volcker webcast ppt v1

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Is your bank on track to meet Volcker conformance standards?November 14, 20141:00 pm – 2:00 pm EST

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Graham TasmanPrincipal,Business Advisory [email protected]

Ken GoodwinNational Senior Manager,Bank Advisory and Regulatory ServicesNew [email protected]

PresentersToday's


Learning objectives

• Identify and evaluate Title V [Regulation of advisors to hedge funds and others] and VII [Swap Dealer/OTC derivatives] implications

• Recognize Volcker Rule Title VI and its implications

• Evaluate propriety trading vs non-propriety trading [trading desk/functions impacted]

• Identify and discuss the standard compliance and enhanced program compliance requirements

• Cite the covered funds/Super 23A restrictions

Is your bank on track to meet Volcker conformance standards?


Agenda

• Dodd-Frank Act Overview• Advisors/Hedge Funds Reform• OTC/Derivatives Reform• Volcker Rule Update• Questions


Dodd-Frank Act Overview

The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Dodd Frank Act or "DFA" was signed into law by President Obama on July 21, 2010.

• 5th year of DFA with 220 of the 398 total required rulemakings have been finalized while 95 rulemaking requirements have yet been proposed.

Three key themes of the DFA Act:

• Regulation should promote safety and soundness to the financial industry

• Regulators are streamlined and consolidated to promote clear missions

• Emphasis is on rule based regulation as opposed to principles-based regulation


Dodd-Frank Act – Title Provisions

DFA has 16 title provisions covering financial stability to Section 1256 Contracts

• Title IV (Advisors/Hedge Funds Reform) – Regulations of Advisers to Hedge Funds and Others

• Title VI ("Volcker Rule") – Improvements to Regulation of Bank and Savings Association Holding Companies and Depository Institutions

• Title VII (OTC Derivatives/Swaps Reform) – Wall Street Transparency and Accountability


Agenda

• Dodd Frank Act Overview• Advisors/Hedge Funds Reform• OTC/Derivatives Reform• Volcker Rule Update• Questions


Title IV – Advisors/Hedge Funds

Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act makes numerous changes to the registration and reporting and recordkeeping requirements of the Investment Advisers Act of 1940. Among these is the requirement that advisers to most private funds (hedge funds and private equity funds) register with the Commission.

Key Themes from Title IV:

• Enhances Broker Dealer Oversight regarding regulation of securities products, trading strategies and fee structures

• Grants authority to collect data from registered investment advisers about their private funds for the purposes of the assessment of systemic risk

• Made changes to Form ADV• Amendments to "Pay to Play" Rule• Established Internal Control Structures for Credit Rating Agencies


Agenda



Title VII: OTC Derivatives Reform

As mandated by Title VII of the Dodd-Frank Act, sufficiently liquid and standardized derivatives transactions will be subject to central clearing requirements, and many of those will be required to be executed on new electronic trading platforms (known as "Swap Execution Facilities" or SEFs).

Key Themes from Title VII:• Reporting swap transactions to a swap data repository (SDRs);• Clearing sufficiently liquid and standardized swaps on central

counterparties, or designated clearing organizations (DCOs);• Where appropriate, trading standardized swaps on SEFs or designated

contract markets (DCMs);• Setting higher capital and minimum margin requirements for uncleared

swaps


Agenda



Volcker Rule: Impacted organizations

The final rule prohibits entities from acquiring ownership of or sponsoring certain hedge funds and private equity funds, referred to as "covered funds," such as:• Insured depository institutions• Their holding companies• Foreign banking organizations• Affiliates of these entities

The final rule also generally prohibits proprietary trading at similar institutions.


Impacted units

Governance: Note Internal Audit is also impacted

CEO signoff


Compliance program requirements

• The more substantial a banking entity's trading and fund activities are, the more extensive the entity's compliance program should be

• No formal requirement – Small, non-complex banking entities that do not engage in proprietary trading or covered fund activities – other than trading in US government agency obligations, or state and municipal obligations – do not need to set up a compliance program

• To reduce compliance burden, the Volcker Rule permits smaller, less complex banking entities with total consolidated assets of $10 billion or less than engage in covered proprietary trading and/or covered fund activities to implement a simplified compliance program– Can edit their existing policies and procedures about their status against the

rule and the control framework that they have in place and must demonstrate that they are in compliance with the requirements


Compliance program requirements: Standard

• A management framework that delineates responsibility and accountability for compliance Governance

• Written policies and procedures reasonably designed to document, describe, monitor and limit activities for (1) covered funds and (2) proprietary trading activates

Policies and Procedures

• A system of internal controls reasonably designed to monitor compliance

• Controls support the policies and proceduresSystem of Controls

• Records sufficient to demonstrate compliance with the rule and retained for five yearsRecordkeeping

• Training for trading personnel and managers, as well as other “appropriate” personnel Training

• Independent testing of the compliance program • Can be undertaken by internal audit or third partyIndependent Testing


Compliance program requirements: Enhanced

Trading Desks

• The policies and procedures must describe the process for identifying the financial instruments each trading desk may buy or sell, with separate documentation for permissible market-making and hedging activity.

Description of risks and risk management program

• Written policies and procedures reasonably designed to document, describe, monitor and limit activities for the range of risks undertaken

• Must address end to end risk management process

Authorized risks, instruments and products

• The risk limits for each trading desk should be based on quantitative measures of potential loss and associated system of controls

Hedging policies and procedures • Risk-mitigating hedging instruments and strategies and responsibilities

Analysis and quantitative measurements

• Quantitative measures "metrics" as specified in the Final Rule Type 1: Risk-Management Measurements, Type 2: Source-of-Revenue Measurements or Type 3: Customer-Facing Activity Measurements

• Others as appropriate

Remediation of violations• Procedures for immediate review and investigation of the

trading desk’s activities, escalation to senior management, and timely notification to the regulator

Standard elements of a compliance program and the specific procedures to address the areas below

Banking entities with total assets of $50 billion or more but trading assets and liabilities of less than $10 billion would be subject to the enhanced program without metrics.


Timetable for Volcker RuleTrading Assets and Liabilities

September 2,2014

July 21,2015

April 30,2016

December 31,2016

Metrics reporting Enhanced compliance program

Full compliance program for size and

scale of activities

Metrics reporting and enhanced

compliance program

Full compliance program for size and

scale of activitiesMetrics reporting

and enhanced compliance program

Update existing compliance program

Must be able to demonstrate status

$50 billion or more

between $25B and $50B

between $10B and $25B

$10 billion or less modest

activities

$10 billion or less (No VR activities)


Polling question #1

• True

• False

The Volcker Rule currently has 17 reporting metrics for determining whether trading activities are appropriate.


Polling question #2

• True

• False

CEOs of banking entities that are subject to enhanced compliance standards must attest annually that their controls and processes are "reasonably designed" to ensure compliance with the Volcker Rule.


Polling question #3

• True

• False

The Volcker Rule implements the statutory provision prohibiting a banking entity from acquiring and retaining ownership interest (directly or indirectly) in a covered fund or having certain relationships with a covered fund. The final Volcker Rule on Covered Funds expanded the definitions of covered fund and trustee.


Questions?Comments?


Graham TasmanPrincipal,Business Advisory [email protected]

Ken GoodwinNational Senior Manager,Bank Advisory and Regulatory ServicesNew [email protected]

InformationContact


Disclaimer

This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered.

For additional information on matters covered in this presentation, contact your Grant Thornton, LLP adviser.


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volcker webcast ppt v1

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