Five federal financial regulatory agencies announced approved changes to the Volcker rule Tuesday in a move that will provide relief to financial institutions.
The Volcker rule prohibits federally backed financial institutions from engaging in proprietary trading or having interests in private equity or hedge funds.
In July 2018, the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Deposit Insurance Corp. and Office of the Comptroller published proposed amendments to the original rule, which took three years to be approved, after passage of the 2010 Dodd-Frank Act.
The final rule tailors 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. It also no longer requires firms to prove that instruments held for fewer than 60 days weren’t made for short-term gains. Moreover, the rule removes the proposed “accounting prong” in the “trading account” definition and retains the original form that is easier to follow, among other changes.
Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, said in a statement that his organization supports the agencies’ goal of “reducing compliance-related inefficiencies” of the Volcker rule.
“The revisions finalized by all of the agencies will help ensure the rule does not negatively and unnecessarily impact market liquidity, capital formation and economic growth, which could be exacerbated during times of stress,” he said. “The removal of the accounting prong is a positive step forward in ensuring the regulatory definition of ‘trading account’ does not go beyond the statutory definition and congressional intent.”
Lael Brainard, a member of the Federal Reserve Board of Governors, issued a statement of dissent Tuesday. “I do not support the final rule because it weakens the core protections against speculative trading within the banking federal safety net,” he said, among other concerns.
The rule will be effective on Jan. 1, 2020, with a compliance date of Jan. 1, 2021, the agencies said in a statement.