If finalisation of the Volcker rule does nothing else (and
it will surely do much more), it has highlighted the difficulty
of coordinating new regulations among multiple regulators. The
struggle has been felt by both the agencies themselves and
industries they monitor. The culminating atmosphere of
uncertainty has not helped market conditions.
The difficulty for banks has been twofold: how to advise and
how to prepare. Industry participants must think through the
various implications of rule changes and offer comments to each
of the regulators, bearing in mind their different roles.
Preparing for so many contingencies is nearly impossible.
Legislation like Dodd-Frank pushes the bounds of regulator
cooperation. The expansive nature of the law has required new
rules to be addressed by multiple agencies. The development of
international markets and new financial products has narrowed
the gap between regulators. If this overlapping mandate is not
handled correctly, markets will be weighed down by complex and
The resulting collage of rules can leave gaps, and create
hurdles and inconsistencies. Over-the-counter (OTC) swap
traders are already facing this issue with the roll-out of swap
exchange facilities (SEFs) in the US. The Commodity Futures
Trading Commission (CFTC) has said it will recognise registered
dealers under similar regimes in other jurisdictions, but it is
not clear yet how similar those will be.
Volcker has been a perfect example of such difficulties. The
five regulatory bodies involved – the Federal Reserve
(Fed), Securities and Exchange Commission (SEC), Office of the
Comptroller of the Currency (OCC), Federal Deposit Insurance
Corporation (FDIC) and CFTC – have offered proposals,
solicited comments and discussed a range of possibilities. The
vote on the final rule, set for December 10 (as IFLR went to
press), will likely be a hardline amalgamation of all the
In-fighting between agencies has been a hallmark of the
drawn out process that has exemplified the difficulties of
trying to coordinate among regulators with very different
goals. The SEC along with the Fed had looked to prevent the
Volcker rule from dealing a fatal blow to the business of
banking, while the CFTC focused on drafting the strictest form
of the rule.
While legislation has been the precipitant for much of these
issues, it may also offer a solution. In June, the House of
Representatives passed a bill that would force the CFTC and SEC
to align their rules for cross-border swaps. Piecemeal
legislation won't fix the issue of coordination, but laws that
more clearly outline how and where the regulators need to work
together could boost clarity.
Regulators must also work together at an international
level. Though their purview is national, the industries they
monitor operate across borders. Prohibitive or opposing
regulations could slow down markets and inhibit national banks
in the future. However cooperation is achieved, regulators must
understand where their oversight begins and ends, and how to
manage the overlap between them.