The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency approved changes to the Volcker rule in a move that would 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.
The final rule, approved Tuesday, would 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. It would also no longer require firms to prove that instruments held for fewer than 60 days weren't made for short-term gains. Moreover, the rule would remove the proposed "accounting prong" in the "trading account" definition and stick with the original form that is easier to follow, among other changes.
"Distinguishing between what qualifies as proprietary trading and what does not has proven to be extremely difficult," said FDIC Chairman Jelena McWilliams in a statement. "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."
In July 2018, the FDIC, OCC and the three other federal regulators that oversee the Volcker rule — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — published proposed amendments to the original rule, which took three years to be approved, after passage of the 2010 Dodd-Frank Act.
The Fed, SEC and CFTC have not yet approved the final rule adopted Tuesday by the FDIC and OCC.
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.
"These revisions do not in any way negate the statutory prohibition on proprietary trading by banks," he said. "However, we expect the revisions will provide market participants with more clarity on compliance as they implement the continuing legal restrictions under the rule, and they will make it easier for the regulators to ensure compliance."