On April 20, 2017, the Federal Reserve Board issued its first Volcker Rule enforcement order and assessed a $19.71 million civil penalty. It was issued against a non-U.S. bank with banking offices and subsidiaries in the United States. The Federal Reserve Board determined that the bank did not have a compliance program “reasonably designed to ensure and monitor compliance with Volcker Rule requirements.” The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring certain private equity funds.
In the order, the Federal Reserve Board states that it determined that there were (i) significant gaps in key aspects of the bank’s Volcker Rule compliance program, including policies and procedures, management framework and internal controls; (ii) significant weaknesses in its analyses that it was in compliance with the proprietary trading exemption for certain market-making activities and (iii) weaknesses in its required metrics reporting and monitoring process that limited the bank’s ability to detect impermissible proprietary trading transactions.
Although the Federal Reserve Board acknowledged that the bank’s management had been undertaking steps to improve its Volcker Rule compliance program, it nevertheless imposed a $19.71 million civil penalty and ordered additional remedial actions in the form of development and submission of written plans to improve senior management oversight of the bank’s Volcker Rule compliance program and to enhance its written internal controls and compliance risk management program. The bank also must submit quarterly progress reports on its compliance with the order.