Regulators scrap proposed Volcker Rule compliance standard

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WASHINGTON — Regulators plan to scrap a proposed standard opposed by the industry for determining which proprietary trades are banned under the Volcker Rule.

The Federal Deposit Insurance Corp. board approved a final rule Tuesday that removes the so-called accounting prong. Last year, the agencies had proposed using fair value accounting as an alternative to the current standard, which financial services firms have also found burdensome.

Instead, the final rule will revise the “rebuttable presumption,” the original standard implemented in 2013.

At issue are the various methods regulators have provided banks to ensure their compliance with the trading ban, which was included in the 2010 Dodd-Frank Act.

The revised short-term intent prong would stipulate that trades held for less than 60 days are in compliance. Trades held longer than 60 days would have a rebuttable presumption that they met the short-term intent prong.

Meanwhile, banks that are subject to the market risk capital rule prong — which would remain largely unchanged from the original rule — would not be subject to the short-term intent prong.

The final rule will maintain the three-tiered approach outlined in the 2018 proposal meant to tailor compliance requirements. However, the regulators plan to raise the threshold in the toughest “significant” compliance category from $10 billion of trading assets and liabilities to $20 billion. This change would reduce costs for banks with that engage in little or no proprietary trading, the FDIC said in the final rule.

With the new $20 billion threshold, about 93% of trading assets and liabilities in the U.S. financial system would be held by banks in the “significant” category.

The final rule would also adopt changes from the proposal that expand exemptions for underwriting, market-making and risk-mitigating hedging activities. But the agencies also plan to issue a subsequent proposal that would address the "covered funds" definition more substantively.

In response to comments, the finalized Volcker 2.0 would apply the CEO attestation requirement to two FDIC-supervised companies with significant trading assets and liabilities, and would also eliminate certain metrics to reduce compliance burdens.

The Office of the Comptroller of the Currency also signed off on the rule Tuesday. Three other agencies are expected to approve it shortly.

"I am pleased to approve changes to the 'Volcker Rule' that simplify the rule in a common sense way that preserves the safety and soundness of the federal banking system and eliminates unintended negative consequences of the prior rule," Comptroller Joseph Otting, who sits on the FDIC board, said in a statement.

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Volcker Rule Regulatory relief Regulatory reform Dodd-Frank Joseph Otting FDIC OCC