Some of the world’s top banks have requested that the Federal Reserve give them a five-year grace period for compliance with the Volker rule, which formed part of the Dodd-Frank Act introduced in 2010.
The Volker Rule, named after former Federal Reserve Chairman Paul Volcker, is a federal regulation intended to prohibit banks from making speculative investments with their own accounts that also do not coincide with their client’s best interests.
The banks who have requested the extension include Goldman Sachs, Morgan Stanley, and JP Morgan.
The rule was scheduled to be implemented on as a part of Dodd-Frank in 2010, but has been delayed. Now banks are requesting that the Federal Reserve grant them an additional five-year grace period to settle contractual obligations that could potentially put them in breach of the rule.
The Fed has granted three extensions to the rules for stakes in hedge funds and private equity funds, but the new request for a grace period is intended for illiquid fund investments.
Kelvin To, president of Data Boiler Technologies, a data analytics company for investment banks and asset managers, believes Volcker compliance cannot be effectively dealt with using metrics and thus has had delayed implementation.
He said: “The industry needs to embrace real-time preventive risk controls amid the complex high-frequency trading environment. Volcker requires adopting methods to solve “financial engineering” problems. Unfortunately, banks are concerned with profitability, hence the backburner mentality”
To additionally claimed the Volker rule introduces unnecessary complications.
“Trading desks are bombarded by queries from risk control and compliance. Some aren’t even aware that the regulatory relief extension is only for covered funds prior to 31 December 2013.”
He added that banks have no tools to easily identify these fund investments, making it difficult to guarantee their compliance.
If the requested extension is granted, banks will not see implementation until 2022.