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Washington Wrap — Volcker rule changes likely coming; Otting hits road on CRA

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Washington Wrap — Volcker rule changes likely coming; Otting hits road on CRA

The Washington Wrap is a weekly recap of financial regulation, news and chatter from around the capital. Send tips and ideas to polo.rocha@spglobal.com, david.hood@spglobal.com and declan.harty@spglobal.com.

At the regulators

Federal financial regulators appear poised to ease compliance requirements next week for banks subject to the Volcker rule, a Dodd-Frank Act provision that prohibits proprietary trading at banks.

The Federal Deposit Insurance Corp. has set a board meeting for Aug. 20 that will partly include a discussion on the Volcker rule.

Bloomberg News reported Aug. 13 that the FDIC and other regulators in charge of implementing the prohibition are likely to scrap their proposed "accounting prong," one method of measuring whether banks are complying with the rule's prohibitions. Although regulators intended it as a way of easing Volcker rule compliance, the banking industry has slammed the accounting prong as more unwieldy than the current approach.

Regulators will instead lay out a new method that they hope will make it easier for banks to show they are complying with the rule, Bloomberg News reported, citing four people familiar with the proceedings. The report also said the change will be final and not be subject to another public comment period.

The FDIC board meeting will also include a discussion on potential changes to the interest rate restrictions the agency places on banks that are not well capitalized.

The Volcker rule action would cross off one major item from banking regulators' to-do list, which also includes finalizing several Dodd-Frank changes that Congress approved in 2018.

Also on that list is a potential overhaul to how regulators enforce the Community Reinvestment Act, or CRA.

Comptroller of the Currency Joseph Otting has led the effort among the banking regulators to update the rule.

Otting recently traveled to minority communities in Atlanta and Baltimore to hear from local leaders on how the rule can be improved.

On Aug. 19, the comptroller will be in Washington, D.C., "for a tour of several community locations of interest," according to a statement from the OCC. The regulator is scheduled to meet with more than 50 community advocates, community development professionals and bankers "engaged in the CRA process."

The regulators have been working for months to modernize the rule and are expected to release a proposal this year.

At the SEC

Wall Street's top securities regulator is set to consider issuing guidance around the proxy-voting process at an upcoming meeting.

At an Aug. 21 open meeting, the SEC's five-person commission will weigh publishing guidance on two issues: investment advisers' responsibilities when casting proxy votes, and the applicability of certain SEC rules to proxy-voting advice, according to an agenda published on the agency's website. The guidance, if issued, would represent some of the agency's first concrete steps to reforming the proxy process since it started examining concerns around proxy voting nearly a year ago.

Corporate governance experts, institutional investors and proxy advisory firms contend that the proxy process is vital, as it allows investors to raise issues to companies' management teams that otherwise may go unnoticed. But business groups and many companies argue that some activist investors have corrupted the system by using it as a way of promoting their social and political causes instead of improving the companies' financial returns.

The proxy process has faced renewed scrutiny as more and more investors push companies to consider environmental, social and governance proposals through the proxy process. As of mid-February, shareholders had filed nearly 400 proposals related to ESG issues with U.S. companies. The leading topics among those were climate change, gender diversity and corporate political spending.

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