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Financial regulators finalize changes to Volcker rule

All five federal financial regulators have finalized revisions to a financial crisis-era rule prohibiting banks from proprietary trading.

The Federal Reserve and Securities and Exchange Commission finalized changes on Oct. 8 to the so-called Volcker rule, which establishes a new regulatory framework for banks' trading desks.

In August, the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency finalized the rule that places banks into three regulatory tiers based on the amounts of trading assets and liabilities the institutions hold.

The Commodity Futures Trading Commission approved the Volcker rule revisions in September.

With the actions by the Fed and the SEC, the finalization process is complete. The rule will go into effect on Jan. 1, 2020, with a compliance date of Jan. 1, 2021.

The Fed voted for the final rule 4-1, with Governor Lael Brainard dissenting.

Brainard wrote in a statement that the final rule "weakens the core protections against speculative trading." She also wrote that the rule "excessively" relies on firms' ability to self-police.

"I am concerned about examiners' ability to assess compliance with the final rule because it relies on firms' internal self-policing to set limits to distinguish permissible market-making from illegal proprietary trading," Brainard wrote.

The rule keeps in place the most stringent regulations for banks with the most trading assets and liabilities, while smaller banks with significantly less trading activity will have fewer rules to abide by.