The U.S. Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Securities and Exchange Commission and Commodity Futures Trading Commission released for public comment a proposal that would simplify and tailor the Volcker Rule. The joint notice of proposed rulemaking includes 342 specific questions for public comment largely focused on reducing compliance burdens under the Volcker Rule.
One of the key aspects of the proposal is that it would divide banking entities into three tiers for compliance purposes, based on total trading assets and liabilities. The most stringent requirements of the Volcker Rule would thus apply only to the 18 banking organizations with over $10 billion in trading assets and liabilities, while those with trading assets and liabilities under $1 billion would be presumed to be in compliance with the Volcker Rule and exempt from establishing a compliance program unless otherwise directed. The approximately 22 banks with between $1 billion and $10 billion in total trading assets and liabilities would be subject to a tailored, simplified compliance program.
Other proposed changes include allowing banking entities to establish internal risk limits for their marketmaking and underwriting activities, within which they are presumed to be in compliance with current RENTD requirements, as well as replacing the intent prong of the trading account definition and its 60-day "trading account" presumption with an accounting-based prong and a limited rebuttable presumption that trading desks are subject only to the accounting prong that fall within a $25 million profit and loss threshold comply with the Volcker Rule. Several key changes to improve exemptions for foreign banking entities are also included.
Comments on the proposed changes are due within 60 days following the proposal's publication in the Federal Register.
The full text of the proposal is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180530a1.pdf.
For a more comprehensive discussion of the proposed changes to the Volcker Rule, you may wish to refer to our client publication: "Volcker Rule 2.0: First Major Rule Revisions Proposed" available at: https://www.shearman.com/perspectives/2018/06/volcker-rule-2-first-major-rule-revisions-proposed.
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