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.
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:
- 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