July 21, 2017

Five US Agencies (CFTC, FDIC, FED, OCC, and SEC) announced that they are coordinating their respective reviews of the treatment of certain foreign funds under the Volcker Rule (section 619 of the Dodd-Frank Act), along with the agencies' implementing regulations. These foreign funds are investment funds organized and offered outside of the United States that are excluded from the definition of "covered fund" under the agencies' implementing regulations. FDIC, FED, and OCC have also issued a statement on the treatment of certain foreign funds under the rules implementing Section 13 of the Bank Holding Company Act.

Section 619, and the implementing regulations, generally do not apply to investments in, or sponsorship of, these foreign excluded funds by a foreign banking entity. However, complexities in the statute and the implementing regulations may result in certain foreign excluded funds becoming subject to regulation under section 619 because of governance arrangements with or investments by a foreign bank. Therefore, a number of foreign banking entities, foreign government officials, and other market participants have expressed concern about possible unintended consequences and extraterritorial impact. The staff of the agencies are considering ways in which the implementing regulations may be amended, or other appropriate action may be taken. Congressional action might be necessary to fully address the issue. To aid full consideration, the federal banking regulators, which generally oversee foreign banks, announced that they would not take action under section 619 for qualifying foreign excluded funds, subject to certain conditions, for a period of one year.

 

Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a covered fund. These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions. Final regulations implementing section 619 were issued by these five agencies. This announcement does not otherwise modify the rules implementing section 619 and is limited to certain foreign excluded funds that may be subject to the Volcker Rule and implementing regulations due to their relationships with or investments by foreign banking entities.

 

Related Links

Press Release

Statement on Treatment of Foreign Funds (PDF)

Keywords: Americas, United States of America, US Agencies, Dodd Frank Act, Volcker Rule, Foreign Funds, Banking, Securities

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