Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

As mandated by the Dodd-Frank Act, the Financial Stability Oversight Council, or FSOC, conducted a study on how best to implement Section 619 of the Dodd-Frank Act (commonly known as the “Volcker Rule”).  The FSOC’s study puts forward recommendations designed to effectively and comprehensively implement the Volcker Rule in a manner that constrains risk-taking by, and promotes the safety and soundness of, banking entities.

The FSOC study recommends the following:

  • Require banking entities to sell or wind down all impermissible proprietary trading desks.
  • Require banking entities to implement a robust compliance regime, including public attestation by the CEO of the regime‘s effectiveness.
  • Require banking entities to perform quantitative analysis to detect potentially impermissible proprietary trading without provisions for safe harbors.
  • Perform supervisory review of trading activity to distinguish permitted activities from impermissible proprietary trading.
  • Require banking entities to implement a mechanism that identifies to Agencies which trades are customer-initiated.
  • Require divestiture of impermissible proprietary trading positions and impose penalties when warranted.
  • Prohibit banking entities from investing in or sponsoring any hedge fund or private equity fund, except to bona fide trust, fiduciary or investment advisory customers.
  • Prohibit banking entities from engaging in transactions that would allow them to ―bail out a hedge fund or private equity fund.
  • Identify ―similar funds that should be brought within the scope of the Volcker Rule prohibitions in order to prevent evasion of the intent of the rule.
  • Require banking entities to publicly disclose permitted exposure to hedge funds and private equity funds.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.