October 8, 2018

Volcker Rule Changes: Comment Deadline of October 17, 2018

The implementation of the Volcker Rule, § 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which by statute generally prohibits banks from engaging in proprietary trading or from owning or controlling hedge funds or private equity funds, is almost complete.  

Though the Volcker Rule went into effect on April 1, 2014 and ostensibly required full compliance by July 21, 2015, the Federal Reserve has repeatedly extended the transition time. Now, in what may be the final leg of implementation, there are just under two weeks left in the comment period for a proposal to simplify and loosen the Volcker Rule’s restrictions, lessening banks’ compliance costs.

Proposed Volcker Rule Changes

The proposal for simplification of the Volcker Rule, proposed jointly by the five federal agencies responsible for the Volcker Rule’s implementation—the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission—specifically will:

  • Tailor compliance requirements to the size of a trading firm's trading assets and liabilities;
  • Revise the definition of "trading account" in the rule to, in part, rely on commonly used accounting definitions;
  • Clarify which firms can engage in permissible market making or underwriting activity;
  • Streamline the “hedging exemption” from the proprietary trading prohibition for banks;
  • Limit the Volcker Rule’s impact on foreign activity of foreign banks; and
  • Reduce the amount of information about trading activity that banks are required to provide to the agencies.

As the cost of compliance with the Volcker Rule lessens through the above proposed changes, the likelihood that the rule is finally implemented increases. However, according to some comments, the original rule was “not what Paul Volcker had in mind” and the relaxed requirements could bring the rule further from Volcker’s vision.

Additional Changes to the Volcker Rule

The current proposed changes aside, other changes to the Volcker Rule under the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act—for example, exempting banks with less than $10 billion in total consolidated assets and with total trading assets and liabilities that are not more than five percent of total consolidated assets from the Volcker rule restrictions—will occur in a separate rule-making.

The deadline for comments to the current proposed changes is October 17, 2018. If you want to submit a comment, Ziliak Law can help you write it and submit it.

Article by Jesse Hudson


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