In a victory for Wall Street, regulators won’t require chief executives to guarantee that their firms are complying with the Volcker rule, only that they have set up proper procedures to assure the proprietary trading ban is being followed, said people familiar with the rule.
The wording will be a relief to large bank executives who were concerned that they would have to personally guarantee that their firms were in compliance with the rule. Instead, they will just have to sign off on having policies and systems in place, the people said.
“This is just another headache” for CEOs said Douglas Landy, a partner at Milbank, Tweed, Hadley & McCloy LLP in New York. While it is less onerous than requiring them to attest to actual compliance with the ban, Landy said it’s “ludicrous” to expect chief executives to have the specialized know-how to fulfill any certification demand.
Five agencies are set to approve the trading ban tomorrow. The regulation is among the most complex and controversial arising from the Dodd-Frank Act, passed in 2010 to overhaul oversight of the banking industry after the credit crisis.
The rule is designed to stop banks from speculating with their own capital and cut their investments in potentially risky hedge and private equity funds. Because it delves into the particulars of one of Wall Street’s most important businesses -- buying and selling securities -- regulators have struggled over how to set prohibitions while not hampering banks’ ability to serve clients.
The certification wasn’t part of the Volcker rule when it was first proposed two years ago; it was added, the people said, in an effort to stiffen its tone and send a signal that regulators weren’t bending to a massive lobbying campaign by financial firms. That message was underscored by Treasury Secretary Jacob J. Lew in a speech last week.
The rule “puts in place strong compliance requirements that require those in charge of financial institutions to make sure that the ‘tone at the top’ sends the right signal to the whole firm,” Lew said at the Pew Charitable Trusts in Washington.
With the final rule still being negotiated and drafted, it is unclear exactly who would have to sign the Volcker certification, one person said. It was in flux whether it would be the CEO of the entire holding company or the CEO of a specific unit, such as the brokerage or bank, the person said.
Several bank representatives, who asked not to be identified because the rule has not been released, said their top executives would likely be comfortable signing the certification if it focuses on policies and procedures.
They pointed out that executives already certify to compliance procedures for the Financial Industry Regulatory Authority, a self-regulatory group for brokerage firms.
The Sarbanes-Oxley Act of 2002 also required chief executives to certify that their books are accurate. That requirement is backed up by potential criminal penalties.
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