US Agencies Propose to Amend Covered Fund Provisions of Volcker Rule
US Agencies (CFTC, FDIC, FED, OCC, and SEC) are proposing to amend the regulations implementing Section 13 of the Bank Holding Company Act (Volcker Rule). The proposal would modify the restrictions for banking entities investing in, sponsoring, or having certain relationships with covered funds. Comments must be received on or before April 01, 2020. Additionally, FED has published statements by Chair Jerome H. Powell, Vice Chair for Supervision Randal K. Quarles, and Governor Lael Brainard on the proposed rule. Ms. Brainard does not support the proposal and is concerned that several of the proposed changes will weaken core protections in the Volcker rule and enable banking firms again to engage in high-risk activities related to covered funds.
The proposed rule would improve and streamline the covered funds portion of the rule, address the treatment of certain foreign funds, and permit banking entities to offer financial services and engage in other permissible activities that do not raise concerns that the Volcker rule was intended to address. In particular, it would:
- Limit the extraterritorial impact of the rule on foreign funds offered by foreign banks to foreign individuals
- Permit certain low-risk transactions (including intraday credit and payment, settlement and clearing transactions) between a banking entity and covered funds for which the banking entity serves as investment adviser or sponsor
- Simplify existing provisions of the rule related to foreign public funds, loan securitizations, and small business investment companies
- Permit banking entities to invest in or sponsor certain types of funds that do not raise the concerns the Volcker Rule was intended to address, such as credit funds, venture capital funds, customer facilitation funds, and family wealth management vehicles
- Clarify that credit exposures to a covered fund would generally not constitute fund ownership interests under the Volcker Rule
- Clarify an ambiguity from the 2013 rulemaking about the treatment of parallel investments made by a banking entity in the same underlying investments as a sponsored covered fund
The Volcker Rule contains certain restrictions on the ability of a banking entity or 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 Volcker Rule defines a covered fund as an issuer that would be an investment company as defined in the Investment Company Act of 1940 but for section 3(c)(1) or 3(c)(7) of that Act, or such similar funds as the agencies by rule determine. 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
Comment Due Date: April 01, 2020
Keywords: Americas, US, Banking, Securities, Volcker Rule, Securitization, Covered Fund Restrictions, US Agencies
Previous Article
BOG Publishes Update on Status of Banking Sector Reforms in GhanaRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
