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Divided CFTC approves Volcker rule revamp

The Commodity Futures Trading Commission on June 4 signed off on a proposal to tweak the Volcker rule, though one commissioner voted against it.

Five federal agencies have proposed simplifying requirements under the rule, which bans proprietary trading at banks and limits their investments in hedge funds and private equity firms.

The CFTC's vote marked the first dissent among regulators on the issue, with Commissioner Rostin Behnam calling the proposal misguided. Behnam was a Democratic aide in the Senate before joining the agency.

His fellow commissioners, Brian Quintenz and Chairman Christopher Giancarlo, voted for the proposed rule, saying it would reduce unnecessary complexities for banks and regulators alike.

"My biggest concern is that our action today will encourage a return to the risky activities that led to the financial crisis and perhaps further consolidate trading activities in a few institutions," Behnam said.

Giancarlo said regulators had worked together to ensure they can ease the current compliance process while upholding the core protections in the Volcker rule.

"The proposal seeks to simplify and tailor the Volcker rule to increase efficiency, right-size firms' compliance obligations, and allow banking entities — especially smaller ones — to more efficiently provide services to clients," he said.

The agency's 2-1 vote means the proposed rule is one step closer to heading to the public for a 60-day comment period. It still needs approval from the Securities and Exchange Commission, which will vote on the issue June 5.

The Federal Reserve Board of Governors and the Federal Deposit Insurance Corp., which both include appointees made during the Obama administration, unanimously approved the plan last week. Comptroller of the Currency Joseph Otting also signed off on the changes.

The proposal would set up three categories of banks that would see differing compliance requirements, based on how large their trading operations are. Under the changes, regulators would generally assume that companies with less than $1 billion in trading assets and liabilities are complying with the rule's prohibitions. Behnam, the dissenting CFTC commissioner, said those companies do not appear to be "any less likely" to violate the Volcker rule and that it would be more appropriate for Congress to make that change.