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REGULATORY ACTIVITY

DODD-FRANK ACT-House Financial Oversight Chairs Urge SEC, CFTC and Fed to Delay for Two Years Effective Date of Final Regulations Implementing Volcker Rule

By Jim Hamilton, J.D., LL.M.

Financial Services Committee Chair Spencer Bachus (R-AL) and Chair-Designate for the 113th Congress Jeb Hensarling (R-TX) have urged federal financial regulators to delay the effective date of regulations implementing the Volcker Rule provisions of the Dodd-Frank Act for two years after the final regulations are promulgated. In a letter to the SEC, CFTC and Fed, the House leaders said that the two-year delay is appropriate given the time it will take for the regulators to agree on one version of the Volcker regulations and the tremendous uncertainty that market participants will have in trying to anticipate what the final regulations will look like. Also, they said that the two-year delay will replicate the two-year conformance period mandated by Section 619 of Dodd-Frank and would grant financial institutions the time Congress intended to give them to begin their efforts to comply with what the Congressmen called ``far-reaching, complex'' regulations.

The House leaders are extremely troubled that regulators have not been able to agree on a single version of the Volcker regulations. Section 619 charged the SEC, CFTC and the banking agencies with jointly promulgating one Volcker Rule, reminded the oversight Chairs, it did not grant each regulator the discretion to issue its own version of the Volcker Rule. In order to comply with the mandate of Dodd-Frank, they emphasized that the financial regulators must speak with one voice and issue one Volcker Rule.

Further, they warned that competing versions of the Volcker regulations will make it very difficult for market participants to know what their obligations are and how to comply with them, especially if they find themselves subject to competing regulations enforced by different regulators. The oversight Chairs believe that any benefit that the Volcker Rule can confer will not be realized if regulators further fragment financial markets and ratchet up the cost of compliance for market participants by issuing multiple versions of the Volcker Rule.

Finally, the House leaders asked the regulators to conduct a robust cost-benefit analysis of the Volcker regulations and their effect on investors, borrowers, capital markets, the financial system and the U.S. economy. Market participants deserve to know if the Volcker Rule will in fact make the financial system safer and at what cost, they said, and Congress should have the benefit of that analysis in considering whether Section 619 should be amended or repealed. The Chairs noted that, because no other country has imposed a prohibition on proprietary trading similar to the Volcker Rule, the Volcker Rule may put U.S. financial institutions at a competitive disadvantage to their foreign counterparts.

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