US Commodity Futures Trading Commission (CFTC) chairman Gary Gensler has persuaded US regulators to insert new language into the Volcker rule clarifying its impact on foreign banks, according to people briefed on the change.
The revision, which applies to the rule’s definition of trading “solely outside the United States,” is designed to make sure that foreign lenders like Deutsche Bank AG and Barclays PLC do not escape the regulation’s ban on proprietary trading, the people said.
It may also help put the CFTC on firmer ground as it fights a Wall Street lawsuit over the agency’s reach into foreign swaps markets.
Gensler is “coming to the close of his tenure and this is an opportunity for him to try to make Volcker as restrictive as he’s tried to achieve in other rules,” said Donald Lamson, a former bank regulator, who is now a partner at the Shearman & Sterling LLP law firm in Washington.
Five agencies are set next week to approve the ban, the last major piece of the Dodd-Frank Act that Congress passed in 2010 to revamp oversight of the banking industry after the credit crisis.
While the rule is supposed to stop banks from speculating with their own capital, it impacts one of Wall Street’s largest business lines — the buying and selling securities for clients — and has provoked a fierce lobbying battle.
Foreign and US banks have also tussled over the rule and how it applies overseas trading, with each seeking to lock in a competitive advantage in the regulation’s fine print.
Gensler has taken a tough stance on the reach of Dodd-Frank into overseas trading, arguing that the CFTC should have an expansive view into what is a global market.
The CFTC chairman has also been concerned that the foreign provisions in the Volcker rule need to be tightened to prevent another London Whale-type situation, according to the people, who asked not to be identified because the revisions have not been made public.
Gensler has sought to make sure that the final regulation will not allow large foreign banks to set up deals in the US and then evade the rules by booking them overseas, the people said.
The revised language Gensler has incorporated into the rule seeks to make that clear, explicitly saying that traders based in the US who arrange, negotiate or execute a deal must comply with the rule, the people said.
By getting the language into the Volcker rule — and having it approved by votes at five different agencies — Gensler is trying to send a message to Wall Street that such a policy has broad support and may be difficult to challenge legally, the people said.