82 FR 36692 - Proprietary Trading and Certain Interests in and Relationships With Covered Funds (Volcker Rule); Request for Public Input
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency Federal Register Volume 82, Issue 150 (August 7, 2017)
Office of the Comptroller of the Currency
Federal Register Volume 82, Issue 150 (August 7, 2017)
| Page Range | 36692-36697 | |
| FR Document | 2017-16556 |
[Federal Register Volume 82, Number 150 (Monday, August 7, 2017)] [Proposed Rules] [Pages 36692-36697] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-16556] ======================================================================== Proposed Rules Federal Register ________________________________________________________________________ This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. ======================================================================== Federal Register / Vol. 82, No. 150 / Monday, August 7, 2017 / Proposed Rules [[Page 36692]] DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 44 [Docket ID OCC-2017-0014] Proprietary Trading and Certain Interests in and Relationships With Covered Funds (Volcker Rule); Request for Public Input AGENCY: Office of the Comptroller of the Currency (OCC), Treasury. ACTION: Request for information. ----------------------------------------------------------------------- SUMMARY: The OCC is seeking the public's input with this request for information to assist in determining how the final rule implementing section 13 of the Bank Holding Company Act (commonly referred to as the ``Volcker Rule'') should be revised to better accomplish the purposes of the statute. The OCC also solicits comments suggesting improvements in the ways in which the final rule has been applied and administered to date. This OCC request is limited to regulatory actions that may be undertaken to achieve these objectives. The OCC is not requesting comment on changes to the underlying Volcker statute. The OCC recognizes that any revision to the final rule or the administration of that rule must be done consistent with the constraints of the statute and requests that commenters provide input that fits within the contours of that structure. DATES: Comments should be submitted by September 21, 2017. ADDRESSES: You may submit comments to the OCC by any of the methods set forth below. Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments through the Federal eRulemaking Portal or email, if possible. Please use the title ``Volcker Rule; Request for Information'' to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods:Federal eRulemaking Portal--``Regulations.gov'': Go to www.regulations.gov. Enter ``Docket ID OCC-2017-0014'' in the Search Box and click ``Search.'' Click on ``Comment Now'' to submit public comments. Click on the ``Help'' tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments. Email: [email protected]. Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E-218, Washington, DC 20219. Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, Washington, DC 20219. Fax: (571) 465-4326. Instructions: You must include ``OCC'' as the agency name and ``Docket ID OCC-2017-0014'' in your comment. In general, the OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this request for information by any of the following methods: Viewing Comments Electronically: Go to www.regulations.gov. Enter ``Docket ID OCC-2017-0014'' in the Search box and click ``Search.'' Click on ``Open Docket Folder'' on the right side of the screen. Comments and supporting materials can be filtered by clicking on ``View all documents and comments in this docket'' and then using the filtering tools on the left side of the screen. Click on the ``Help'' tab on the Regulations.gov home page to get information on using Regulations.gov. The docket may be viewed after the close of the comment period in the same manner as during the comment period. Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649- 6700 or, for persons who are deaf or hard of hearing, TTY, (202) 649- 5597. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. FOR FURTHER INFORMATION CONTACT: Ted Dowd, Director; Suzette Greco, Assistant Director; Tabitha Edgens, Senior Attorney; Mark O'Horo, Attorney, Securities and Corporate Practices Division, (202) 649-5510; Patrick Tierney, Assistant Director, Legislative and Regulatory Activities Division, (202) 649-5490, 400 7th Street SW., Washington, DC 20219. SUPPLEMENTARY INFORMATION: The OCC gives notice that it is seeking the public's input to assist in determining how the final rule implementing section 13 of the Bank Holding Company Act \1\ (the ``final rule'') should be revised to better accomplish the purposes of the statute. The OCC also solicits comments suggesting improvements in the ways the final rule has been applied and administered to date. The request for information published here also is available on the OCC's Web site. --------------------------------------------------------------------------- \1\ 12 CFR part 44 (OCC); 12 CFR part 248 (Board); 12 CFR part 351 (FDIC); 17 CFR part 75 (CFTC); 17 CFR part 255 (SEC). --------------------------------------------------------------------------- As this request for information describes, there is broad recognition that the final rule should be improved both in design and in application. A report recently issued by the Department of the Treasury \2\ (``Treasury Report'') identifies problems with the design of the final rule--the inclusion of a ``purpose'' test for defining proprietary trading, for example. The report also contains recommendations for revisions to the final rule. The OCC's objective in issuing this request for information is to gather additional, more specific information that could provide focused support for any reconsideration of the final rule that the rulewriting agencies [[Page 36693]] may undertake and contribute to the development of the bases for particular changes that may be proposed. --------------------------------------------------------------------------- \2\ U.S. Department of the Treasury Report, A Financial System that Creates Economic Opportunities: Banks and Credit Unions (2017), pp. 71-78, 132-133. --------------------------------------------------------------------------- The information that the OCC is soliciting could support the revisions to the final rule advanced in the Treasury Report and elsewhere; it also may support additional revisions that are consistent with the spirit of the Treasury Report. In any case, the OCC and the other Volcker rulewriting agencies will need to explain the basis for any changes to the current rule that may be proposed. The OCC recognizes that revisions to the current rule must be undertaken jointly by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation and in consultation and coordination with the Securities and Exchange Commission and the Commodity Futures Trading Commission. The OCC anticipates that the information solicited here--that is, information and data describing with specificity any burdens or inefficiencies resulting from the current rule and explaining how particular revisions would alleviate those burdens or inefficiencies--would be useful to inform the drafting of a proposed rule. Seeking Public Input on the Volcker Rule I. Background Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'') created a new section 13 of the Bank Holding Company Act (``BHC Act''), which generally prohibits ``banking entities'' (e.g., insured depository institutions, companies that control an insured depository institution, and their affiliates and subsidiaries) from engaging in proprietary trading and from holding an ownership interest in, sponsoring, or having certain relationships with hedge fund and private equity funds.\3\ Section 13 of the BHC Act authorized the Office of the Comptroller of the Currency (``OCC''), Board of Governors of the Federal Reserve System (the ``Board''), Federal Deposit Insurance Corporation (``FDIC''), Commodity Futures Trading Commission (``CFTC''), and Securities and Exchange Commission (``SEC'') (together, the ``Agencies'') to issue implementing regulations.\4\ The Agencies issued final regulations implementing section 13 in December 2013, with an effective date of April 1, 2014.\5\ Banking entities were generally required to conform their proprietary trading activities and investments to the requirements of section 13 and the final rule (together, the ``Volcker Rule'') by July 21, 2015.\6\ --------------------------------------------------------------------------- \3\ See 12 U.S.C. 1851. \4\ The federal banking agencies (i.e., the OCC, the Board, and the FDIC) must act jointly to issue final regulations with respect to insured depository institutions. 12 U.S.C. 1851(b)(2)(B)(i)(I). The five Agencies, in developing and issuing final rules, must consult and coordinate with each other, as appropriate, for the purposes of assuring, to the extent possible, that such rules are comparable and provide for consistent application and implementation of the applicable provisions of Section 13. 12 U.S.C. 1851(b)(2)(B)(ii). \5\ 12 CFR part 44 (OCC); 12 CFR part 248 (Board); 12 CFR part 351 (FDIC); 17 CFR part 75 (CFTC); 17 CFR part 255 (SEC). \6\ See Board Order Approving Extension of Conformance Period (Dec. 31, 2014). The Board also granted two additional one-year extensions (until July 21, 2017) for ``legacy'' covered funds (i.e., covered fund relationships and investments that were in place prior to December 31, 2013). See Board Order Approving Extension of Conformance Period Under Section 13 of the Bank Holding Company Act (Dec. 18, 2014); Board Order Approving Extension of Conformance Period Under Section 13 of the Bank Holding Company Act (July 6, 2016). In 2017, the Board approved banking entity applications for additional transition periods of up to five years for specified legacy ``illiquid funds.'' --------------------------------------------------------------------------- The final rule's proprietary trading provisions generally prohibit banking entities from engaging, as principal, in short-term trading of certain securities, derivatives, commodity futures and options on these instruments.\7\ The final rule's covered funds provisions generally prohibit banking entities from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund (``covered fund''). The final rule defines the term covered fund to include any issuer that would be an investment company under the Investment Company Act of 1940 if it were not otherwise excluded by sections 3(c)(1) or 3(c)(7) of that Act, as well as certain foreign funds and commodity pools.\8\ The proprietary trading prohibition and the covered funds prohibition are subject to a number of exclusions and exemptions. Banking entities of all sizes are subject to the Volcker Rule and are generally required to establish an internal compliance program reasonably designed to ensure and monitor compliance with the Volcker Rule.\9\ --------------------------------------------------------------------------- \7\ See 12 CFR part 44, subpart B. \8\ See 12 CFR part 44, subpart C. \9\ See 12 CFR part 44, subpart D. See section titled ``Compliance Program and Metrics Reporting Requirements'' below for additional background on the Volcker Rule compliance program requirements. --------------------------------------------------------------------------- The Volcker Rule was intended to promote the safety and soundness of banking entities and prevent taxpayer bailouts by minimizing bank exposure to certain proprietary trading and fund activities that could involve undue risk. At the same time, the Volcker Rule was designed to permit banking entities to continue providing client-oriented financial services that are critical to capital generation and that facilitate liquid markets.\10\ Some have asserted that the Volcker Rule has succeeded in accomplishing these goals in some respects.\11\ However, others have identified difficulties in interpreting and applying some of the final rule's provisions.\12\ Many have argued that the final rule is overly complex and vague.\13\ Banking entities in particular have suggested that, despite their best efforts, they sometimes are not able to distinguish permissible from prohibited activities.\14\ Banking entities also have suggested that the Volcker Rule is overbroad and restricts a number of essential financial functions, potentially restricting activities that could spur economic growth. In particular, firms have suggested that they have been forced to curtail economically useful market-making, hedging, and asset-liability management to avoid violating the proprietary trading prohibition.\15\ [[Page 36694]] The covered funds prohibition has also been criticized for capturing investment vehicles that facilitate lending activity and capital formation, even though they may not be equivalent to traditional private equity funds or hedge funds.\16\ --------------------------------------------------------------------------- \10\ See 79 FR 5535, 5541. \11\ See, e.g., Marc Jarsulic, Vice President, Economic Policy, Center for American Progress, Testimony before the House Committee on Financial Services, Subcommittee on Capital Markets, Securities, and Investment, U.S. House of Representatives (Mar. 29, 2017), (arguing the Volcker Rule has caused banks to exit proprietary trading activities but has not caused a significant impact on corporate bond market liquidity). \12\ See, e.g., Daniel K. Tarullo, Governor of the Federal Reserve System, Departing Thoughts at the Woodrow Wilson School, Princeton University (April 4, 2017) (``Departing Thoughts''); William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, Remarks at the Princeton Club of New York (April 7, 2017) (``Princeton Club''); Examining the Impact of the Volcker Rule on the Markets, Businesses, Investors, and Job Creators: Hearing on the Volcker Rule Before the Subcomm. On Capital Markets, Securities, and Investment of the House Comm. On Financial Services, 115th Cong. (2017); American Bankers Association, The Volcker Rule: Islands of Permission in a Sea of Prohibition (2017); Institute of International Bankers, U.S. Supervision and Regulation of International Banks: Recommendations for the Report of the Treasury Secretary (2017); Financial Services Roundtable, FSR Recommendations for Aligning Financial Regulation With Core Principles (2017); The Clearing House, Submission to the U.S. Treasury Department: Aligning the U.S. Bank Regulatory Framework with the Core Principles of Financial Regulation (2017). \13\ See, e.g., U.S. Department of the Treasury Report, A Financial System that Creates Economic Opportunities: Banks and Credit Unions (2017) (``The rule has spawned an extraordinarily complex and burdensome compliance regime due to a combination of factors . . .''); Tarullo, Departing Thoughts; American Bankers Association. \14\ See, e.g., American Bankers Association (``. . . in many cases, a bank may not know whether it is engaged in impermissible activities until it is notified in the course of a bank examination.''). \15\ See, e.g., American Bankers Association (``The goal should be to provide certainty that the rules will not impede banks from engaging in bona fide market-making, asset liability management, hedging, and other trading activities. . . .''); Financial Services Roundtable (``For example, the bank issues public debt for funding purposes and then swaps the payments to fixed for floating through a plain-vanilla interest-rate swap in order to meet its asset- liability management objectives. Again, this is not an activity, that we believe the architects of the Volcker Rule envisioned including within the Rule's restrictions, but resident examiners and their legal departments have interpreted it as such.''). \16\ See, e.g., Institute of International Bankers (``The Agencies' approach has therefore resulted in an overly broad definition of covered fund that goes well beyond the original intent to capture private equity funds and hedge funds, and the list of enumerated exclusions fails to exclude many vehicles that are not equivalent to traditional private equity funds or hedge funds.''); Financial Services Roundtable (``This approach, however, remains overly broad. For example, it captures funds that invest solely in funds that are otherwise excluded funds, some plain-vanilla securitizations, and re-REMICs.''). --------------------------------------------------------------------------- The OCC is seeking the public's input on whether aspects of the final rule and its implementation should be revised to better accomplish the purposes of section 13 of the BHC Act while decreasing the compliance burden on banking entities and fostering economic growth. In particular, the OCC is inviting input on ways to tailor further the rule's requirements and clarify key provisions that define prohibited and permissible activities. The OCC is also inviting input on how the existing rule could be implemented more effectively without revising the regulation. The OCC encourages the public to submit data addressing the effectiveness of the rule and its implementation, the current compliance burden, and any need for additional guidance and/or proposed revisions to the rule. The OCC recognizes that any revisions to the final rule would need to be undertaken together with the other Agencies. Revisions would require the Agencies to articulate a reasoned basis for the changes, so it is especially important for those commenting to provide evidence demonstrating the nature and scope of the problems they identify and the likely efficacy of any solutions they propose. The OCC believes the information gathered in response to this request for information would be helpful in that regard. This request for information identifies four broad areas for the public's consideration: (1) The scope of entities to which the final rule applies; (2) the proprietary trading restrictions; (3) the covered fund restrictions; and (4) the compliance program and metrics reporting requirements. However, the OCC is inviting comments on all aspects of the final rule and its administration. The request for information is limited to regulatory actions that may be undertaken to better accomplish the purpose of the statute and improve the way the final rule has been applied and administered to date. The OCC is not requesting comment on changes to the underlying Volcker statute. Regulatory actions that may be undertaken to achieve these objectives will be subject to the constraints of the statute. For instance, activity the Agencies may permit under the market-making or risk mitigating hedging exceptions to the general proprietary trading prohibition are subject to statutory safety and soundness and financial stability backstops, as well as other conditions. II. Topics and Questions The OCC is particularly interested in receiving comments and supporting data on the following topics and questions: \17\ --------------------------------------------------------------------------- \17\ For purposes of this information request, ``data'' includes both quantitative and qualitative information, as well as other verifiable evidence supporting respondents' comments and suggestions. --------------------------------------------------------------------------- Scope of Entities Subject to the Rule The Volcker Rule's statutory prohibition applies to any ``banking entity,'' \18\ a term that is defined to include any insured depository institution, any company that controls an insured depository institution, or that is treated as a bank holding company for purposes of section 8 of the International Banking Act of 1978, and any affiliate or subsidiary of such entity.\19\ The Agencies adopted this definition in the final rule and provided a limited number of specific exclusions.\20\ --------------------------------------------------------------------------- \18\ 12 U.S.C. 1851(a)(1). \19\ 12 U.S.C. 1851(h)(1). \20\ The final rule excludes from the definition of ``banking entity'' (i) a covered fund that does not itself meet the definition of banking entity, (ii) a portfolio company held under the authority of section 4(k)(4)(H) or (I) of the BHC Act or any portfolio concern defined under 13 CFR 107.50 that is controlled by a small business investment company, and (iii) the FDIC acting in its corporate capacity or as a conservator or receiver under the Federal Deposit Insurance Act or Title II of the Dodd-Frank Act. 12 CFR 44.2(c). --------------------------------------------------------------------------- As a result of this definition, the Volcker Rule prohibitions and compliance program requirements apply to many entities that may not pose systemic risk concerns, such as small community banks engaged primarily in traditional banking activities and other banks that do not engage in the type of activities, or in activities that present the type of risk, that the Volcker Rule was designed to restrict. For example, banks with minimal or no proprietary trading activities are subject to the final rule. Many of these institutions have reported experiencing a significant regulatory burden. The final rule's tailored compliance program requirements were intended to reduce the Volcker Rule's economic impact on small banking entities,\21\ but even determining whether an entity is eligible for the simplified program can pose a significant burden for small banks.\22\ In addition, certain activities of small banks have been caught up in the proprietary trading prohibition. Exempting small banking entities and other banking entities without substantial trading activities would enable them to reduce their compliance costs and devote more resources to local lending without materially increasing risk to the financial system.\23\ --------------------------------------------------------------------------- \21\ The OCC, Board, and FDIC statement on the Volcker Rule's applicability to community banks, released concurrently with the final rule, recognized that ``the vast majority of these community banks have little or no involvement in prohibited proprietary trading or investment activities in covered funds. Accordingly, community banks do not have any compliance obligations under the final rule if they do not engage in any covered activities other than trading in certain government, agency, State or municipal obligations.'' Board, FDIC, and OCC, The Volcker Rule: Community Bank Applicability (Dec. 10, 2013). \22\ Toney Bland, Senior Deputy Comptroller for Midsize and Community Bank Supervision, OCC, Testimony before the House Committee on Financial Services, Subcommittee on Financial Institutions and Consumer Credit (Apr. 23, 2015), (``[C]ommunity banks need to ascertain whether their activities are covered by the Volcker Rule in order to understand whether they have any compliance obligations. Making this determination may require them to expend money and resources--for example, by hiring attorneys and consultants. This regulatory burden is not justified by the risk these institutions present.''). See also, Tarullo, Departing Thoughts. \23\ Acting Comptroller of the Currency Keith Noreika, Testimony before the Senate Banking Committee (Jun. 22, 2017) (``Applying the Rule to community banks engaged primarily in traditional banking activities or to institutions that are not materially engaged in risky trading activities does not further the statutory purpose. Exempting community banks and providing an off-ramp for larger institutions depending on the nature and scope of their trading activities would reduce complexity, cost, and burden associated with the Volcker Rule by providing a tailored approach to addressing the risks the Rule was designed to contain.''). See also, Dudley, Princeton Club (``For smaller institutions, the regulatory and compliance burdens can be considerably lighter because the failure of such a firm will not impose large costs or stress on the broader financial system. Also, we must recognize that smaller firms have less ability to spread added compliance costs across their business. All else equal, an increase in compliance burden can create an unintended competitive advantage for larger institutions. We should also recognize the important role that smaller banking institutions have in supporting local communities around the country.''). --------------------------------------------------------------------------- The banking entity definition also extends to foreign subsidiaries of foreign [[Page 36695]] banking organizations acting outside of the United States. In particular, foreign banking organizations have raised questions regarding non-U.S. entities that are not covered funds under section 10(b)(iii) of the final rule (``foreign excluded funds'') and whether such funds may become banking entities if they are ``controlled'' by a banking entity.\24\ Foreign banking entities that sponsor foreign non- covered funds in some foreign jurisdictions may, by virtue of typical corporate governance structures for funds in these jurisdictions, be deemed to ``control'' a foreign non-covered fund for purposes of the BHC Act.\25\ These corporate governance structures have raised questions regarding whether foreign non-covered funds that are sponsored by foreign banking entities and offered solely outside the U.S. and in accordance with foreign laws are banking entities under the final rule. The OCC, Board, and FDIC, in consultation with the SEC and CFTC, issued a statement of policy on July 21, 2017, announcing that the three Federal banking agencies are coordinating review of the treatment of these funds under the final rule and providing that they would not propose to take action with respect to such foreign funds during the one-year period prior to July 21, 2018, if they meet the criteria specified in the statement of policy. --------------------------------------------------------------------------- \24\ See Board, FDIC, and OCC, Statement regarding Treatment of Certain Foreign Funds under the Rules Implementing Section 13 of the Bank Holding Company Act (July 21, 2017); Board, CFTC, FDIC, OCC, and SEC, Joint Release, Federal Regulatory Agencies Announce Coordination of Reviews for Certain Foreign Funds under ``Volcker Rule'' (July 21, 2017). \25\ For example, sponsors of foreign funds in some foreign jurisdictions may select the majority of the fund's directors or trustees, or otherwise control the fund for purposes of the BHC Act by contract or through a controlled corporate director. --------------------------------------------------------------------------- Questions on Scope of Entities Subject to the Rule 1. What evidence is there that the scope of the final rule is too broad? 2. How could the final rule be revised to appropriately narrow its scope of application and reduce any unnecessary compliance burden? What criteria could be used to determine the types of entities or activities that should be excluded? Please provide supporting data or other appropriate information. 3. How would an exemption for the activities of these banking entities be consistent with the purposes of the Volcker Rule and not compromise safety and soundness and financial stability? Please include supporting data or other appropriate information. 4. How could the rule provide a carve-out from the banking entity definition for certain controlled foreign excluded funds? How could the rule be tailored further to focus on activities with a U.S. nexus? 5. Are there other issues related to the scope of the final rule's application that could be addressed by regulatory action? Proprietary Trading Prohibition The final rule, like the statute, defines proprietary trading as engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments. Building upon the statutory definition,\26\ the final rule adopted a three pronged definition of ``trading account.'' The first prong includes within the definition any account used by a banking entity to purchase or sell one or more financial instruments principally for the purpose of (a) short-term resale, (b) benefitting from short-term price movements, (c) realizing short-term arbitrage profits or (d) hedging any of the foregoing.\27\ Banking entities and commentators have asserted that this prong of the definition imposes a significant compliance burden because it requires determining the intent associated with each trade. --------------------------------------------------------------------------- \26\ 12 U.S.C. 1851(h)(6) (defining ``trading account''). \27\ 12 CFR 44.3(b)(1)(i). The other two prongs of the trading account definition are the ``market risk capital prong,'' which applies to the purchase or sale of financial instruments that are both market risk capital rule covered positions and trading positions, and the ``dealer prong,'' which applies to the purchase or sale of financial instruments by a banking entity that is licensed or registered, or required to be licensed or registered, as a dealer, swap dealer, or security-based swap dealer, to the extent the instrument is purchased or sold in connection with the activities that require the banking entity to be licensed or registered as such. 12 CFR 44.3(b)(1)(ii) and (iii). --------------------------------------------------------------------------- In addition, the final rule provides that the purchase or sale of a financial instrument will be presumed to be for the trading account under the first prong of the trading account definition if the banking entity holds the financial instrument for fewer than 60 days or substantially transfers the risk of the position within 60 days.\28\ If a banking entity sells or transfers the risk of a position within 60 days, it must be able to demonstrate that it did not purchase or sell the instrument for short-term trading purposes. Some banking entities have said that many transactions are presumed to be proprietary trading as a result of this provision, including transactions that were not the intended target of the proprietary trading restriction. --------------------------------------------------------------------------- \28\ 12 CFR 44.3(b)(2). --------------------------------------------------------------------------- The Volcker statute and the final rule provide several exclusions and exemptions from the proprietary trading prohibition.\29\ However, banking entities have reported that complying with these exclusions and exemptions is unduly burdensome and the final rule's requirements may result in banking entities underutilizing them. In particular, industry groups, members of Congress, and others have argued that the rule does not provide sufficient latitude for banking entities to engage in market-making, which they have argued may have a negative impact on some measures of market liquidity.\30\ --------------------------------------------------------------------------- \29\ 12 U.S.C. 1851(d); 12 CFR 44.3(d), 44.4, 44.5, 44.6. \30\ See, e.g., Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, Statement to House Committee on Financial Services, Subcommittee on Capital Markets, Securities, and Investment, U.S. House of Representatives (Mar. 29, 2017) (``It is very difficult to distinguish between market making and proprietary trading without arbitrarily imposing a demarcation. The Volcker Rule significantly constrains their ability by dictating how banks should manage their inventory. This will reduce the depth and liquidity of our capital markets.''); Tarullo, Departing Thoughts (``Achieving compliance under the current approach would consume too many supervisory, as well as bank, resources relative to the implementation and oversight of other prudential standards. And although the evidence is still more anecdotal than systematic, it may be having a deleterious effect on market making, particularly for some less liquid issues.''). --------------------------------------------------------------------------- Questions on the Proprietary Trading Prohibition 1. What evidence is there that the proprietary trading prohibition has been effective or ineffective in limiting banking entities' risk- taking and reducing the likelihood of taxpayer bailouts? What evidence is there that the proprietary trading prohibition does or does not have a negative impact on market liquidity? 2. What type of objective factors could be used to define proprietary trading? 3. Should the rebuttable presumption provision be revised, whether by elimination, narrowing, or introduction of a reverse presumption that presumes activities are not proprietary trading? Are there activities for which rebuttal should not be available? Should rebuttal be available for specified categories of activity? Could the rebuttable presumption provision be implemented in a way that decreases the compliance burden for banking entities? 4. What additional activities, if any, should be permitted under the proprietary trading provisions? Please provide a description of the activity and [[Page 36696]] discuss why it would be appropriate to permit the activity, including supporting data or other appropriate information. 5. How could the existing exclusions and exemptions from the proprietary trading prohibition--including the requirements for permissible market-making and risk mitigating hedging activities--be streamlined and simplified? For example, does the distinction between ``market-maker inventory'' and ``financial exposure'' help ensure that trading desks using the market-making exemption are providing liquidity or otherwise functioning as market makers? 6. How could additional guidance or adjusted implementation of the existing proprietary trading provisions help to distinguish more clearly between permissible and impermissible activities? 7. Are there any other issues related to the proprietary trading prohibition that should be addressed by regulatory action? Covered Funds Prohibition Section 13 of the BHC Act generally prohibits banking entities from acquiring or holding an ownership in or sponsoring any private equity fund or hedge fund.\31\ Section 13 defines a hedge fund or private equity fund as an issuer that would be an investment company, as defined in the Investment Company Act of 1940 but for section 3(c)(1) or 3(c)(7) of that Act, or such similar funds as the Agencies may, by rule, determine. The Agencies adopted the definition referencing sections 3(c)(1) and 3(c)(7) of the Investment Company Act in the final rule and also included certain commodity pools and foreign funds in the covered fund definition.\32\ Recognizing that this definition may apply more broadly than necessary to achieve the Volcker Rule's purposes, the Agencies excluded several categories of issuers from the definition of covered fund in the final rule and established requirements for certain permitted covered fund activities, such as organizing and offering a covered fund,\33\ market making in covered fund interests,\34\ and covered fund activities and investments outside of the United States.\35\ Some have suggested that, notwithstanding the exclusions currently provided, the statutory definition referencing sections 3(c)(1) and 3(c)(7) of the Investment Company Act continues to include within its scope many issuers that were not intended to be covered by section 13.\36\ --------------------------------------------------------------------------- \31\ 12 U.S.C. 1851(a)(1)(B). \32\ 12 CFR 44.10(b)(1)(ii) and (iii). \33\ 12 CFR 44.11(a). \34\ 12 CFR 44.11(c). \35\ 12 CFR 44.13(b). \36\ See American Bankers Association (``[T]he Volcker Rule regulations should apply only to those hedge funds and private equity funds that engage primarily in proprietary trading for near- term investment gains, thereby excluding funds (such as venture capital funds) . . . that do not raise the risks the Volcker Rule is intended to address.''); The Clearing House (``While the Agencies must implement the statute as Congress has enacted it, they have extended its reach to numerous other types of funds that bear little in relation to either private equity or hedge funds.''). --------------------------------------------------------------------------- The final rule also implements section 13's restrictions on relationships with hedge funds and private equity funds.\37\ The so- called ``Super 23A'' provision prohibits a banking entity that serves as investment manager, adviser, or sponsor to a covered fund from entering into a transaction with the covered fund (or any other covered fund controlled by the covered fund) if the transaction would be a covered transaction as defined in section 23A of the Federal Reserve Act.\38\ --------------------------------------------------------------------------- \37\ 12 U.S.C. 1851(f). \38\ 12 U.S.C. 371c; 12 CFR 44.14; 12 CFR part 223. --------------------------------------------------------------------------- Questions on the Covered Funds Prohibition 1. What evidence is there that the final rule has been effective or ineffective in limiting banking entity exposure to private equity funds and hedge funds? What evidence is there that the covered fund definition is too broad in practice? 2. Would replacing the current covered fund definition that references sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 with a definition that references characteristics of the fund, such as investment strategy, fee structure, etc., reduce the compliance burden associated with the covered fund provisions? If so, what specific characteristics could be used to narrow the covered fund definition? Does data or other appropriate information support the use of a characteristics-based approach to fund investments? 3. What types of additional activities and investments, if any, should be permitted or excluded under the covered funds provisions? Please provide a description of the activity or investment and discuss why it would be appropriate to permit the activity or investment, including supporting data or other appropriate information. 4. Is section 14 of the final rule (the ``Super 23A'' provision) effective at limiting bank exposure to covered funds? Are there additional categories of transactions and relationships that should be permitted under this section? 5. How could additional guidance or adjusted implementation of the existing covered fund provisions help to distinguish more clearly between permissible and impermissible activities? For example, should the final rule be revised to clarify how the definition of ``ownership interest'' applies to securitizations? 6. Are there any other issues related to the covered funds prohibition that could be addressed by regulatory action? Compliance Program and Metrics Reporting Requirements The final rule adopted a tiered compliance program requirement based on the size, complexity, and type of activity conducted by each banking entity. Banking entities that do not engage in activities covered by the final rule other than trading in government obligations are not required to establish a compliance program unless they become engaged in covered activities.\39\ Banking entities with assets of $10 billion or less are eligible for a simplified compliance program.\40\ Nonetheless, banking entities have reported that the compliance program requirements in the final rule present a compliance burden, especially for small institutions that are not engaged in significant levels of proprietary trading and covered fund activities. Section 20 and Appendix A of the final rule require certain of the largest banking entities engaged in significant trading activities to collect, evaluate, and furnish data regarding covered trading activities as an indicator of areas meriting additional attention by the banking entity and relevant Agency.\41\ --------------------------------------------------------------------------- \39\ 12 CFR 44.20(f)(1). \40\ 12 CFR 44.20(f)(2). \41\ 79 FR 5535, 5540. --------------------------------------------------------------------------- Questions on the Compliance Program, Metrics Reporting Requirements, and Additional Issues 1. What evidence is there that the compliance program and metrics reporting requirements have facilitated banking entity compliance with the substantive provisions of the Volcker Rule? What evidence is there that the compliance program and metrics reporting requirements present a disproportionate or undue burden on banking entities? 2. How could the final rule be revised to reduce burden associated with the compliance program and reporting requirements? Responses should include supporting data or other appropriate information. [[Page 36697]] 3. Are there categories of entities for which compliance program requirements should be reduced or eliminated? If so, please describe and include supporting data or other appropriate information. 4. How effective are the quantitative measurements currently required by the final rule? Are any of the measurements unnecessary to evaluate Volcker Rule compliance? Are there other measurements that would be more useful in evaluating Volcker Rule compliance? 5. How could additional guidance or adjusted implementation of the existing compliance program and metrics reporting provisions reduce the compliance burden? For example, should the rule permit banking entities to self-define their trading desks, subject to supervisory approval, so that banking entities report metrics on the most meaningful units of organization? 6. How could the final rule be revised to enable banking entities to incorporate technology-based systems when fulfilling their compliance obligations under the Volcker Rule? Could banking entities implement technology-based compliance systems that allow banking entities and regulators to more objectively evaluate compliance with the final rule? What are the advantages and disadvantages of using technology-based compliance systems when establishing and maintaining reasonably designed compliance programs? 7. What additional changes could be made to any other aspect of the final rule to provide additional clarity, remove unnecessary burden, or address any other issues? Dated: August 1, 2017. Keith A. Noreika, Acting Comptroller of the Currency. [FR Doc. 2017-16556 Filed 8-4-17; 8:45 am] BILLING CODE 4810-33-P
![36692
Proposed Rules Federal Register
Vol. 82, No. 150
Monday, August 7, 2017
This section of the FEDERAL REGISTER submit comments by any of the • Viewing Comments Personally: You
contains notices to the public of the proposed following methods: may personally inspect and photocopy
issuance of rules and regulations. The • Federal eRulemaking Portal— comments at the OCC, 400 7th Street
purpose of these notices is to give interested ‘‘Regulations.gov’’: Go to SW., Washington, DC. For security
persons an opportunity to participate in the www.regulations.gov. Enter ‘‘Docket ID reasons, the OCC requires that visitors
rule making prior to the adoption of the final
rules.
OCC–2017–0014’’ in the Search Box and make an appointment to inspect
click ‘‘Search.’’ Click on ‘‘Comment comments. You may do so by calling
Now’’ to submit public comments. (202) 649–6700 or, for persons who are
DEPARTMENT OF THE TREASURY • Click on the ‘‘Help’’ tab on the deaf or hard of hearing, TTY, (202) 649–
Regulations.gov home page to get 5597. Upon arrival, visitors will be
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Currency including instructions for submitting issued photo identification and submit
public comments. to security screening in order to inspect
12 CFR Part 44 • Email: regs.comments@ and photocopy comments.
occ.treas.gov. FOR FURTHER INFORMATION CONTACT: Ted
[Docket ID OCC–2017–0014] • Mail: Legislative and Regulatory Dowd, Director; Suzette Greco, Assistant
Activities Division, Office of the Director; Tabitha Edgens, Senior
Proprietary Trading and Certain Comptroller of the Currency, 400 7th Attorney; Mark O’Horo, Attorney,
Interests in and Relationships With Street SW., Suite 3E–218, Washington, Securities and Corporate Practices
Covered Funds (Volcker Rule); DC 20219. Division, (202) 649–5510; Patrick
Request for Public Input • Hand Delivery/Courier: 400 7th Tierney, Assistant Director, Legislative
Street SW., Suite 3E–218, Washington, and Regulatory Activities Division,
AGENCY: Office of the Comptroller of the DC 20219. (202) 649–5490, 400 7th Street SW.,
Currency (OCC), Treasury. • Fax: (571) 465–4326. Washington, DC 20219.
ACTION: Request for information. Instructions: You must include SUPPLEMENTARY INFORMATION:
‘‘OCC’’ as the agency name and ‘‘Docket The OCC gives notice that it is seeking
SUMMARY: The OCC is seeking the ID OCC–2017–0014’’ in your comment.
public’s input with this request for the public’s input to assist in
In general, the OCC will enter all determining how the final rule
information to assist in determining comments received into the docket and
how the final rule implementing section implementing section 13 of the Bank
publish them on the Regulations.gov Holding Company Act 1 (the ‘‘final
13 of the Bank Holding Company Act Web site without change, including any
(commonly referred to as the ‘‘Volcker rule’’) should be revised to better
business or personal information that accomplish the purposes of the statute.
Rule’’) should be revised to better you provide such as name and address
accomplish the purposes of the statute. The OCC also solicits comments
information, email addresses, or phone suggesting improvements in the ways
The OCC also solicits comments numbers. Comments received, including
suggesting improvements in the ways in the final rule has been applied and
attachments and other supporting administered to date. The request for
which the final rule has been applied materials, are part of the public record
and administered to date. This OCC information published here also is
and subject to public disclosure. Do not available on the OCC’s Web site.
request is limited to regulatory actions include any information in your
that may be undertaken to achieve these As this request for information
comment or supporting materials that describes, there is broad recognition that
objectives. The OCC is not requesting you consider confidential or
comment on changes to the underlying the final rule should be improved both
inappropriate for public disclosure. in design and in application. A report
Volcker statute. The OCC recognizes You may review comments and other
that any revision to the final rule or the recently issued by the Department of the
related materials that pertain to this Treasury 2 (‘‘Treasury Report’’)
administration of that rule must be done request for information by any of the
consistent with the constraints of the identifies problems with the design of
following methods: the final rule—the inclusion of a
statute and requests that commenters • Viewing Comments Electronically:
provide input that fits within the ‘‘purpose’’ test for defining proprietary
Go to www.regulations.gov. Enter trading, for example. The report also
contours of that structure. ‘‘Docket ID OCC–2017–0014’’ in the contains recommendations for revisions
DATES: Comments should be submitted Search box and click ‘‘Search.’’ Click on to the final rule. The OCC’s objective in
by September 21, 2017. ‘‘Open Docket Folder’’ on the right side issuing this request for information is to
ADDRESSES: You may submit comments of the screen. Comments and supporting gather additional, more specific
to the OCC by any of the methods set materials can be filtered by clicking on information that could provide focused
forth below. Because paper mail in the ‘‘View all documents and comments in
jstallworth on DSKBBY8HB2PROD with PROPOSALS
support for any reconsideration of the
Washington, DC area and at the OCC is this docket’’ and then using the filtering final rule that the rulewriting agencies
subject to delay, commenters are tools on the left side of the screen.
encouraged to submit comments • Click on the ‘‘Help’’ tab on the 1 12 CFR part 44 (OCC); 12 CFR part 248 (Board);
through the Federal eRulemaking Portal Regulations.gov home page to get 12 CFR part 351 (FDIC); 17 CFR part 75 (CFTC); 17
or email, if possible. Please use the title information on using Regulations.gov. CFR part 255 (SEC).
2 U.S. Department of the Treasury Report, A
‘‘Volcker Rule; Request for Information’’ The docket may be viewed after the Financial System that Creates Economic
to facilitate the organization and close of the comment period in the same Opportunities: Banks and Credit Unions (2017), pp.
distribution of the comments. You may manner as during the comment period. 71–78, 132–133.
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![36694 Federal Register / Vol. 82, No. 150 / Monday, August 7, 2017 / Proposed Rules
The covered funds prohibition has also compliance program and metrics was designed to restrict. For example,
been criticized for capturing investment reporting requirements. However, the banks with minimal or no proprietary
vehicles that facilitate lending activity OCC is inviting comments on all aspects trading activities are subject to the final
and capital formation, even though they of the final rule and its administration. rule. Many of these institutions have
may not be equivalent to traditional The request for information is limited to reported experiencing a significant
private equity funds or hedge funds.16 regulatory actions that may be regulatory burden. The final rule’s
The OCC is seeking the public’s input undertaken to better accomplish the tailored compliance program
on whether aspects of the final rule and purpose of the statute and improve the requirements were intended to reduce
its implementation should be revised to way the final rule has been applied and the Volcker Rule’s economic impact on
better accomplish the purposes of administered to date. The OCC is not small banking entities,21 but even
section 13 of the BHC Act while requesting comment on changes to the determining whether an entity is
decreasing the compliance burden on underlying Volcker statute. Regulatory eligible for the simplified program can
banking entities and fostering economic actions that may be undertaken to pose a significant burden for small
growth. In particular, the OCC is achieve these objectives will be subject banks.22 In addition, certain activities of
inviting input on ways to tailor further to the constraints of the statute. For small banks have been caught up in the
the rule’s requirements and clarify key instance, activity the Agencies may proprietary trading prohibition.
provisions that define prohibited and permit under the market-making or risk Exempting small banking entities and
permissible activities. The OCC is also mitigating hedging exceptions to the other banking entities without
inviting input on how the existing rule general proprietary trading prohibition substantial trading activities would
could be implemented more effectively are subject to statutory safety and enable them to reduce their compliance
without revising the regulation. The soundness and financial stability costs and devote more resources to local
OCC encourages the public to submit backstops, as well as other conditions. lending without materially increasing
data addressing the effectiveness of the risk to the financial system.23
II. Topics and Questions The banking entity definition also
rule and its implementation, the current
compliance burden, and any need for The OCC is particularly interested in extends to foreign subsidiaries of foreign
additional guidance and/or proposed receiving comments and supporting
revisions to the rule. data on the following topics and 21 The OCC, Board, and FDIC statement on the
The OCC recognizes that any questions: 17 Volcker Rule’s applicability to community banks,
released concurrently with the final rule,
revisions to the final rule would need to Scope of Entities Subject to the Rule recognized that ‘‘the vast majority of these
be undertaken together with the other community banks have little or no involvement in
The Volcker Rule’s statutory prohibited proprietary trading or investment
Agencies. Revisions would require the prohibition applies to any ‘‘banking activities in covered funds. Accordingly,
Agencies to articulate a reasoned basis entity,’’ 18 a term that is defined to community banks do not have any compliance
for the changes, so it is especially include any insured depository
obligations under the final rule if they do not
important for those commenting to engage in any covered activities other than trading
institution, any company that controls in certain government, agency, State or municipal
provide evidence demonstrating the an insured depository institution, or obligations.’’ Board, FDIC, and OCC, The Volcker
nature and scope of the problems they that is treated as a bank holding Rule: Community Bank Applicability (Dec. 10,
identify and the likely efficacy of any 2013).
company for purposes of section 8 of the 22 Toney Bland, Senior Deputy Comptroller for
solutions they propose. The OCC International Banking Act of 1978, and Midsize and Community Bank Supervision, OCC,
believes the information gathered in any affiliate or subsidiary of such Testimony before the House Committee on
response to this request for information entity.19 The Agencies adopted this Financial Services, Subcommittee on Financial
would be helpful in that regard. Institutions and Consumer Credit (Apr. 23, 2015),
definition in the final rule and provided (‘‘[C]ommunity banks need to ascertain whether
This request for information identifies a limited number of specific their activities are covered by the Volcker Rule in
four broad areas for the public’s exclusions.20 order to understand whether they have any
consideration: (1) The scope of entities As a result of this definition, the compliance obligations. Making this determination
to which the final rule applies; (2) the may require them to expend money and resources—
Volcker Rule prohibitions and for example, by hiring attorneys and consultants.
proprietary trading restrictions; (3) the compliance program requirements apply This regulatory burden is not justified by the risk
covered fund restrictions; and (4) the to many entities that may not pose these institutions present.’’). See also, Tarullo,
Departing Thoughts.
systemic risk concerns, such as small 23 Acting Comptroller of the Currency Keith
market-making, asset liability management, community banks engaged primarily in
hedging, and other trading activities. . . .’’); Noreika, Testimony before the Senate Banking
Financial Services Roundtable (‘‘For example, the traditional banking activities and other Committee (Jun. 22, 2017) (‘‘Applying the Rule to
bank issues public debt for funding purposes and banks that do not engage in the type of community banks engaged primarily in traditional
banking activities or to institutions that are not
then swaps the payments to fixed for floating activities, or in activities that present materially engaged in risky trading activities does
through a plain-vanilla interest-rate swap in order the type of risk, that the Volcker Rule
to meet its asset-liability management objectives. not further the statutory purpose. Exempting
community banks and providing an off-ramp for
Again, this is not an activity, that we believe the
17 For purposes of this information request, larger institutions depending on the nature and
architects of the Volcker Rule envisioned including
‘‘data’’ includes both quantitative and qualitative scope of their trading activities would reduce
within the Rule’s restrictions, but resident
information, as well as other verifiable evidence complexity, cost, and burden associated with the
examiners and their legal departments have
supporting respondents’ comments and suggestions. Volcker Rule by providing a tailored approach to
interpreted it as such.’’). addressing the risks the Rule was designed to
16 See, e.g., Institute of International Bankers 18 12 U.S.C. 1851(a)(1).
19 12 U.S.C. 1851(h)(1).
contain.’’). See also, Dudley, Princeton Club (‘‘For
(‘‘The Agencies’ approach has therefore resulted in smaller institutions, the regulatory and compliance
jstallworth on DSKBBY8HB2PROD with PROPOSALS
an overly broad definition of covered fund that goes 20 The final rule excludes from the definition of
burdens can be considerably lighter because the
well beyond the original intent to capture private ‘‘banking entity’’ (i) a covered fund that does not failure of such a firm will not impose large costs
equity funds and hedge funds, and the list of itself meet the definition of banking entity, (ii) a or stress on the broader financial system. Also, we
enumerated exclusions fails to exclude many portfolio company held under the authority of must recognize that smaller firms have less ability
vehicles that are not equivalent to traditional section 4(k)(4)(H) or (I) of the BHC Act or any to spread added compliance costs across their
private equity funds or hedge funds.’’); Financial portfolio concern defined under 13 CFR 107.50 that business. All else equal, an increase in compliance
Services Roundtable (‘‘This approach, however, is controlled by a small business investment burden can create an unintended competitive
remains overly broad. For example, it captures company, and (iii) the FDIC acting in its corporate advantage for larger institutions. We should also
funds that invest solely in funds that are otherwise capacity or as a conservator or receiver under the recognize the important role that smaller banking
excluded funds, some plain-vanilla securitizations, Federal Deposit Insurance Act or Title II of the institutions have in supporting local communities
and re-REMICs.’’). Dodd-Frank Act. 12 CFR 44.2(c). around the country.’’).
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![36696 Federal Register / Vol. 82, No. 150 / Monday, August 7, 2017 / Proposed Rules
discuss why it would be appropriate to Act continues to include within its 5. How could additional guidance or
permit the activity, including scope many issuers that were not adjusted implementation of the existing
supporting data or other appropriate intended to be covered by section 13.36 covered fund provisions help to
information. The final rule also implements section distinguish more clearly between
5. How could the existing exclusions 13’s restrictions on relationships with permissible and impermissible
and exemptions from the proprietary hedge funds and private equity funds.37 activities? For example, should the final
trading prohibition—including the The so-called ‘‘Super 23A’’ provision rule be revised to clarify how the
requirements for permissible market- prohibits a banking entity that serves as definition of ‘‘ownership interest’’
making and risk mitigating hedging investment manager, adviser, or sponsor applies to securitizations?
activities—be streamlined and to a covered fund from entering into a 6. Are there any other issues related
simplified? For example, does the transaction with the covered fund (or to the covered funds prohibition that
distinction between ‘‘market-maker any other covered fund controlled by could be addressed by regulatory
inventory’’ and ‘‘financial exposure’’ the covered fund) if the transaction action?
help ensure that trading desks using the would be a covered transaction as
market-making exemption are providing defined in section 23A of the Federal Compliance Program and Metrics
liquidity or otherwise functioning as Reserve Act.38 Reporting Requirements
market makers? The final rule adopted a tiered
6. How could additional guidance or Questions on the Covered Funds
Prohibition compliance program requirement based
adjusted implementation of the existing on the size, complexity, and type of
proprietary trading provisions help to 1. What evidence is there that the activity conducted by each banking
distinguish more clearly between final rule has been effective or entity. Banking entities that do not
permissible and impermissible ineffective in limiting banking entity engage in activities covered by the final
activities? exposure to private equity funds and rule other than trading in government
7. Are there any other issues related hedge funds? What evidence is there obligations are not required to establish
to the proprietary trading prohibition that the covered fund definition is too a compliance program unless they
that should be addressed by regulatory broad in practice? become engaged in covered activities.39
action? 2. Would replacing the current Banking entities with assets of $10
covered fund definition that references billion or less are eligible for a
Covered Funds Prohibition sections 3(c)(1) and 3(c)(7) of the simplified compliance program.40
Section 13 of the BHC Act generally Investment Company Act of 1940 with Nonetheless, banking entities have
prohibits banking entities from a definition that references reported that the compliance program
acquiring or holding an ownership in or characteristics of the fund, such as requirements in the final rule present a
sponsoring any private equity fund or investment strategy, fee structure, etc., compliance burden, especially for small
hedge fund.31 Section 13 defines a reduce the compliance burden institutions that are not engaged in
hedge fund or private equity fund as an associated with the covered fund significant levels of proprietary trading
issuer that would be an investment provisions? If so, what specific and covered fund activities. Section 20
company, as defined in the Investment characteristics could be used to narrow and Appendix A of the final rule require
Company Act of 1940 but for section the covered fund definition? Does data certain of the largest banking entities
3(c)(1) or 3(c)(7) of that Act, or such or other appropriate information engaged in significant trading activities
similar funds as the Agencies may, by support the use of a characteristics- to collect, evaluate, and furnish data
rule, determine. The Agencies adopted based approach to fund investments? regarding covered trading activities as
the definition referencing sections 3. What types of additional activities
an indicator of areas meriting additional
3(c)(1) and 3(c)(7) of the Investment and investments, if any, should be
attention by the banking entity and
Company Act in the final rule and also permitted or excluded under the
relevant Agency.41
included certain commodity pools and covered funds provisions? Please
foreign funds in the covered fund provide a description of the activity or Questions on the Compliance Program,
definition.32 Recognizing that this investment and discuss why it would be Metrics Reporting Requirements, and
definition may apply more broadly than appropriate to permit the activity or Additional Issues
necessary to achieve the Volcker Rule’s investment, including supporting data
1. What evidence is there that the
purposes, the Agencies excluded several or other appropriate information.
compliance program and metrics
categories of issuers from the definition 4. Is section 14 of the final rule (the
reporting requirements have facilitated
of covered fund in the final rule and ‘‘Super 23A’’ provision) effective at
banking entity compliance with the
established requirements for certain limiting bank exposure to covered
substantive provisions of the Volcker
permitted covered fund activities, such funds? Are there additional categories of
Rule? What evidence is there that the
as organizing and offering a covered transactions and relationships that
compliance program and metrics
fund,33 market making in covered fund should be permitted under this section?
reporting requirements present a
interests,34 and covered fund activities
disproportionate or undue burden on
and investments outside of the United 36 See American Bankers Association (‘‘[T]he
Volcker Rule regulations should apply only to those banking entities?
States.35 Some have suggested that,
notwithstanding the exclusions
hedge funds and private equity funds that engage 2. How could the final rule be revised
primarily in proprietary trading for near-term to reduce burden associated with the
jstallworth on DSKBBY8HB2PROD with PROPOSALS
currently provided, the statutory investment gains, thereby excluding funds (such as
definition referencing sections 3(c)(1) venture capital funds) . . . that do not raise the compliance program and reporting
and 3(c)(7) of the Investment Company risks the Volcker Rule is intended to address.’’); The requirements? Responses should
Clearing House (‘‘While the Agencies must include supporting data or other
implement the statute as Congress has enacted it, appropriate information.
31 12 U.S.C. 1851(a)(1)(B). they have extended its reach to numerous other
32 12 CFR 44.10(b)(1)(ii) and (iii). types of funds that bear little in relation to either
33 12 CFR 44.11(a). private equity or hedge funds.’’). 39 12 CFR 44.20(f)(1).
34 12 CFR 44.11(c). 37 12 U.S.C. 1851(f). 40 12 CFR 44.20(f)(2).
35 12 CFR 44.13(b). 38 12 U.S.C. 371c; 12 CFR 44.14; 12 CFR part 223. 41 79 FR 5535, 5540.
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![Federal Register / Vol. 82, No. 150 / Monday, August 7, 2017 / Proposed Rules 36697
3. Are there categories of entities for Notice of proposed rulemaking
ACTION: action, contact Madison Walton,
which compliance program (NPRM). Aviation Safety Inspector, Flight
requirements should be reduced or Technologies and Procedures Division,
eliminated? If so, please describe and SUMMARY: This proposal would revise Flight Standards Services, AFS–400,
include supporting data or other the FAA’s requirements for application Federal Aviation Administration, 470
appropriate information. to operate in RVSM airspace. The L’Enfant Plaza, Suite 4102, Washington,
4. How effective are the quantitative proposal would eliminate the DC 20024, Federal Aviation
measurements currently required by the requirement for operators to apply for Administration, 800 Independence
final rule? Are any of the measurements an RVSM authorization when their Avenue SW., Washington, DC 20591;
unnecessary to evaluate Volcker Rule aircraft are equipped with qualified telephone (202) 267–8850; email
compliance? Are there other ADS–B Out systems and meet specific Madison.Walton@faa.gov.
measurements that would be more altitude keeping equipment
SUPPLEMENTARY INFORMATION:
useful in evaluating Volcker Rule requirements for operations in RVSM
compliance? airspace. This proposal recognizes the Authority for This Rulemaking
5. How could additional guidance or enhancements in aircraft monitoring The FAA’s authority to issue rules
adjusted implementation of the existing resulting from the use of ADS–B Out with respect to aviation safety is found
compliance program and metrics systems and responds to requests to
in Title 49, United States Code (49
reporting provisions reduce the eliminate the burden and expense of the
U.S.C.). Sections 106(f), 40113(a), and
compliance burden? For example, current RVSM application process for
44701(a) authorize the FAA
should the rule permit banking entities operators of aircraft equipped with
Administrator to prescribe regulations
to self-define their trading desks, subject qualified ADS–B Out systems.
necessary for aviation safety. Under
to supervisory approval, so that banking DATES: Send comments on or before Section 40103(b), the FAA is charged
entities report metrics on the most September 6, 2017. with prescribing regulations to enhance
meaningful units of organization? ADDRESSES: Send comments identified the efficiency of the national airspace.
6. How could the final rule be revised by docket number FAA–2017–0782 This proposed rulemaking is within the
to enable banking entities to incorporate using any of the following methods: scope of these authorities as it removes
technology-based systems when • Federal eRulemaking Portal: Go to regulatory requirements that the FAA no
fulfilling their compliance obligations http://www.regulations.gov and follow longer finds necessary for safe
under the Volcker Rule? Could banking the online instructions for sending your operations in RVSM airspace and
entities implement technology-based comments electronically. establishes requirements for the use of
compliance systems that allow banking • Mail: Send comments to Docket
qualified ADS–B Out systems to
entities and regulators to more Operations, M–30; U.S. Department of
facilitate operations in that airspace.
objectively evaluate compliance with Transportation, 1200 New Jersey
the final rule? What are the advantages Avenue SE., Room W12–140, West I. Executive Summary
and disadvantages of using technology- Building Ground Floor, Washington, DC
A. Summary of the Proposed Rule
based compliance systems when 20590–0001.
establishing and maintaining reasonably • Hand Delivery or Courier: Take This proposal would permit an
comments to Docket Operations in operator of an aircraft equipped with a
designed compliance programs?
7. What additional changes could be Room W12–140 of the West Building qualified ADS–B Out system meeting
made to any other aspect of the final Ground Floor at 1200 New Jersey altitude keeping equipment
rule to provide additional clarity, Avenue SE., Washington, DC 20590– performance requirements for
remove unnecessary burden, or address 0001, between 9 a.m. and 5 p.m., operations in RVSM airspace to operate
any other issues? Monday through Friday, except Federal in that airspace without requiring a
holidays. specific authorization. Under this
Dated: August 1, 2017. • Fax: Fax comments to Docket proposal the FAA would consider a
Keith A. Noreika, Operations at (202) 493–2251. qualified ADS–B Out system to be one
Acting Comptroller of the Currency. Privacy: In accordance with 5 U.S.C. that meets the requirements of § 91.227
[FR Doc. 2017–16556 Filed 8–4–17; 8:45 am] 553(c), DOT solicits comments from the of Title 14, Code of Federal Regulations
BILLING CODE 4810–33–P public to better inform its rulemaking (14 CFR).
process. DOT posts these comments, The requirement for operators to
without edit, including any personal obtain a specific RVSM authorization
DEPARTMENT OF TRANSPORTATION information the commenter provides, to was first promulgated in 1997 when
www.regulations.gov, as described in most aircraft required significant design
Federal Aviation Administration the system of records notice (DOT/ALL– changes to qualify for an authorization.
14 FDMS), which can be reviewed at At that time, operators lacked
14 CFR Part 91 www.dot.gov/privacy. familiarity with RVSM operations and
Docket: Background documents or were required to submit a detailed
[Docket No.: FAA–2017–0782; Notice No.
91–348] comments received may be read at application to the FAA for review to
http://www.regulations.gov at any time. obtain an RVSM authorization. This
RIN 2120–AK87 Follow the online instructions for application included information on the
accessing the docket or go to the Docket operator’s compliance with RVSM
jstallworth on DSKBBY8HB2PROD with PROPOSALS
Use of Automatic Dependent Operations in Room W12–140 of the equipment standards, a description of
Surveillance–Broadcast (ADS–B) Out West Building Ground Floor at 1200 the operator’s RVSM maintenance
in Support of Reduced Vertical New Jersey Avenue SE., Washington, program, and evidence of initial and
Separation Minimum (RVSM) DC 20590–0001, between 9 a.m. and 5 recurrent pilot training. Since then,
Operations p.m., Monday through Friday, except operators have become more familiar
AGENCY: Federal Aviation Federal holidays. with RVSM operations, requirements,
Administration (FAA), Department of FOR FURTHER INFORMATION CONTACT: For and procedures. Additionally, the
Transportation (DOT). technical questions concerning this height-keeping performance of aircraft
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Document Created: 2017-08-05 02:59:31
Document Modified: 2017-08-05 02:59:31
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Request for information. | |
| Dates | Comments should be submitted by September 21, 2017. | |
| Contact | Ted Dowd, Director; Suzette Greco, Assistant Director; Tabitha Edgens, Senior Attorney; Mark O'Horo, Attorney, Securities and Corporate Practices Division, (202) 649-5510; Patrick Tierney, Assistant Director, Legislative and Regulatory Activities Division, (202) 649-5490, 400 7th Street SW., Washington, DC 20219. | |
| FR Citation | 82 FR 36692 |
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