The Federal Reserve Board has asked for comment on a proposed rule to simplify and tailor compliance requirements relating to the Volcker rule.
Volcker prohibits banking entities from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds. However; experience has shown that the complexity of the rule has created compliance uncertainty for firms subject to the rule.
The proposed changes were jointly developed by all five agencies responsible for creating the rule: 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.
Their changes are intended to streamline the rule by eliminating or modifying requirements that are not necessary to effectively implement the statute, without diminishing the safety and soundness of banking entities.
Specifically, the proposed changes would tailor the rule’s compliance requirements based on the size of a firm’s trading assets and liabilities, with the most stringent requirements applied to firms with the most trading activity.
It will also provide more clarity by revising the definition of “trading account” in the rule and clarify that firms that trade within appropriately developed internal risk limits are engaged in permissible market making or underwriting activity.
The changes will streamline the criteria that apply when a banking entity seeks to rely on the hedging exemption from the proprietary trading prohibition; limit the impact of the Volcker rule on the foreign activity of foreign banks; and simplify the trading activity information that banking entities are required to provide to the agencies.
“The agencies responsible for implementing the rule see many opportunities to simplify it and improve it in ways that will allow firms to conduct appropriate activities without undue burden and without sacrificing safety and soundness,” Chairman Jerome Powell said. “The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance.”
Copyright © 2018 RegTech Analyst
Copyright © 2018 RegTech Analyst
