Agencies finalize changes to Volcker rule

The Federal Reserve Board, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Securities and Exchange Commission jointly announced the finalized revisions Tuesday. The changes are slated to become effective Jan. 1, 2020, after publication in the Federal Register with a compliance date of Jan. 1, 2021.

Notable changes to the Volcker rule include:

Tiered requirements: Under the latest revisions, compliance programs are subject to tiered requirements based on the amount of a banking entity’s assets. Those with significant trading assets and liabilities—at least $20 billion—are subject to the most requirements: a six-pillar compliance program, annual CEO attestation, and metrics requirements.

Banking entities with more moderate total consolidated trading assets and liabilities—between $1 billion to $20 billion—are subject to simplified compliance obligations. Banking entities with limited trading assets—less than $1 billion—get a presumption of compliance. Metrics requirements have been eased. Organizations subject to metrics collection requirements must report them 30 days after the end of each quarter.

An eliminated presumption: While proprietary trading is still not allowed, short-term trades will no longer be presumed to be inappropriate. The final version of the rule reverses the “rebuttable presumption” that financial instruments held for less than 60 days are within the short-term intent prong of a trading account. Instead, the new Volcker rule adds a rebuttable presumption that financial instruments held for 60 days or more are not within the short-term intent prong of a trading account.

Acceptable trading within limits: While proprietary trading is prohibited generally, exemptions to that prohibition under the updated rule mean underwriting and market-making activities as well as risk-mitigating hedging and trading by foreign banks are OK. There is a presumption of compliance with reasonably expected near-term demand requirements for trading within limits. Banks just need to maintain records of any breaches of limits and make those records available upon request. To maintain the presumption of compliance, banks also need to follow internal escalation and approval procedures.