July 17, 2019

US Agencies (FDIC, FED, and OCC) announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years. The US Agencies have consulted with the staff of SEC and CFTC regarding this matter. The Volcker Rule added a new section 13 to the Bank Holding Company (BHC) Act that generally restricts banking entities from engaging in proprietary trading and from owning, sponsoring, or having certain relationships with hedge funds or private equity funds, known as "covered funds."

Certain foreign funds that are organized and offered outside of the United States are excluded from the definition of covered fund under the agencies' implementing regulations. However, these foreign funds could become subject to restrictions under the Volcker Rule because of governance arrangements with or investment by foreign banking entities. A number of foreign banking entities, foreign government officials, and other market participants have expressed concern about the possible unintended consequences and extraterritorial impact of the Volcker Rule and implementing regulations for certain foreign funds (foreign excluded funds) that are excluded from the definition of “covered fund” under section 13 and the Agencies’ implementing rules with respect to a foreign banking entity.

The Agencies have not yet finalized any revisions to the regulations implementing section 13 of the BHC Act, including revisions that may mitigate concerns about the treatment of qualifying foreign excluded funds. To provide interested parties greater certainty about the treatment of qualifying foreign excluded funds in the near term, the US Agencies would not propose to take action during the two-year period ending July 21, 2021, against a foreign banking entity based on attribution of the activities and investments of a qualifying foreign excluded fund to the foreign banking entity or against a qualifying foreign excluded fund as a banking entity—in each case where the foreign banking entity’s acquisition or retention of any ownership interest in, or sponsorship of, the qualifying foreign excluded fund would meet the requirements for permitted covered fund activities and investments solely outside the United States.

 

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Keywords: Americas, US, Banking, Volcker Rule, Dodd-Frank Act, BHC Act, Foreign Funds, US Agencies

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