Tuesday 10th December, all five US financial regulators voted to approve the Volcker rule, a new government ruling intended to restrict risk-taking across the financial services industry.
The rule, named after the former Federal Reserve chairman Paul Volcker, will see banks banned from using their own funds for trading activities. A central principal of the 2010 Dodd Frank banking reform legislation, the rule enforces transparency of trading funds for clients, specifically enforcing the separation of client trades from trades to limit their risks and ‘proprietary bets’ will be prohibited.
Five years since it was originally suggested as a means to stabilise the US Banking market, the rule comes into effect on April 1st 2014 and, as the WSJ acknowledged yesterday, much remains to be seen as to how regulators will interpret or enforce the rule. However it is anticipated that transparent disclosure from Banks will be required to satisfy regulatory scrutiny.