More work still ahead on proposed changes for ‘Volcker rule’; fintech lab on verge of debuting

More work still has to be done to make proposed changes to the “Volcker Rule” so that banks have more certainty, including what types of trading are prohibited under the regulation, the chairman of the federal bank deposit insurer said Monday.

In a speech, Federal Deposit Insurance Corp. (FDIC) Board Chairman Jelena McWilliams said banking regulators’ proposed changes to the rule – which imposes restrictions on proprietary trading – must be done promptly. She said after reviewing comment letters, hearing from stakeholders and considering the proposal “it is clear that with respect to certain elements of the rule and the proposal, the agencies still have work to do. I believe we can get this right and do so promptly.”

McWilliams spoke to the annual conference of the Institute of International Bankers in Washington, D.C.

The FDIC chairman said the additional changes to the proposed rule by federal banking agencies to modify the existing Volcker Rule should:

  • Provide more certainty to regulated entities and improve how to define what types of trading are prohibited and what types of funds are within the scope of the rule so that both bankers and supervisors have clear rules of the road. “Ideally, providing more clarity around what is covered by the rule will help reduce or eliminate” disruptions to market activities, she said.
  • Right-size the rule’s extraterritorial scope while also minimizing competitive inequities between U.S. banking entities and their foreign counterparts. “For various types of foreign funds, the current rule is overly complex and, frankly, impractical to implement,” McWilliams said. “We will consider the options available for funds in non-U.S. jurisdictions and the operational burdens under the existing rule’s requirements.”

McWilliams said it was clear to her that the Volcker Rule needs to be simplified, compliance burdens should be reduced, that U.S. rules should not “necessarily extend abroad,” and that work on changing the proposal needs to be completed quickly.

“While the agencies have a heavy workload, we are prioritizing getting the Volcker Rule right… or at least as close to right as we can get within the statutory framework given to us,” she said.

In other comments, the FDIC leader said:

  • The “thoughtful approach” of tailoring regulations to fit an institutions’ sizes and operations “is something that we should continue to explore for banks of all sizes and risk profiles.”
  • The FDIC’s “Tech Lab” – which will work with banks to explore and develop financial technology (fintech) innovations – will be opening soon. “FDIC Tech Lab’s goal will be to enable and facilitate the deployment of new technology in the banking industry. The Lab will work to eliminate regulatory uncertainty and unnecessary restrictions that might otherwise prevent banks from fielding new technologies by working with innovators both in the banking sector and outside of it,” she said.

Remarks by Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation at the Institute of International Bankers Annual Washington Conference; Washington, D.C.

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