Re: Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and CertainInterests in, and Relationships with, Hedge Funds and Private Equity Funds – Docket No.OCC-2018-0029 (OCC); Docket No. R-1643, RIN 7100-AF33 (Federal Reserve); RIN3064-AE88 (FDIC); File Number S7-14-18 (SEC); RIN 3038-AE72 (CFTC)
Ladies and Gentlemen:
The American Bankers Association (ABA) appreciates the opportunity to provide comments tothe five federal regulatory agencies (Agencies) responsible for issuing the rules (Regulation) thatimplement Section 619 of the Dodd-Frank Act, codified as Section 13 of the Bank HoldingCompany Act of 1956, as amended (Volcker Rule, or Rule). The Agencies are soliciting publiccomment on proposed amendments to the Regulation (Proposal) that are intended to beconsistent with the statutory amendments made pursuant to sections 203 and 204 of theEconomic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which wasenacted into law in 2018.
The Proposal would align the Regulation with the statutory amendments, and thereby—
We commend the Agencies for their efforts to harmonize the Regulation’s requirements with theVolcker Rule amendments of the EGRRCPA, thereby providing compliance guidance andcertainty for banking entities. We would request, however, that the Agencies clarify theProposal in three respects.
First, in describing the Community Bank Exclusion, the Agencies state that they would “expectto use available information, including information reported on regulatory reporting formsavailable to each Agency, with respect to whether financial institutions qualify for the[E]xclusion.” Section 203 of the EGRRCPA, however, states that with respect to determiningwhether total trading assets and trading liabilities fall within the Exclusion, such determinationshall be made by what is “reported on the most recent applicable regulatory filing filed by theinstitution.” We request, therefore, that the Agencies clarify that, for purposes of determiningwhether trading assets and liabilities do not exceed five percent of a banking entity’s totalconsolidated assets in accordance with the amended Volcker Rule, the Agencies limit theirreview to the banking entity’s “most recent applicable regulatory filing,” rather than engage in areview of all “available information,” which may or may not be known to the banking entity, andwhich could possibly be at variance with the trading assets and/or liabilities figure(s) reported inthe most recent applicable regulatory filing. For example, commercial banks should be able torely on trading assets plus liabilities as reported in the most recently filed schedule RC-D. Inparticular, regulators should make it clear that securities held in an Available for Sale capacity donot count toward trading assets plus liabilities. This clarification will permit a banking entity toknow with confidence whether it will fall within the terms of the Community Bank Exclusion.
Second, with respect to the Name-Sharing Provision, the Agencies ask whether the Proposalprovides sufficient clarity for a banking entity to determine whether a covered fund is permittedto share the same name or variation of the same name with an affiliated banking entity. Forthose banking entities with non-U.S. operations, there are instances in which a banking entity’saffiliated investment adviser, which is headquartered or located in a foreign jurisdiction, may berequired under the foreign jurisdiction’s local law, or directed by the local regulators for thepurpose of investor protection, to share the same name (or variation thereof) with covered fundsthat it advises. In order to provide compliance certainty, we propose that the Agencies interpretthe Name-Sharing Provision also to allow a banking entity to share the “same name or variationof the same name” with the covered fund if required by a foreign jurisdiction’s applicable locallaw or as directed by local regulators. This exclusion would further the policy goal of avoidingextraterritorial application of the Volcker Rule where a foreign jurisdiction’s law otherwiserequires or directs this arrangement.
Third, we request that the Agencies confirm that sections 203 and 204 of the EGRRCPA are selfexecuting; i.e., that no action of the Agencies would be required for the Community BankExclusion and Name-Sharing Provision to go into full force and effect. This apparently was theposition taken by the Agencies shortly after the EGRRCPA’s enactment in May 2018.Recognition of the self-executing nature of these provisions would allow affected bankingentities to continue to rely on section 203 and 204 without having to wait for the Agenciesformally to align the Regulation with the Volcker Rule amendments.
We understand that the Agencies are in the process of finalizing the larger, comprehensiveVolcker Rule regulatory reform proposal. We believe that the proposed Accounting Test isconsiderably overbroad and captures far more assets than intended by the Volcker Rule, andtherefore, it is inconsistent with the Volcker Rule reforms discussed herein. It further conflictswith the Agencies’ expressed intent to simplify and tailor the Volcker Rule. Relating theVolcker Rule’s regulatory requirements to a banking entity’s level of involvement in VolckerRule-regulated trading and covered fund activities (rather than tying these requirementsreflexively to asset size) would be a major improvement in the administration of the law,focusing it better on its statutory purposes, for which such reforms as the Community BankException is similarly consistent. We look forward to the forthcoming reforms that willmeaningfully rightsize and improve the Volcker Rule’s regulatory framework.
Thank you for your consideration of our views and recommendations. If you have any questionsor require any additional information, please do not hesitate to contact the undersigned at 202-663-5479 ([email protected]).
Sincerely,
Timothy E. Keehan
Vice President & Senior Counsel