This is the sixth article in an eight-part series.

Before the Volcker Rule was finalized on December 2013, a number of foreign banks operating in the U.S. held derisive attitudes toward American regulators. According to a number of bank regulators who were willing to speak to me off the record, European banks were particularly prone to dismissing the importance of U.S. bank rules since they were regulated by their home countries. In a humble admission, these regulators also said that before the global financial crisis, U.S. regulators were less demanding of European banks operating in the U.S. than of banks from other countries. The Eurozone crisis has since left little doubt that European banks are subject to economic and country risks just like any other bank,as well as a wide range of financial risks in the credit, operational, liquidity, and legal categories.

In an attempt to make the entire U.S. banking sectorsafer, the Volcker Rule applies to both domestic banks such as JPMorgan Chase, Citigroup and Bank of America as well as to foreign banking organizations that operate a branch, agency or commercial lending company in the U.S., such as Barclays, Credit Suisse, and Deutsche Bank. As I have described in the previous articles in this series, all banks are struggling to implement the Volcker Rule effectively and in a timely manner because of the challenges of managing operational risk in areas like people, processes, technology and external threats such as outsourcing. But for FBOs, the challenges are even greater.

Confusion over how to approach the Volcker Rule continues to plague foreign banks. The rule applies to any participant in a securities or derivatives transaction that resides in the U.S. This means that both foreign subsidiaries of U.S. banks and U.S. subsidiaries of foreign banks are affected. For example, a Swiss bank without a U.S. presence that trades with an American company's Swiss subsidiary could be impacted by the Volcker Rule. Many foreign banks in and outside of the U.S. have been seeking in-house and outside counsel to determine exactly which parts of the Volcker Rule apply to them.

Even when foreign banks are clear that the Volcker Rule applies to them, that does not make implementation any easier. FBOs are grappling with the enhanced prudential standards approved in February that require that many of them to reorganize to create an intermediate holding company so that the Federal Reserve can have the ability to supervise all of a foreign banks' various subsidiaries in the U.S. And while foreign banks figure out what structure is best for their business, many of them are still confused as to what part of the Volcker Rule applies to what part of the bank holding company.

Regulators have actually eased the initial Volcker Rule to allow foreign banks to engage in proprietary trading in both U.S. government bonds and the sovereign debt of their home countries. For example, a French bank operating in the U.S. can trade French government bonds on a proprietary basis, but not German Bunds or the bonds of any other foreign country. But there's an exemption: if the French bank can document that it is a market-maker in German Bunds, it may trade them in the course of fulfilling customer demand.

While the market-making exemption initially came to the great relief of banks, it actually imposes additional documentation, data, and compliance burdens. Further confusing the issue,foreign banks are not required to establish a Volcker Rule-specific compliance program if they do not conduct proprietary trading other than trading in U.S. government bonds or investments in hedge funds and private equity. Many firms feel that it is quite onerous to determine whether they are engaging in activities that fall under the rule now or might be in the future. In essence, FBOs feel that no matter what the intentions of the rule, in practice they are compelled to create Volcker Rule compliance programs, which requires time, money, and the most importantly, the right staff.

The more foreign banks' risk managers, compliance officers and auditors analyze the Volcker Rule, the more questions they have for regulators and outside counsel. But both regulators and outside counsel are overwhelmed with a slew of questions in the wake of the rule and often respond to banks more slowly than they would like. In addition, smaller FBOs are struggling to compensate for their lack of in-house Volcker specialists or armies of lawyers familiar with U.S. bank laws. The smaller FBOs fear that because they cannot keep waiting for answers, they may have to proceed with firming up their Volcker compliance programs only to find that regulators are dissatisfied with them.

Another potentially significant challenge for FBOs is that attorney-client privilege abroad is very different than in the U.S. A number of FBO employees have said that they worry the potential lack of protection available to bank staff will keep traders and other capital markets professionals from going to compliance officers or risk managers to point out deficiencies and shortcomings in Volcker programs.

FBOs must also navigate privacy laws that are often stricter in their home countries than in the U.S. Thiscan pose hurdles to Volcker Rule compliance when FBO employees need to obtain information from their parent companies abroad. Recently, an employee of an FBO told me that he struggled to even get a list of names of colleagues in the bank's headquarters so that he could figure out who was responsible for various derivatives processes, procedures and data.

In coming weeks, foreign banks that are struggling to comply with the Volcker Rule may join U.S. banks in petitioning regulators and politicians for extended compliance deadlines or even asking them to relax the Volcker Rule. The success of these petitions will have big implications for the safety and soundness of the banking sector in the U.S. Admittedly, I have not been a big fan of the Volcker Rule because of its incredible complexity and the numerous elements it leaves open to bankers' subjective determinations. Yet I am even less of a fan of U.S. taxpayers again bailing out any bank, foreign or domestic.

Next in the series: The Volcker Rule and collateralized loan obligations.

Mayra Rodríguez Valladares is managing principal at MRV Associates, a New York-based capital markets and financial regulatory consulting and training firm. Follow her on Twitter at @MRVAssociates.