10/25/2011
Regulators are seriously considering holding the chief executives of Wall Street legally liable if they permit some types of proprietary trading on their watch.
The regulators, who are due to make public the proposed Volcker rule next week, are expected to ask if CEOs must certify, or “attest,” that their banks have installed the proper systems to ensure that no proprietary trading will ever take place.
This consideration came into being with the notion that holding CEOs personally accountable will add a powerful deterrent effect to the Volcker rule.
The rule prohibits banks from trading for their own gains in securities, derivatives and other financial instruments.
The bank industry is already cringing at the compliance headache and legal burden that will come with a CEO certification.
Wayne Abernathy, a senior official of the American Bankers Association, said, “The whole Volcker rule proposal envisions having an army of nannies overlooking the work of the people who actually work with customers. How much more does an attestation bring that does not bring?”
A CEO certification method may be similar to the Sarbanes-Oxley law that was enacted in 2002.
That law, which was established after huge accounting scandals at Worldcom and Enron, has the authority to send executives to jail and force them to pay multimillion-dollar fines for tendering phony certifications on corporate disclosures.
It is still not clear if the regulators will also seek imprisonment or hefty fines as possible penalties for CEOs violating the Volcker rule. Banking lawyers say that no matter what regulators might set up, fines would be a likely punishment if any are ever served.
