The General Accountability Office (“GAO”) recently completed a study mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of the risks and conflicts of interest associated with proprietary trading by U.S. banking institutions (the “Study”). Proprietary trading will be prohibited by Dodd-Frank’s Volcker Rule beginning in July 2012, and the Study was intended to provide input for the U.S. bank regulatory agencies in their proposed regulations implementing its requirements, which are expected in the very near future. The Study addresses (1) what is known about the risks and conflicts of interest associated with proprietary trading and the potential effects of the Act’s restrictions and (2) how regulators have overseen such trading and the challenges they face in implementing the restrictions. This is a more limited approach than the scope of the Study that Congress mandated, and already has garnered criticism by two Senators.

GAO completed its Study [1] with a recommendation that regulators should collect and review more comprehensive information on the nature and volume of activities potentially covered by the Act as a predicate to adopting final rules implementing the Volcker Rule. [2] The recommendation is not surprising, given that GAO encountered difficulty in collecting information on proprietary trading to complete its Study. The Treasury Department and the financial regulators have implicitly declined or at most agreed only to consider this as part of their rulemaking, as they apparently have concerns with the scope and direction of the recommendation.

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