A proposal to tailor and clarify Volcker Rule requirements for federally supervised banking organizations was issued by the Federal Reserve Board, by unanimous vote Wednesday, for a 60-day public comment period.
The Volcker Rule places limits on banking institutions’ proprietary trading and hedge fund and private equity investments.
The proposal issued Wednesday, approved by the Fed Board on a vote of 3-0, revises the Volcker Rule, but it does not address changes enacted recently under the Economic Growth, Regulatory Relief, and Consumer Protection Act, staff explained in a memorandum for Wednesday’s board action. The new law exempts from the Volcker Rule banks with total assets valued at less than $10 billion and trading assets and liabilities comprising not more than 5% of total assets.
The Fed says a later rulemaking will address the statutory changes, but the current proposal “makes clear that the Agencies will not enforce the 2013 final rule in a manner inconsistent with the statutory amendments.”
The aim of Wednesday’s proposal, the Fed says, is to (1) tailor requirements of the regulation to focus on entities with large trading operations; and (2) streamline and simplify requirements (eliminating or adjusting) and focusing on quantitative, bright-line rules where possible to provide clarity regarding prohibited and permissible activities.
It would, among other things:
- Create categories of banking entities based on the size of their trading assets and liabilities, which would be used to tailor certain requirements of the rule;
- Revise the term “trading account” in the rule by replacing the short-term intent-based prong with a new accounting-based prong;
- Modify and tailor the eligibility requirements that apply when a banking entity seeks to rely on exemptions from the proprietary trading and covered fund prohibitions;
- Create a presumption of compliance with the underwriting and market-making exemptions for certain trading desks within a banking entity whose underwriting or market-making activities fall within certain internal risk limits;
- Modify the requirements related to market making, underwriting, and hedging covered fund interests.
- Tailor compliance requirements based on a banking entity’s level of trading activity, including by creating a presumption of compliance with the rule for banking entities with limited trading assets and liabilities, and revise the scope of application of the existing chief executive officer (CEO) attestation requirement so that it applies only to firms that meet a specified threshold of trading activity; and
- Simplify the trading activity information that certain banking entities are required to provide to the Agencies.
The proposal was developed jointly by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.