The so-called Volcker Rule, aimed at preventing commercial banks from engaging in proprietary trading, would severely restrict banks’ ability to invest in “covered funds”, such as private equity and hedge funds.
Around 7pm on Monday evening New York time, The New York Times was reporting that its journalists had seen a copy of the rule to be voted on, and that it was a "tougher-than-expected version".
The Volcker Rule is named after Paul Volcker, a former head of the US Federal Reserve, and adviser to US President Obama. It is not expected to take effect until 2015 at the earliest.
While the regulations were initially proposed in 2010, as part of the much larger Dodd-Frank Act, in an effort to better regulate US banks' trading activity on Wall Street in the wake of the 2008 financial crisis, critics say the effects of Volcker would be global – with early drafts of the legislation defining a “covered fund” as anything other than a fund regulated under the 1940 US Investment Company Act.
This would mean that non-US mutual funds and Japanese investment trusts were treated the same as hedge funds.
Asset managers owned by European and Asian banks fear that the Volcker Rule would severely restrict their ability to run mutual funds, with some drafts of the rule said to state that it would apply to any bank with as small a US presence as a single branch, agency or commercial lending subsidiary there, or have as few as a single US resident as an investor in its funds.
Unless the wording is amended in the final draft, critics warn, Volcker could mean that a bank of any size, whether a US bank or not, would be forced to withdraw its branding from its non-US mutual funds.
As reported, another feature of the Dodd-Frank Act is a 2012 act that aims at boosting the standards of advice on offer from America’s financial advisory industry, following in the footsteps of the UK, Australia and Singapore.
Both this act and the Volcker Rule follow in the wake of another major post-financial crisis package of regulations, the Foreign Account Tax Compliance Act, key parts of which come into force next year. It has had a major effect on banking and wealth management outside the US, because it obliges non-US financial institutions around the world to report to the US tax authorities on the accounts of any American taxpayers they happen to have on their books.