The Office of the Comptroller of the Currency ("OCC") solicited public comment on the Volcker Rule and how it "should be revised to better accomplish" the purposes of the rule.
Referring to a recent U.S. Treasury Department report (see previous coverage) detailing issues with the design of the Volcker rule, the OCC requested public input and additional information to improve any proposed changes that could be made to the rule without requiring Congressional amendment of the underlying statute. The OCC also asked for comments on how regulators could implement the existing rule more effectively.
The OCC identified four specific areas of the rule for consideration: (1) the scope of the entities to which the final rule applies, (2) the proprietary trading restrictions, (3) the covered fund restrictions, and (4) the compliance program and metrics reporting requirements.
With respect to the scope of entities covered by the rule, the OCC stated that the broad definition of "banking entity" has created regulatory burdens for entities, such as community banks, that do not present the type of systemic risk that the Volcker rule ostensibly was developed to mitigate.
Regarding the proprietary trading provisions of the rule, the OCC noted that certain banking entities have found the provisions to be vague and overly complex, particularly concerning the market-making exemption.
The covered funds prohibition was implemented to prevent banking entities from "acquiring or holding an ownership in or sponsoring any private equity fund or hedge fund," the OCC said. However, the OCC is concerned that the current language of the rule unintentionally subjects numerous funds outside of the rule's policy to the prohibition. The OCC is requesting suggested alterations to the language of the covered fund definition in order to tailor it to encompass only funds that fall under the intended scope of the rule.
Lastly, the OCC asked for comments on the compliance program and metrics reporting requirements. Banking entities have reported that these requirements comprise an undue compliance burden, especially for small institutions that are not engaged in significant levels of proprietary trading and covered fund activities.
Acting Comptroller of the Currency Keith Noreika said that public input will be an essential aspect of reconsideration efforts:
"A bipartisan consensus has emerged that the Volcker Rule needs clarification and recalibration to eliminate burden on banks that do not engage in covered activities and do not present systemic risks. Regulators do not have a monopoly on good ideas. Public input will help inform our path forward with the views, concerns, and data of those affected by this rule and provides for a more inclusive and transparent process."
Interested parties must submit comments within 45 days of publication of the notice in the Federal Register.
Commentary / Scott Cammarn
Given that the Volcker Rule regulations are required to be coordinated among five separate federal agencies – including the OCC, the SEC, the FDIC, the Fed and the CFTC – it is intriguing that the OCC appears to have decided to solicit public comment on potential regulation changes without involving the other four agencies in the public comment process.
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