FDIC and OCC Approve Interagency Rule to Simplify Volcker Rule

US Agencies (CFTC, FDIC, FED, OCC, and SEC) 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 final rule will:

• Tailor the compliance requirements based on the size of a firm's trading assets and liabilities, with the most stringent requirements applied to banking entities with the most trading activity
• Retain the short-term intent prong of the "trading account" definition from the 2013 rule only for banking entities that are not, and do not elect to become, subject to the market risk capital rule prong
• Replace the rebuttable presumption that instruments held for fewer than 60 days are covered under the short-term intent prong with a rebuttable presumption that instruments held for 60 days or longer are not covered
• Clarify that banking entities that trade within internal risk limits set under the conditions in this final rule are engaged in permissible market making or underwriting activity
• 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 rule on the foreign activities of foreign banking organizations
• Simplify the trading activity information that banking entities are required to provide to the agencies

The final rule includes the following three-tiers for tailoring the compliance program requirements:

• Banking entities with total consolidated trading assets and liabilities of at least USD 20 billion would be considered to have “significant” trading assets and liabilities. Banking entities with significant trading assets and liabilities would be subject to a six-pillar compliance program, annual CEO attestation, and metrics requirements.
• Banking entities with total consolidated trading assets and liabilities between USD 1 billion and USD 20 billion would be considered to have “moderate” trading assets and liabilities. Banking entities with moderate trading assets and liabilities would be subject to a simplified compliance program.
• Banking entities with total consolidated trading assets and liabilities of less than USD 1 billion would be considered to have “limited” trading assets and liabilities. Banking entities with limited trading assets and liabilities would be subject to a presumption of compliance.

The final rule would modify the metrics collection requirements to, among other things, eliminate certain metrics and reduce the compliance burdens associated with the remaining metrics requirements. Metrics filers must submit metrics on a quarterly basis with a reporting schedule of 30 days after the end of each quarter.

Related Links

• FDIC Press Release
• OCC Press Release
  
• Final Rule (PDF)
  
• Fact Sheet (PDF)
• Statement by Jelena McWilliams

Effective Date: January 01, 2020

Keywords: Americas, US, Banking, Volcker Rule, Dodd-Frank Act, Proportionality, Compliance Requirements, EGRRCP Act, Reporting, Market Risk, US Agencies