United States

Volcker Rule Adopted by Financial Regulatory Agencies

Dec 16, 2013
From the Financial Reporting View

On December 10, the Board of Governors of the Federal Reserve System (FRB), the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC) adopted the Volcker Rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule generally prohibits banking entities from:

  • Engaging in short-term proprietary trading of securities, derivatives, commodity futures, and options on these instruments for their own account; and
  • Owning, sponsoring, or having certain relationships with hedge funds or private equity funds.

The rule provides exemptions for activities including market making, underwriting, risk-mitigating hedging, trading in certain government obligations, and organizing and offering a hedge fund or private equity fund.

The rule also requires banking entities to establish an internal compliance program to ensure and monitor compliance with the rules. Larger banking entities must establish a more detailed compliance program, including a CEO attestation of compliance with the rule, and a qualified independent party (i.e., the internal audit department, external auditors, or consultants) is required to test the effectiveness of the compliance program.

While the rule is effective on April 1, 2014, the compliance period for banking entities to fully conform their activities and investments was extended to July 21, 2015. However, an entity with $50 billion or more in consolidated trading assets and liabilities is required to report certain quantitative measurements beginning in financial statements for periods ended June 30, 2014.

KPMG LLP is developing a KPMG Regulatory Practice Letter and other thought leadership papers.

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