Recently adopted amendments to the Volcker Rule’s implementing regulations:
- aim to reduce the compliance burden associated with the Volcker Rule, although they also impose some new compliance burdens on non-U.S. banks.
ï€¾ make significant liberalizing changes to the â€œtrading outside of the United
Statesâ€ exception (the â€œTOTUS Exceptionâ€) to the Volcker Ruleâ€™s proprietary trading prohibition.
ï€¾ modify the requirements of the market making and underwriting exceptions to the Volcker Ruleâ€™s proprietary trading prohibition through tweaks to the â€œreasonably expected near-term demandâ€ (â€œRENT-Dâ€) standard, allowing
banks a presumption of compliance if they establish trading desk-level risk limits.
ï€¾ make modest updates with respect to the Volcker Ruleâ€™s covered fund prohibitions, with a broader set of amendments possible in a subsequent rulemaking.
ï€¾ introduce certain complexities that may offset some of the benefits of reduced compliance burdens.
On October 8, 2019, the Board of Governors of the Federal Reserve System
(the â€œFedâ€) adopted a final rule (the â€œFinal Ruleâ€) that amends current
regulations (the â€œExisting Regulationsâ€) implementing Section 13 of the Bank
Holding Company Act of 1956, commonly known as the â€œVolcker Rule.â€1 The
Final Rule, which had previously been adopted by the Securities and Exchange
Commission, the Office of the Comptroller of the Currency (the â€œOCCâ€), the
Federal Deposit Insurance Corporation (the â€œFDICâ€) and the
1 Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships
With, Hedge Funds and Private Equity Funds, available at https://www.sec.gov/rules/final/2019/bhca-7.pdf. As
of the date of this note, the release has not yet been published in the Federal Register.
Contents Key Takeaways 1 Introduction 1 Compliance under the Final Rule 2 Changes to the Volcker Ruleâ€™s Proprietary
Trading Prohibition 3 Changes to the Volcker Ruleâ€™s Covered Fund
Prohibition 7 Conclusion 8
Commodity Futures Trading Commission (collectively with the Fed, the â€œAgenciesâ€), offers significant relief with
respect to a number of the Volcker Ruleâ€™s current requirements, particularly with respect to the restrictions applicable to
non-U.S. banksâ€™ trading operations outside of the United States, although it does impose some additional burdens on
non-U.S. banks that are less likely to impact U.S. banks. The Final Rule goes into effect on January 1, 2020.
The Volcker Rule applies to any non-U.S. bank that has a U.S. branch, agency or bank subsidiary, along with all of its
affiliates around the world.2 As a result, the Volcker Rule has had a far-reaching extraterritorial scope that has required
most internationally active banks to adopt complicated compliance programs with respect to their trading, asset
management and structured finance operations around the globe. The Final Rule scales back that extraterritorial
impact, particularly with respect to trading outside of the United States. The Final Rule builds upon, and includes
changes to, the Agenciesâ€™ proposed amendments to the Existing Regulations (the â€œProposed Ruleâ€).3
This note does not review every change to the Volcker Rule under the Final Rule, but instead focuses on those
changes that are of greatest practical and commercial consequence to non-U.S. banks.
Compliance under the Final Rule
The Existing Regulations impose very prescriptive requirements on Banking Entities as to the specific components that
must be included in their Volcker Rule compliance programs. The Final Rule reduces these requirements primarily by
creating a tiering system under which only Banking Entities with the largest U.S. trading books (â€œSignificant Trading
BEsâ€) must establish the six-pillar compliance program laid out in the Existing Regulations, as modified by the Final
Rule. Banks with less significant U.S. trading operations4 may implement a compliance program that conforms with a
much more simplified set of requirements (for â€œModerate Trading BEsâ€) or may structure their compliance program
without any specific regulatory strictures (for â€œLimited Trading BEsâ€).5
The Final Rule also reduces compliance requirements for Significant Trading BEs. It eliminates the Appendix B
â€œenhanced compliance program,â€ which laid out very detailed requirements for a covered Banking Entityâ€™s compliance
program. This will permit Significant Trading BEs greater flexibility in their approach to compliance than they have
under the Existing Regulations. The Final Rule also reduces the amount of data that Banking Entities must retain and
submit to the Agencies under the quantitative metrics reporting and recordkeeping requirements.
Three-Tiered Compliance for Non-U.S. Banking Entities
Category Criteria Compliance program requirement
Significant Trading BEs â‰¥ $20 billion6 in consolidated U.S.
trading assets and liabilities
Subject to six-pillar Volcker Rule
compliance program requirement
2 The Volcker Rule also applies to U.S. banks and bank holding companies (â€œBHCsâ€), along with their affiliates. We refer to the institutions and entities subject to the
Volcker Rule collectively as â€œBanking Entitiesâ€ herein.
3 Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds,
83 Fed. Reg. 33432 (July 17, 2018). Our client note on the Proposed Rule is available here.
4 In a change from the Proposed Rule that will be welcomed by non-U.S. banks with small U.S. trading books, the quantitative thresholds for each of the three tiers are
calculated solely with reference to a non-U.S. bankâ€™s U.S. trading assets and liabilities. Under the Proposed Rule, a non-U.S. bank could have been considered a
Moderate Trading BE if its global trading assets and liabilities exceeded $1 billion, though the Significant Trading BE category was calculated with reference only to
U.S. trading assets and liabilities. This change will likely cause non-U.S. banks with significant global trading operations but limited U.S. trading activities to fall into the
Limited Trading BE category.
5 At least one of the compliance requirements of the Significant Trading BE category has a certain â€œHotel Californiaâ€ quality, however. As discussed in further detail
below, a Banking Entity that relies on the market making or underwriting exception for its U.S. trading will generally have to comply with requirements similar to those
under the Existing Regulations or adopt risk limits on each trading desk, which is already required of Significant Trading BEs. As a result, Moderate or Limited Trading
BEs may have to retain this aspect of their existing Volcker Rule compliance program notwithstanding the new relief provided by the Final Rule.
6 The Final Rule increases the Proposed Ruleâ€™s $10 billion threshold for Significant Trading BE status. The Agencies indicated that Significant Trading BEs hold
approximately 93 percent of the trading assets and liabilities in the U.S. banking system, and that Significant and Moderate Trading BEs combined hold 99 percent of
Moderate Trading BEs
â‰¥ $1 billion but < $20 billion in
consolidated U.S. trading assets and
Subject to simplified Volcker Rule
compliance program requirement
Limited Trading BEs < $1 billion in consolidated U.S.
trading assets and liabilities No specific program requirements
Changes to the Volcker Ruleâ€™s Proprietary Trading Prohibition
Updated Definition of Trading Account
Definition of â€œtrading accountâ€
Existing Regulations Final Rule
Market Risk Prong
For a Banking Entity subject to U.S. market
risk capital rules, positions that are both
covered positions and trading positions
under those rules
For a Banking Entity subject to U.S. market risk
capital rules, or which elects to apply U.S.
market risk capital rules with respect to its
trading positions (an â€œMR Electionâ€), positions
that are both covered positions and trading
positions under those rules
Trading principally for the purpose of (a)
short-term resale, (b) benefiting from short-
term price movements, (c) realizing short-
term arbitrage profits, or (d) hedging any
such short-term positions. Trades of less
than 60 days are presumed to be short-term
For a Banking Entity not subject to U.S. market
risk capital rules and which does not make an
MR Election, trading principally for the purpose
of (a) short-term resale, (b) benefiting from
short-term price movements, (c) realizing short-
term arbitrage profits, or (d) hedging any such
short-term positions. Trades of 60 days or
longer are presumed not to be short-term
Trading by Banking Entities that are
licensed, or required to be licensed, as a
dealer in securities or derivatives (under
either U.S. or non-U.S. law) to the extent
that the trading is conducted in connection
with its dealing business
The term â€œtrading accountâ€ describes the types of trading that are within the Volcker Ruleâ€™s proprietary trading
prohibition (provided that the instruments in question are â€œfinancial instruments,â€ a term that the Final Rule does not
modify). The multi-prong definition of â€œtrading accountâ€ in the Existing Regulations has been the source of many
complex compliance issues. The Purpose Prong, in particular, creates significant complexity â€“ given the absence of
such assets and liabilities. Final Rule at 30. Calculation of trading assets and liabilities for purposes of the Final Rule excludes U.S. treasuries and other instruments
guaranteed by the U.S. government or its agencies.
bright lines concerning what constitutes â€œshort termâ€ purpose, Banking Entities found it difficult to document individual
tradersâ€™ intent in a manner sufficient to minimize regulatory risk.7
The Proposed Rule would have eliminated the Purpose Prong entirely. Its replacement, however, would have caused
any position recorded at fair value under applicable accounting standards to be considered for the â€œtrading accountâ€
(the â€œProposed Accounting Prongâ€). The Proposed Accounting Prong proved unpopular among industry commenters
â€“ it would have swept in many long-term positions, particularly in derivatives, with no short-term purpose â€“ and the
Agencies dropped it in the Final Rule.8
In lieu of the Proposed Accounting Prong, the Agencies have retained the Purpose Prong for Banking Entities that are
not subject to U.S. market risk capital rules. Large U.S. bank holding companies and their subsidiaries are generally
subject to those rules, and as such, will not have to apply the Purpose Prong or worry about its attendant compliance
complexities.9 With respect to non-U.S. banks, only U.S. bank subsidiaries and subsidiaries held under an intermediate
holding company (to the extent that a bank has one or has been required to establish one10) are potentially subject to
the market risk capital rules. A non-U.S. bankâ€™s non-U.S. operations are not. The Final Rule does give them a choice
between continuing to apply the Purpose Prong or making an MR Election and applying only the Market Risk Prong.
Since such a non-U.S. bank would generally already be subject to home country regulatory capital requirements, the
option to make an MR Election requires non-U.S. banks to choose between â€œdouble analyzingâ€ their non-U.S. trading
activities (and any U.S. trading activities not subject to the U.S. market risk capital rules)11 or maintaining their current
compliance program to apply the Purpose Prong.12 In either event, the Final Rule imposes an obligation on non-U.S.
banks that will not be imposed on large U.S. banks.13
The TOTUS Exception
Requirements of the TOTUS Exception
Existing Regulations Final Rule
The non-U.S. Banking Entity involved in a trade (and
personnel involved in arrangement, negotiation or
The non-U.S. Banking Entity involved in a trade (and its
relevant decision-making personnel) may not be located
in the United States or organized under U.S. law
7 After the Purpose Prong was first proposed (but before the Existing Regulations were adopted), J.P. Morgan CEO Jamie Dimon quipped on CNBC that because of the
Volcker Rule, â€œif you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did
something.â€ Ben Protess, Jamie Dimon Shows Some Love for Volcker Rule, The N.Y. Times Dealbook (May 21, 2012), available at
8 See Final Rule at 41 & n.137.
9 U.S. market risk capital rules generally apply to a U.S. bank or bank holding company that has trading assets and liabilities (1) of $1 billion or more, or (2) that
represent at least 10 percent of its total assets. E.g., 12 C.F.R. Â§ 217.201(b). They also apply to intermediate holding companies of a non-U.S. bank that satisfies one
of those quantitative criteria.
10 Generally, a non-U.S. bank with $50 billion or more in U.S. non-branch assets is required to establish an intermediate holding company subject to U.S. capital rules
over all of its U.S. subsidiaries, with certain limited exceptions. See 12 C.F.R. Â§ 252.153.
11 The market risk prong in the Proposed Rule would have required non-U.S. banks to include in the definition of â€œtrading accountâ€ any positions that were subject to their
home country market risk capital requirements, though the Final Rule has also dropped that change in favor of the use of an MR Election option. Final Rule at 56-57.
Given that the Proposed Ruleâ€™s approach may have eliminated the need for â€œdouble analysisâ€ of trading positions, that approach may have been preferred by non-U.S.
12 The Final Ruleâ€™s presumption that any position held for 60 days or longer is not within the Purpose Prong will, no doubt, help ease some of the compliance burden
associated with that prong.
13 As part of an effort to mitigate this disparate impact between Banking Entities that are and are not subject to the market risk capital rules, the Agencies have adopted
an exception that excludes from the definition of proprietary trading any transaction that is not a â€œtrading assetâ€ or â€œtrading liabilityâ€ under the reporting form applicable
to a Banking Entity as of January 1, 2020. Final Rule, Â§ __.3(d)(13). While beneficial, this could, of course, effectively add another step to the â€œtrading accountâ€
execution of the trade) may not be located in the United
States or organized under U.S. law
The non-U.S. Banking Entity (and relevant personnel) that
makes the trading decision is not located in the United
States or organized under U.S. law
The trade may not be accounted for by any U.S. branch or
affiliate of the non-U.S. Banking Entity Unchanged
Financing for the trade may not be provided by a U.S.
branch or affiliate Requirement eliminated
The trade may not be conducted with or through a â€œU.S.
entityâ€ (with certain exceptions) (the â€œNon-U.S.
Unlike most of the Volcker Ruleâ€™s other exceptions, the TOTUS Exception permits non-U.S. banks to engage in any
type of trading, including the type of short-term trading for a bankâ€™s own account that the Volcker Rule otherwise seeks
to prevent. Perhaps the greatest impediment to the TOTUS Exceptionâ€™s usefulness under the Existing Regulations is
the Non-U.S. Counterparty Requirement, which prevents a non-U.S. bank from relying on the TOTUS Exception if the
non-U.S. bankâ€™s counterparty (or the counterpartyâ€™s personnel involved with a trade) are organized or located in the
United States, subject to certain exceptions for market intermediaries. In many cases, the Non-U.S. Counterparty
Requirement has imposed significant compliance burdens on non-U.S. banks, which need to ensure that both the
entity they face and the personnel with which they interact are not based in the United States. To address this, some
non-U.S. banks have employed so-called â€œTOTUS letters,â€ which require extensive certifications.14
The Final Rule removes the Non-U.S. Counterparty Requirement and the restriction on receiving U.S. financing for a
TOTUS trade. Instead, the TOTUS Exception under the Final Rule focuses only on where the risk of a trade is booked
and whether the non-U.S. bankâ€™s decision-making personnel and entities involved in the trade, rather than those of its
counterparty, are located in the United States. This will permit non-U.S. banks to trade with U.S. counterparties with a
much freer hand. Given that the TOTUS Exception has significantly less compliance overhead associated with it than
some of the Volcker Ruleâ€™s other exceptions, it is likely non-U.S. banks will look to the TOTUS Exception more often
than they do now.
Modified RENT-D under Market Making and Underwriting Exceptions
The market making and underwriting exceptions are intended to permit Banking Entities to facilitate customer-driven
transactions. These exceptions are vital for all U.S. bank trading and trading by non-U.S. banks where the TOTUS
Exception is unavailable, although they also incorporate among the most complex of the Existing Regulationsâ€™
14 Further, since banks typically organize their trading desks by asset class or financial instrument rather than by counterparty type, a single desk may rely on both the
TOTUS Exception (for trades with non-U.S. counterparties) and the underwriting or market making exceptions (for trades reaching into the United States) (a â€œDual
Exception Deskâ€). Because the non-TOTUS Exceptions impose a number of compliance requirements on both the desk (such as overall position and risk limits) and
individual traders (such as prohibitions on tying compensation to proprietary trading revenues), the benefit of the TOTUS Exception can often be lost for Dual
Exception Desks under the Existing Regulations.
One such requirement is that each trading desk ensure that its positions are â€œdesigned not to exceed, on an ongoing
basis, the reasonably expected near term demand of clients, customers, or counterpartiesâ€ (the â€œRENT-D
Requirementâ€). In brief, the RENT-D Requirement bars a trading desk from taking on more positions or risk than is
necessary to meet customer needs. Documenting compliance with the RENT-D Requirement has naturally proven
difficult for Banking Entities since it requires trading desks to predict the future behavior of their customers.
In lieu of the RENT-D Requirementâ€™s ongoing obligation to match a trading deskâ€™s book to its clientsâ€™ future needs, the
Final Rule provides that a trading desk will be presumed to be in compliance with the RENT-D Requirement where it
has established internal risk limits on the deskâ€™s positions and remains in compliance with those risk limits (the â€œRENT-
D Presumptionâ€). Those risk limits would themselves need to be â€œdesigned not to exceed the reasonably expected
near term demands of clients, customers, or counterparties,â€ though in the event that a trading desk were to breach its
limits, it would not lose the benefit of the RENT-D Presumption provided that the desk promptly takes action to bring
itself back into compliance with the limits and follows internal escalation procedures intended to address such
There are some downsides to the RENT-D Presumption. First, the Agencies have indicated that they will scrutinize
Banking Entitiesâ€™ internal trading desk limits to ensure that they are structured to address customer needs and will not
permit proprietary trading.15 Second, the RENT-D Presumption may prove more useful to Significant Trading BEs than
other Banking Entities. Significant Trading BEs are required to implement trading desk risk limits under the Final Ruleâ€™s
compliance program requirement while Limited and Moderate Trading BEs are not. As a practical matter, this means
that Significant Trading BEs will be able to rely on the RENT-D Presumption without taking on any additional
compliance burden while other Banking Entities â€“ on which the Final Rule has generally sought to most significantly
limit compliance burden â€“ will need to maintain or adopt trading desk risk limits and related procedures unless they
wish to continue conducting the â€œongoingâ€ analysis of their desk positions to comply with the RENT-D Requirement.
Overall, however, both U.S. and non-U.S. banks will likely welcome the introduction of the RENT-D Presumption since
for many, it will reduce the compliance burden associated with the market making and underwriting exceptions by
requiring a trading desk to analyze RENT-D only when it sets or resets its trading desk risk limits.
In addition to those described above, the Final Rule makes a number of other amendments to the proprietary trading
prohibition and its exceptions. Among these are:
ï€¾ Revised definition of â€œtrading deskâ€ â€“ The Final Rule modifies the Existing Regulationsâ€™ definition of â€œtrading deskâ€ (currently â€œthe smallest discrete unitâ€ of a Banking Entity that engages in trading) to align the termâ€™s
definition more closely with Banking Entitiesâ€™ existing internal structures, which will grant Banking Entities greater ability to map their Volcker Rule compliance program onto their existing organizational structure.
ï€¾ Risk-mitigating hedging for Significant Trading BEs â€“ The Final Rule eliminates the requirement that Significant Trading BEs conduct a â€œcorrelation analysisâ€ with respect to any transactions that rely on the risk-mitigating hedging exception. It also eliminates such a Banking Entityâ€™s obligation to demonstrate that a hedge
â€œdemonstrably reducesâ€ risks, instead requiring only that such a hedge be designed to do so.
ï€¾ Risk-mitigating hedging for other Banking Entities â€“ The Final Rule significantly eases the requirements of the exception for Limited and Moderate Trading BEs. Such a Banking Entity will only need to determine that a hedging transaction is (1) designed to reduce one or more risks at its inception, and (2) subject to ongoing
recalibration to ensure that it continues to reduce or mitigate those risks.
15 Notably, the Final Rule drops the Proposed Ruleâ€™s requirement that a Banking Entity report any breaches of a trading deskâ€™s internal limits to the Agencies, though it
does require that such a Banking Entity maintain and provide on request records relating to such breaches.
ï€¾ Expansion of liquidity management exception â€“ The Final Rule broadens the Existing Regulationsâ€™ current exclusion of transactions from the Volcker Ruleâ€™s scope related to a Banking Entityâ€™s liquidity management by
permitting such a Banking Entity to enter into foreign exchange forwards and swaps, and cross-currency swaps, in connection with its permitted liquidity management activities.
ï€¾ Exception for matched derivatives trades by non-dealers â€“ The Final Rule excludes from the scope of prohibited proprietary trading essentially â€œriskless principalâ€ derivative trades involving two matching, customer- driven transactions in swaps or security-based swaps where (1) the two transactions are entered into
contemporaneously, (2) the Banking Entity retains only minimal price risk, and (3) the Banking Entity is not a registered dealer, swap dealer or security-based swap dealer.16
Changes to the Volcker Ruleâ€™s Covered Fund Prohibition
While the Final Ruleâ€™s most important changes are to the Existing Regulationsâ€™ implementation of the Volcker Ruleâ€™s
proprietary trading prohibition, it also makes a small number of changes to the prohibition on investments in and
sponsorship of â€œcovered funds.â€ The Final Ruleâ€™s amendments with respect to the covered fund prohibitions include:
ï€¾ SOTUS exception â€“ The Final Rule codifies guidance17 issued by the Agencies in 2015 with respect to the â€œsolely outside the United Statesâ€ (â€œSOTUSâ€) exception that permits a non-U.S. Banking Entity to invest in a third-party covered fund provided it does not sponsor or advise the fund, and does not offer the fundâ€™s shares
to U.S. investors. It also eliminates the Existing Regulationsâ€™ restrictions on the use of financing from a non- U.S. Banking Entityâ€™s U.S. branches, agencies or affiliates in connection with sponsorship or investments under
the SOTUS exception.
ï€¾ Market making and underwriting ownership interests in third-party covered funds â€“ With respect to third-party covered funds, the Final Rule eliminates the Existing Regulationsâ€™ requirement that underwriting or market-
making positions be included in (1) the calculation of a Banking Entityâ€™s aggregate limit on covered fund positions of 3% of its Tier 1 capital, and (2) the deduction of covered fund positions from a Banking Entityâ€™s
capital.18 This exception does not apply to any covered fund that a Banking Entity either sponsors or advises.19
ï€¾ Risk-mitigating hedging â€“ The Existing Regulations only permit a Banking Entity to enter into a hedge position
in a covered fund to mitigate risks associated with the Banking Entityâ€™s employee compensation obligations. The Final Rule expands the covered fund risk-mitigating hedging exception to allow a Banking Entity to act as an intermediary for a customer seeking exposure to a covered fundâ€™s performance.
The Agencies discussed a number of covered fund-related amendments that they may consider in a future proposal.20
Among them is the treatment of certain â€œforeign fundsâ€ as Banking Entities because they are considered controlled by
an investing or sponsoring Banking Entity but are not covered funds. This has been a long-standing concern for non-
U.S. banks, but the Agencies have yet to address the issue in any way other than to push the question off by granting
a series of temporary reliefs to non-U.S. banks.21
16 The Final Rule also carves out from the definition of â€œproprietary tradingâ€ transactions made in error (and any subsequent transaction to correct the error) and financial
instruments used to hedge mortgage servicing rights or mortgage servicing assets under a documented hedging strategy.
17 See Volcker Rule FAQ No. 13 (Feb. 27, 2015), available at https://www.federalreserve.gov/supervisionreg/faq.htm#13.
18 Note that the second requirement is only applicable with respect to Banking Entities subject to U.S. regulatory capital rules
19 While this amendment will be helpful for Banking Entities seeking to underwrite or make a market in the securities of third-party covered funds, it may perversely
increase the compliance burden on such a Banking Entity since it will now be required to assess not only whether or not the issuer in question is a covered fund but
also whether the Banking Entity might be considered an adviser to or sponsor of that issuer.
20 See, e.g., Final Rule at 165 (definition of â€œcovered fundâ€), 169 (elimination of capital deduction and aggregate covered fund investment limit for all underwriting and
market making positions).
21 In July 2019, the Federal Reserve, the OCC and the FDIC issued relief with respect to such funds, indicating that they would not take any action before July 21, 2021
against a â€œforeign fundâ€ that would qualify as a Banking Entity by virtue of a non-U.S. bankâ€™s ownership or sponsorship of it. See Statement Regarding Treatment of
Certain Foreign Funds under the Rules Implementing Section 13 of the Bank Holding Company Act (July 17, 2019), available at
https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190717a1.pdf. This is the third time the Agencies have extended that deadline for foreign
On balance, the Final Rule provides some welcome, albeit in some ways limited, relief to the compliance burdens
currently associated with the Volcker Rule.22 On the other hand, the Final Rule does not simplify the overall structure of
the Existing Regulations, which could be charitably described as cumbersome. While a comprehensive simplification of
the Volcker Rule would likely require Congressional action that does not seem forthcoming, most sections of the
Volcker Ruleâ€™s regulations will be longer, not shorter, after the Final Ruleâ€™s amendments are incorporated. The result is
a set of regulations that will likely continue to require significant parsing and interpretation by lawyers and regulators,
which is at cross purposes with any effort to ease burdens and grant greater certainty.
Banking Entities, indeed, may choose not to modify their existing compliance programs in response to the Final Rule.
Particularly for large banks, the compliance programs of which had to comply with the now-removed Appendix B
â€œenhanced compliance program,â€ the cost of re-designing compliance programs might actually outweigh the benefits,
at least in part. For the most part, existing compliance programs will remain â€œforward compatibleâ€ with the Final Ruleâ€™s
amendments, and so a complete rewrite will not be necessary. Instead, we expect some Banking Entities will make
targeted changes to their existing compliance framework to address, for instance, the modifications to the TOTUS
Exception or the RENT-D Presumption.23 We look forward to discussions with our clients about the choices with which
they are confronted under the Final Rule.
Please do not hesitate to reach out to the authors or any of your usual Linklaters contacts for further discussion or
22 With the exception of the trading that non-U.S. banks may engage in with U.S. counterparties under the revised TOTUS Exception, the Final Rule is not necessarily
intended to expand the types of transactions that Banking Entities may engage in, but instead to ease the compliance burdens associated with those transactions.
That said, to the extent that Banking Entities have limited certain types of customer-driven trading out of concern that they would be unable to demonstrate compliance
with the Existing Regulations, the Final Rule may give those Banking Entities a freer hand to engage in such trading going forward.
23 It is also possible that the â€œenhanced compliance programâ€ of the Existing Regulations will retain some cachet as a source of guidelines in implementing a Volcker
Rule compliance program.
Author: Caird Forbes-Cockell, Jerome Roche, Jacques Schillaci, Ja Hyeon Park
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