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    US Agencies Finalize Amendments to Simplify Volcker Rule

    November 14, 2019

    US Agencies (CFTC, FDIC, FED, OCC, and SEC) finalized amendments to the regulations implementing section 13 of the Bank Holding Company Act, also known as the Volcker Rule. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning or controlling hedge funds or private equity funds. The amended rule is intended to provide banking entities with clarity about the activities that are prohibited and to improve supervision and implementation of section 13. The effective date for "amendatory instructions" 1 through 14 (OCC), 16 through 29 (FED), 31 through 44 (FDIC), and 46 through 58 (CFTC) is January 01, 2020 while the effective date for the addition of appendices Z with respect to the amendatory instructions 15 (OCC), 30 (FED), and 45 (FDIC) is January 01, 2020 through December 31, 2020. The effective date for amendatory instructions 60 through 73 (SEC) is January 13, 2020, except for amendatory instruction 74 (SEC), which is effective January 13, 2020 through December 31, 2020. Banking entities must comply with the final amendments by January 01, 2021.

    US Agencies (CFTC, FDIC, FED, OCC, and SEC) had published, in July 2018, a proposal to simplify the 2013 rule by providing more certainty for banking entities and tailoring requirements to reflect the size and scope of the trading activities of a banking entity. The agencies received over 75 comments from banking entities and industry groups, public interest groups, and other organizations and individuals. Also, nearly 3,700 comments were received from individuals to express opposition to the proposed rule. The agencies have adopted many of the proposed changes to the 2013 rule, with certain targeted adjustments based on the comments received. The agencies intend to issue an additional notice of proposed rulemaking that would propose additional, specific changes to the restrictions on covered fund investments and activities and to other issues related to the treatment of investment funds under the regulations implementing section 13 of the Bank Holding Company Act.

    Similar to the proposal, the final rule includes a risk-based approach to revising the 2013 rule that relies on a set of clearly articulated standards for both prohibited and permitted activities and investments. The final rule includes the same general three-tiered approach to tailoring the compliance program requirements as the proposal. However, based on comments received, the agencies have modified the threshold for banking entities in the “significant” compliance category from USD 10 billion in gross trading assets and liabilities to USD 20 billion in gross trading assets and liabilities. The final rule also includes modifications to the calculation of trading assets and liabilities for determining which compliance tier a banking entity falls into by excluding certain financial instruments that banking entities are permitted to trade without limit under section 13. Additionally, the final rule aligns the methodologies for calculating the “limited” and “significant” compliance thresholds for foreign banking organizations by basing both thresholds on the trading assets and liabilities of the firm’s U.S. operations.

    The 2013 rule will remain in effect until the compliance date and a banking entity must continue to comply with the 2013 rule. Alternatively, a banking entity may voluntarily comply, in whole or in part, with the amendments adopted in this release prior to the compliance date, subject to the agencies’ completion of necessary technological changes. The agencies need to complete certain technological programming to accept metrics compliant with the final amendments. The agencies will conduct a test run of the revised metrics submission format with banking entities. A banking entity seeking to switch to the revised metrics prior to January 01, 2021 must first successfully test submission of the revised metrics in the new XML format. Accordingly, banking entities should work with the concerned agency to determine how and when to voluntarily comply with the metrics requirements under the final rules and to notify the agencies of their intent to comply, prior to the January 01, 2021, compliance date.

     

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    Effective Date: January 01, 2020/January 13, 2020

    Keywords: Americas, US, Banking, Securities, Volcker Rule, EGRRCP Act, Dodd-Frank Act, Proportionality, Proprietary Trading, Market Risk, Reporting, US Agencies

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