Pennsylvania + Wall


Pennsylvania + Wall provides commentary on a broad range of current financial, economic and regulatory reform topics. The views expressed are those of the authors, and do not necessarily reflect the position of SIFMA.

March 04, 2014

Holes in the Volcker Rule

By Kenneth E. Bentsen, Jr.

Ken Bentsen The following oped appeared in The Hill.

The final Volcker Rule has been out for just over two months, and it has already raised a host of questions and concerns as firms comb through almost a thousand pages to interpret the complex rule and comply by the July 2015 deadline.

One of the greatest challenges with interpreting and implementing the Volcker Rule is the lack of statutory direction for ensuring coordination among the five regulators. The Dodd-Frank Act tasked the Commodity Futures Trading Commission (CFTC), the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the Securities and Exchange Commission (SEC) with writing the rule, but it did not task any one agency or the agencies collectively with the interpretation, examination, supervision or enforcement of the final regulation. 

This glaring omission is a worry for members of the financial services industry, who are diligently working toward compliance but face the possibility of inconsistencies in interpretation and enforcement.

In a move to address these concerns, regulators announced last week the formation of an interagency working group. While its establishment is a step in the right direction, much remains to be done to provide confidence to the industry and the markets that there will not be problems with Volcker Rule implementation.   

Presently, there is no single entity in charge of the interagency group, nor is it clear how the group will ensure a consistent approach among regulators. 

The group also lacks transparency. It held its first meeting in a closed session, not even disclosing its existence until after this meeting, and with little input from the public. 

There are questions about process as well. Which regulator should a firm consult when questions arise? How does a firm seek clarification from the interagency group? 

As it stands, there is still not a clear road map on how to implement and interpret the Volcker Rule. There may be several, diverging compliance paths depending on which regulator you ask; and with no clear leader, who will make the final call? 

For instance, what happens if the SEC and its examiners take one point of view for a broker-dealer, while the OCC takes another point of view for the national bank in the same affiliated institution? Now add in the complexity of the CFTC reviewing the activities åof the national bank for its registered swap dealer activities. What if the FDIC takes one view for nonmember banks and the Federal Reserve another for member banks?  

This lack of a clear, transparent and consistent approach to address and resolve regulatory issues will only increase costs, make compliance more challenging, delay achievement of the regulatory goals and exacerbate burdens that undermine activities beneficial to the economy. This could also run the risk of limiting or curtailing permitted market making and risk-mitigating hedging that are beneficial to customers and the orderly functioning of the financial markets.   

Rules work best when they are clear, and clarity on the Volcker Rule can only be reached through a coordinated and supervised process. With deadlines approaching quickly, coordination cannot be delayed. 

We believe that a suitable solution is for the Financial Stability Oversight Council (FSOC) to play the role of coordinator. Congress granted it the authority to coordinate supervisory activities with respect to the rule, as provided for in the FSOC's enabling statute and in the statutory Volcker Rule itself. We also believe that Congress must play a greater oversight role. 

The need for better coordination is a recurring theme that extends well beyond the Volcker Rule. Not nearly enough is being done to coordinate across regulators, jurisdictions and geographical borders. We have seen that lack of coordination explicitly between rule-makings in derivatives by the CFTC and the SEC. 

Within our own borders, we should rely on entities like the FSOC to facilitate coordination and call on Congress for better oversight to bring clarity to complex regulations. 

On a global level, our regulators must work with their counterparts abroad to ensure that national rules are consistent and coordinated. Failure to do so can put American markets and firms at a competitive disadvantage and create opportunities for regulatory arbitrage.  

We must also take advantage of agreements like the Transatlantic Trade and Investment Partnership between the U.S. and the European Union, which provide an additional opportunity to enhance coordination, improve efficiency of the transatlantic financial markets, reduce conflict and confusion, facilitate trade and deliver lower costs products to investors. 

Coordination is key to implementing the Volcker Rule, or any rule, within the U.S. and beyond our borders. Only through coordination can we create the clarity and consistency in our financial markets that will pave the way for greater efficiency, lower costs and economic growth.    

Kenneth E. Bentsen, Jr.
President & CEO



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