and contributed to the drafting of comment letters and meeting materials.