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Federal Agencies Finalize Revisions To Simplify Volcker Rule

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Five federal financial regulatory agencies, including the U.S. Federal Reserve, have given final approval to changes in the Volcker Rule that will simplify compliance requirements for banks.

The Volcker Rule, passed after the 2008 financial crisis, prohibits banks from dealing in proprietary trading. They are also prohibited from investing in or sponsoring hedge funds, or private equity funds.

The rule was originally proposed by former U.S. Federal Reserve Chairman Paul Volcker to restrict U.S. banks from making certain kinds of speculative investments that did not benefit their customers. Volcker has argued that such speculative activity played a major role in the 2008 financial crisis.

The rule's provisions were slated to be implemented as part of the Dodd-Frank Act in July 2010, but were delayed. In December 2013, regulatory agencies approved regulations implementing the rule.

However, revised final regulations were adopted following a lawsuit by community banks over provisions related to specialized securities. The rule came into effect in July 2015.

On Tuesday, five regulatory agencies said they have finalized changes to simplify compliance requirements relating to the Volcker Rule. The banking industry supported changes to the original rule as they felt it was too restrictive.

Under the revised rule, firms that do not have significant trading activities will have simplified compliance requirements, while those having substantial trading activity will be subject to more stringent requirements. Community banks generally are exempt from the Volcker rule.

The changes in the rule were jointly developed by the Federal Reserve Board, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.

The amended rules will take effect on January 1, 2020, and banks will have to comply with the rules by January 1, 2021.

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