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Banking & Financial Services Update

Volcker Rule—Changes Proposed by U.S. Federal Agencies

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The five U.S. federal agencies that are principally responsible for banking and financial market regulation in the United States (collectively, the Agencies)1 have approved a notice of proposed rulemaking (the NPR) that proposes significant revisions to the final rule (the Final Rule) implementing the Volcker Rule.2

The revisions would leave intact the core restrictions on proprietary trading and covered fund activities. However, the revisions would make certain significant changes to those restrictions. For example, the revisions to the proprietary trading restrictions would eliminate the first prong of the “trading account” definition, which addresses the intent of a banking entity when it purchases and sells financial instruments, and would add a new prong that addresses those financial instruments that are recorded by a banking entity at fair value under applicable accounting standards. The revisions to the compliance program requirements would eliminate almost all of the “enhanced minimum standards” set forth in Appendix B of the Final Rule. The revisions to the covered fund restrictions would be more limited, but the Agencies sought comment regarding many other aspects of those restrictions, including the base definition of “covered fund” (and certain express exclusions from that definition) and the definition of “ownership interest” (as it relates to debt securities issued by covered funds that are securitization issuers).

Recently passed legislation exempts community banks and other small banking organizations from the Volcker Rule and modifies the name-sharing restrictions of the Final Rule.3 Changes to the Final Rule required by that legislation are expected to be the subject of a separate rulemaking and are not dealt with in the NPR.

Comments in response to the NPR must be received by the Agencies within 60 days of its publication in the Federal Register.

Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.

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