In addition to the Basel III rules, there are a number of important regulatory frameworks to be aware of the Dodd-Frank Act, fully known as the Dodd-Frank Wall Street Reform and Consumer Protection Act is a United States federal law that places the regulation of the financial industry in the hands of the government. The legislation, which was enacted in July, 2010, is very wide ranging and created financial regulatory processes to limit risk by enforcing transparency and accountability. The Dodd-Frank Act also contains the Volcker rule, which generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds. The aim of this is to reduce bank's ability to take on risk and instead focus their attention on managing risk arising from servicing clients' needs. Turning to European markets, MiFID 2 was introduced in 2014 and is a revision of an earlier set of rules. It is the foundation of financial legislation for the European Union designed to assist traders, investors, and other participants in the financial sector. It is a harmonized set of regulations governing the trading venues that financial instruments are traded in. The primary goal of MiFID II is to keep financial markets strong, fair, effective, and transparent. Another important European Union piece of regulation is the European market infrastructure Regulation, EMIR, or emir. This governs ways in which the over the counter, OTC derivatives market, central counterparties, and trade repositories operate. Its main aims are to increase transparency in the OTC derivatives markets to mitigate credit risk and to reduce operational risk. In the EU implementation of the Basel III rules around capital have been implemented via the capital requirements regulation, CRR as we have seen capital requirements regulations refer to rules and guidelines set by regulators that require financial institutions such as banks to hold a certain amount of capital to ensure they can absorb potential losses and continue to operate in a safe manner. These financial institutions need to hold capital for credit risk, counterparty risk, market risk, and operational risk. Because of the different dynamics of these risks, there are different ways to calculate the minimum amount of capital that banks need to hold. The Dodd-Frank Act is very wide ranging, covering nearly every part of the financial system. Due to its sweeping nature Dodd-Frank made a far-reaching and substantial impact on the financial services sector and regulators and financial institutions alike are still adapting for financial institutions. Compliance with a myriad of regulatory changes has been daunting, at times, confusing, and very expensive.
