The Office of the Comptroller of the Currency solicited comment on how the specific requirements it adopted to implement the so-called “Volcker Rule” should be amended to better effectuate the purposes of the statute.
(The Volcker Rule refers to Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; click here to access. This law attempts to prohibit most proprietary trading activities of banking entities (e.g., insured depository institutions and their affiliates and subsidiaries), and investments and certain relationships between such entities and hedge funds or private equity funds. Banking entities generally were required to comply with the Volcker Rule and implement regulations by July 21, 2015.)
The OCC is seeking comment on all aspects of its Volcker Rule requirements but is specifically soliciting input on four topics: (1) whether its definition of banking entities is too broad and exposes smaller entities with minimal or no proprietary trading activities to significant regulatory burdens; (2) whether the definition of proprietary trading activities is too subjective because it requires a determination of intent in connection with each trade; (3) whether the definition of covered funds is too broad and should be modified to reference the characteristics of the fund (e.g., investment strategy, fee structure) rather than the type of fund (e.g., like an investment company); and (4) whether the requirement of banking entities to maintain a compliance program is too burdensome, especially for smaller entities that do not engage in a significant amount of proprietary trading or covered fund activities.
The OCC will accept comments through 45 days from the date of the publication of its Notice Seeking Comment on the Volcker Rule in the Federal Register.
Policy and Politics: Rules implementing the Volcker Rule seem destined to change. Although the OCC cannot act unilaterally in making changes – as it must consult and coordinate with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission in instituting amendments to help ensure “consistent application” of the Volcker Rule – the language of OCC’s solicitation is telling. OCC is not seeking input to evaluate whether its requirements related to the Volcker Rule should be changed. Rather, it is seeking comment to determine “how the final rule implementing [the Volcker Rule] should be revised to better accomplish the purposes of the statute.” This preemptory approach follows by less than two months the issuance by the US Department of Treasury of a report calling for substantial amendments to the Volcker Rule and containing other recommendations regarding the regulation of banks and credit unions, in response to President Donald Trump’s Core Principles for the federal regulation of the US financial system issued earlier this year. (Click here for background on Treasury’s recommendations as well as the Core Principles in the article “US Department of Treasury Recommends Modifications to Volcker and Bank Capital Rules, and Rationalization of Financial Regulation” in the June 18, 2017 edition of Bridging the Week.)