US Agencies Amend Covered Fund Provisions of Volcker Rule
US Agencies (CFTC, FDIC, FED, OCC, and SEC) finalized a rule modifying the Volcker rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The final amendments are intended to improve and streamline the regulations implementing section 13 of the Bank Holding Company Act by modifying and clarifying requirements related to the covered fund provisions of the rules. The rule will be effective on October 01, 2020.
The final rule is similar to the proposal, with certain targeted adjustments, and it modifies three areas of the Volcker Rule by
- Streamlining the covered funds portion of rule
- Addressing the extraterritorial treatment of certain foreign funds
- Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address
Under the final rule, qualifying foreign excluded funds are not required to have compliance programs or comply with the reporting and additional documentation requirements. However, any banking entity that owns or sponsors a qualifying foreign excluded fund will still be required to have in place appropriate compliance programs for itself and its other subsidiaries and provide reports and additional documentation as required. In a statement accompanying this rule, the FED Governor Lael Brainard said: "I supported exempting community banks from the Volcker rule, and I support addressing the unintended application of the Volcker rule to certain funds organized outside of the United States and offered to foreign investors, known as foreign excluded funds. However, I am concerned key changes in the final rule weaken core protections in the Volcker Rule and will permit banking entities to return to risky activities seen in the 2008 financial crisis."
The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The rule contains certain restrictions on the ability of a banking entity or a non-bank financial company supervised by FED to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund. The rule prohibits any banking entity from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a covered fund, subject to certain exemptions. The regulations implementing the Volcker Rule define covered fund by including the statutory definition as well as certain additions (for example, commodity pools that are not publicly offered) and exclusions (such as foreign public funds). Since adoption of the implementing regulations in 2013, opportunities have been identified, consistent with the statute, for revising the regulations to improve, streamline, and clarify the covered fund provisions.
Related Links
Effective Date: October 01, 2020
Keywords: Americas, US, Banking, Volcker Rule, Securitization, Covered Funds Restrictions, BHC Act, US Agencies
Previous Article
MAS Consults on Guidelines for Management of Environmental RiskRelated Articles
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
