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Implementation of the Volcker Rule and the Liikanen proposal
The Volcker Rule and the Liikanen proposal
Advisory services in the area of implementation of the US regulation the Volcker Rule and its European equivalent, known as the Liikanen proposal.
Implementation of the US Volcker Rule and its EU equivalent the Liikanen proposal.
In the USA the Volcker Rule restricts the proprietary trading and private investment fund activities (“covered activities”) of U.S. banks and their affiliates, as well as non-U.S. banks with a branch or agency office in the United States and their affiliates.
In Europe the Liikanen proposal, a similar proposal to the Volcker Rule, will most probably apply to the largest EU banks and their financial groups’ members.
The rules in general prohibit banking entities from:
- Engaging in short-term proprietary trading activities
- Owning, sponsoring, or having certain relationships with hedge funds or private equity funds, referred to as “covered funds”.
The goal of the regulations is to reduce excessive risk taking and prevent rapid balance sheet growth as a result of trading activities. The regulations impose the mandatory separation of proprietary trading and establishes a framework for competent authorities to take measures to reduce excessive risk taking. Trading activities other than proprietary trading would be subject to a risk assessment. If a competent authority finds that an excessive risk exists, it could require trading activities to be separated from the core credit institution, or demand an increase in the core credit institution's own fund requirements, or impose other prudential measures.
The above is to be followed by implementation of an extensive compliance program and control framework, designed to ensure that the bank has robust risk management processes, monitoring and surveillance, limits, remediation processes, independent testing, reporting, training and recording keeping (the proof of the implementation and effectiveness of the above solutions).
Advisory services provided by KPMG may cover:
- Workshops and trainings on new requirements
- Analysis and impact assessment for entities within the banking financial groups
- Analysis of the trading businesses engaged in activities under the Volcker Rule or the „Liikanen proposal”, including the classification of trading
- Classification of activities into permitted and prohibited
- Proposals of activities’ modification or moving to other entities to minimize the impact on required compliance program (e.g. certain trading activities may be permitted under the regulations e.g. market making or hedging)
- Support in development of the required compliance program encompassing such elements as: policies, procedures, internal controls, management framework, independent testing and audit, training and recordkeeping
- The above may also require a review and adjustment of remuneration policies that prevent prohibited activities
- Support in roadmaps preparation for implementation project
- Project management office services.
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