The proposal aims to simplify and ease some of the overreaching aspects of the rule which places undue and excessive burden on financial compliance.
With the Federal Reserve, along with other U.S. regulators, proposing to rewriting the “Volcker Rule” that was introduced following the 2007-2009 financial crisis, foreign and U.S. banks are set to benefit from the move.
The proposed rewriting of the “Volcker Rule” will make life easier for banks and will ease financial compliance.
The Volcker Rule, created by the 2010 Dodd-Frank financial reform law, bans lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading or investing them in investment vehicles, including private equity funds or hedge funds.
The rule adversely effected the operations of foreign banks since it applies broadly to any foreign bank that has a relation with a U.S. entity of affiliate
Further, overseas funds that are offered and organized exclusively outside of the U.S. were also ensnared by the rule because they typically form part of a foreign banking group.
According to Charles Horn, a partner at law at Washington-based Morgan Lewis, the proposal contains several elements that is likely to positively impact global banks, as well as U.S. financial institutions.
The scrapping of the requirement that foreign banks must not trade through any U.S. entity in order to qualify for an exemption of the Volker Rule is certainly going to make life easier for them.
The proposal also attempts to address some of the issues related to overseas funds, including extending for another year a 1-year exemption that was granted in 2017.
“The agencies haven’t yet proposed to change that definition, but they have said they are asking for comments on this issue and are proposing to extend the current enforcement moratorium for these foreign funds for another year while they consider further this issue,” said Horn.
According to two sources, for several years now foreign regulators have lobbied the United States for easing up on how the rule applies to overseas funds and institutions.
Case in point: in September 2017 the Bank of Japan as well as Japan’s Financial Services Agency submitted a letter to the Office of the Comptroller of the Currency stating that the Volcker Rule’s overreach essentially encroached upon their role as primary regulators and placed “an undue and excessive burden” on its banks.