Foreign banks and funds are set to benefit from a move by US regulators to simplify a trading rule that foreign banks and regulators say have inadvertently ensnared firms operating as far afield as Europe and Asia.
The Federal Reserve, alongside other US regulators, proposed rewriting the “Volcker Rule” introduced following the 2007 to 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 US 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-US operations because it broadly applies to any foreign bank that has a relationship with a US entity or affiliate.
Many overseas funds that are organised and offered exclusively outside the US 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 US institutions.
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 US 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 US 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.
