On November 14, 2019, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the U.S. Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, and the U.S. Securities and Exchange Commission (collectively, the agencies) published a final rule amending the regulations that implement section 13 of the Bank Holding Company (BHC) Act, commonly known as the Volcker rule. These amendments are intended to simplify the rule in a manner that is consistent with section 13 of the BHC Act. The effective date for the final rule is January 1, 2020, and the compliance date is January 1, 2021. A banking entity may voluntarily comply, in whole or in part, with the amendments adopted in the final rule prior to the compliance date. 1
Most community banks have total consolidated assets equal to $10 billion or less and total trading assets and liabilities equal to 5 percent or less of total consolidated assets. These community banks therefore meet conditions under the Economic Growth, Regulatory Relief, and Consumer Protection Act that exempt them from the Volcker rule. See 12 CFR 44.2(r)(2); OCC Bulletin 2019-32.
The final rule amends the definition of trading account, adopts new exclusions from the definition of proprietary trading, streamlines existing exclusions and exemptions, and tailors compliance program obligations for banking entities. Specifically, the final rule
Section 13 of the BHC Act generally prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (defined in the implementing regulations as “covered funds”). Authority for developing and adopting regulations to implement the prohibitions and restrictions of section 13 of the BHC Act is shared among the agencies. The agencies issued a final rule implementing section 13 of the BHC Act in December 2013 (the 2013 rule), and those provisions became effective on April 1, 2014.
The agencies published a notice of proposed rulemaking on July 17, 2018, that proposed amendments to the 2013 rule. These amendments sought to provide greater clarity and certainty about what activities are prohibited under the 2013 rule and to improve supervision and implementation of section 13 of the BHC Act.
The final rule adopts many of the proposed changes to the 2013 rule, with targeted adjustments based on comments received. Like the proposal, the final rule tailors compliance program obligations based on the level of trading activity of a banking entity, revises the definition of trading account, adopts new exclusions from the definition of proprietary trading, generally streamlines the proprietary trading and covered fund exemptions, and revises the rule’s metrics reporting requirements.
Please contact Tabitha Edgens, Counsel, or Mark O’Horo, Senior Attorney, Chief Counsel’s Office, at (202) 649-5490; or Roman Goldstein, Risk Specialist, Treasury and Market Risk Policy, at (202) 649-6360.
Jonathan V. Gould
Senior Deputy Comptroller and Chief Counsel
1 The final rule’s revisions to the regulations’ metrics provisions require the agencies to make certain technological changes to accept metrics submissions that comply with the final rule. Banking entities seeking to adopt the final rule’s metrics provisions prior to the compliance date should work with each appropriate agency to determine how and when to voluntarily comply with the metrics requirements under the final rule.