22 April 2018
Mark Cheng

Mark Cheng

Mark Cheng - Boutique Advisory Firm

5Posts 24,198Views 1Comments

RENTD Commentary

09 May 2016  |  4957 views  |  0

On March 31 Wall Street banks were required to provide the first annual CEO attestation as part of the Volcker Rule which was adopted in 2013 and went live in July 2015. As part of the attestation, each banking entity must demonstrate that it “has in-place processes to establish, maintain, enforce, review, test and modify the compliance program established under [the Rule] in a manner reasonably designed to achieve compliance with” the statutory Volcker Rule provision (Section 13 of the Bank Holding Company Act) and the Rule.

 

The attestation is an annual requirement where banks have to continuously prove they have a proper management framework and internal controls in place to comply with all aspects of the rule.  A majority of banks already have the data they need to report and control for Volcker, it’s only a matter of structuring their Front-to-Middle Office trade data in order to conform to deeper Volcker requirements where issues surface. Objectively, this should be quite straightforward since banks are already leveraging the same data to comply with various aspects of CCAR and Basel. But the old data adage applies: “Garbage in, garbage out”.

 

We’re also seeing situations where control frameworks banks have in place aren’t effective enough to monitor and identify prohibited trading activity. A lack of proper documentation also leads to a variety of issues around BAU transitioning and accurate recordkeeping.

 

All the aforementioned items are a must in order to comply with the RENTD (i.e., Reasonably Expected Near Term Demand of customers) element of the rule. Banks must be able to properly calculate and document their market making and client facing activities. By doing this banks can show they are under qualifying or non-qualifying market making exemptions based on the analysis of set measures, while conducting normal business for their clients. Without an enterprise-wide RENTD governance model in place, success may be out of reach.

 

Volcker's forecasting requirements have put banks in a really tough position. One where Demand  projections and look-backs are still insufficient to provide the evidence of whether banks are actually market making. Banks simply don't have the complete view, nor do they have the Compliance-IT infrastructure to perform such a view. Thus, banks are left to work in phases where they survey trades desk-by-desk, book-by-book, region-by-region, product-by-product, entity-by-entity, etc., in order to respond by tight deadlines to which most of the time has already past. 

The real question is: Will banks ever have sufficient levels of data lineage readily available to perform the analysis necessary towards RENTD compliance? 

(find out more...)

 

TagsRisk & regulationPost-trade & ops

Comments: (0)

Comment on this story (membership required)

Latest posts from Mark

Lessons in Micromanagement

10 June 2016  |  7381 views  |  0 comments | recomends Recommends 0 TagsInnovationTransaction banking

De-risking the Risk-Based Approach

06 June 2016  |  4467 views  |  0 comments | recomends Recommends 0 TagsRisk & regulationFinancial inclusion

RENTD Commentary

09 May 2016  |  4957 views  |  0 comments | recomends Recommends 0 TagsRisk & regulationPost-trade & ops

Facing FATCA

29 April 2015  |  3560 views  |  0 comments | recomends Recommends 0 TagsRisk & regulationTransaction banking

RegBlog - Chinese Options Market

10 March 2015  |  3834 views  |  0 comments | recomends Recommends 0 TagsTrade executionRisk & regulation

Mark's profile

job title Managing Consultant
location New York City
member since 2015
Summary profile See full profile »
Mark is an Managing Consultant at a boutique Advisory firm concentrating in Risk, Compliance, Regulatory Change, and Finance Transformation. Mark serves within Capital Markets, Bank Holding Companies,...

Mark's expertise

Member since 2015
5 posts1 comments
What Mark reads
Mark's blog archive
2016 (3)2015 (2)

Who's commenting on Mark's posts