Volcker 2.0: Non-U.S. Banks Receive Relief, and Some Burden, in Amendments to the Volcker Rule’s Implementing Regulations

Key Takeaways

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.
  • make significant liberalizing changes to the “trading outside of the United States” exception (the “TOTUS Exception”) to the Volcker Rule’s proprietary trading prohibition.
  • modify the requirements of the market making and underwriting exceptions to the Volcker Rule’s proprietary trading prohibition through tweaks to the “reasonably expected near-term demand” (“RENT-D”) standard, allowing banks a presumption of compliance if they establish trading desk-level risk limits.
  • make modest updates with respect to the Volcker Rule’s covered fund prohibitions, with a broader set of amendments possible in a subsequent rulemaking.
  • introduce certain complexities that may offset some of the benefits of reduced compliance burdens. 
Introduction

On October 8, 2019, the Board of Governors of the Federal Reserve System adopted a final rule that amends current regulations implementing Section 13 of the Bank Holding Company Act of 1956, commonly known as the Volcker Rule. The final rule, which had previously been adopted by four other financial regulatory agencies, offers significant relief with respect to a number of the Volcker Rule’s current requirements, particularly with respect to the restrictions applicable to non-U.S. banks’ trading operations outside of the United States, although it does impose some burdens on non-U.S. banks that are less likely to impact U.S. banks.

This note discusses some of the final rule’s key features, particularly those that will be of interest to non-U.S. banks. Among other things, we discuss the final rule’s simplification of compliance program requirements, modifications to the so-called “trading outside the United States” or “TOTUS” exception, and easing of certain requirements connected with the underwriting and market-making exceptions.

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