Canadian bankers warn Volcker Rule may violate NAFTA agreement

Canada's largest banks sent a letter to U.S. regulatory agencies on Thursday, warning against implementation of the Dodd-Frank Act's Volcker Rule because it may violate the two countries' NAFTA agreement.

The Big Five banks – Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank – said in the letter that the proposed Volcker Rule could have serious implications in the Canadian mutual fund market. Several other Canadian organizations have sent similar letters to U.S. regulatory agencies, The Globe and Mail reports.

The proposed Volcker Rule prohibits financial institutions from investing client money in risky investments or “covered funds,” including hedge and private equity funds.
According to the Big Five, Canadian mutual funds are “safe investments,” and Canadian banks should have an exemption under the proposed measure.

Current exemptions allow U.S. and global institutions to invest in and operate mutual funds. The proposed rule does not contain language excluding Canadian mutual funds from “covered funds," according to The Globe and Mail.

The Canadian banking industry is significantly affected by the Volcker Rule, as many Canadian banks deal with American consumers and have U.S. holdings.

“U.S. banks will be able to continue to offer, sell, sponsor and maintain significant ownership interests in U.S. Public Funds globally without regard to the Volcker Rule, while banks that sponsor [Canadian mutual funds] will be unable to escape its restrictions no matter how limited their transactions with U.S. persons may be,” the letter said.

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