Banks Can Use IT to Enhance Collection of Information
Jim Hamilton (pictured to the right), Principal Analyst, Wolters Kluwer Law & Business (Riverwoods, Ill.)
The Volcker Rule provisions of the Dodd-Frank Act prohibit financial institutions from engaging in proprietary trading and sponsoring and maintaining hedge funds, while permitting market making and the hedging of risk. The regulations implementing the Volcker Rule, being readied by the SEC and the federal banking agencies, are almost certain to have a significant impact on the IT operations of many banks.
The Volcker regulations place new information- collection duties on banks involving reporting, recordkeeping and disclosure requirements, as well as monitoring and detecting impermissible proprietary trading and covered fund activities. In order to minimize the burden of the information collections, banks will be challenged to consider developing and using automated collection techniques or other forms of information technology. In addition, IT could possibly be used as part of an effort to enhance the quality and clarity of the information to be collected.
The significance of these requirements cannot be underestimated. The proposed regulations institute tiers of compliance levels for banks based on the volume of trading and covered fund activity. In doing so, the regulations would, in effect, require that every bank alter its existing compliance programs, policies and procedures to accommodate the requirements of the Volcker Rule, even if the bank does not engage in any such activity. This could impose substantial start-up and ongoing financial and human resource and IT costs at the vast majority of banks. In addition, banks must decide if their existing IT infrastructure is adequate to satisfy the compliance requirements of the Volcker regulations.
