The Federal Reserve, alongside other U.S. regulators, on
Wednesday proposed rewriting the "Volcker Rule" introduced
following the 2007-2009 financial crisis in a bid to simplify
the regulation and make it easier for banks to comply.
Created by the 2010 Dodd-Frank financial reform law, the rule
bans lenders that accept U.S. taxpayer-insured deposits from
engaging in proprietary trading or investing in investment
vehicles such as hedge funds or private equity funds.
Foreign banks have often complained that the Volcker Rule
improperly affects their non-U.S. operations because it broadly
applies to any foreign bank that has a relationships with a U.S.
entity or affiliate.
Many overseas funds that are organized and offered exclusively
outside the United States are also caught by the rule because
they are often part of a broader foreign banking group.
Charles Horn, a partner at law firm Morgan Lewis in Washington,
said the proposal released on Wednesday contains several
elements that should benefit global banks, as well as U.S.
He pointed to a move by the regulators to make it easier for
foreign banks to qualify for an exemption from the rule,
including scrapping the requirement that to qualify they must
not trade through any U.S. entity.
The proposal also tries to address some of the problems related
to overseas funds, including extending for another year a
one-year exemption 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," Horn said.
Foreign regulators have lobbied the United States for several
years to ease up on how the rule applies to overseas entities,
including during a bilateral meeting between European and U.S.
authorities in January, according to two sources.
In September, Japan's Financial Services Agency and the Bank of
Japan submitted a letter to the Office of the Comptroller of the
Currency saying that the rule's overreach encroached upon their
role as primary regulators and placed "an undue and excessive
burden" on its banks.
(Reporting by Michelle Price; Editing by Leslie Adler)
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