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Volcker Rule Amendments Approved

The FDIC approved a final rule to simplify and tailor requirements relating to Section 619 of the Dodd-Frank Act, commonly 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. FDIC Chairman Jelena McWilliams in a release acknowledged the difficulty that has dogged the regulation. “Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult. Meanwhile, banks that do relatively little trading are required to go through substantial compliance exercises to ensure that activities that have long been considered traditional banking activities do not run afoul of the Volcker Rule.” The amendments to the Volcker Rule are subject to the approval of other regulators including the Federal Reserve, SEC and Treasury. The final rule will, among other things:

  • 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 banking entities with the most trading activity;
  • Streamline the criteria that apply when a banking entity seeks to rely on the hedging exemption from the proprietary trading prohibition; and
  • Simplify the trading activity information that banking entities are required to provide to the agencies.

The changes will go into effect in January 2020 and banks are slated to comply in 2021. The Wall Street Journal reports that one FDIC member opposed the amendments saying they would weaken restrictions on banks engaging in speculative trading.

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