Agencies Publish Proposed Volcker 2.0 for Fund Activities

On 30 January, the US Federal Reserve Board (“Fed”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission (collectively, the “Agencies”) asked for comment on a proposed rule (“Proposal”) to simplify and tailor compliance requirements relating to section 13 of the Bank Holding Company Act, commonly known as the “Volcker Rule.”[1] A copy of the Proposal is available here.

In November 2019, the Agencies finalized certain amendments to the “proprietary trading” provisions of the Volcker Rule and stated that they would propose a separate rulemaking regarding the “covered fund” provisions. As indicated by the Fed, the Proposal is intended to clarify and streamline the covered fund-related provisions of the regulations by:

• Limiting the extraterritorial impact of the rule on foreign funds offered by foreign banks to foreign individuals;
• Permitting certain low-risk transactions (including intraday credit and payment, clearing, and settlement transactions) between a banking entity and covered funds for which the banking entity serves as investment adviser or sponsor;
• Simplifying existing provisions of the rule related to foreign public funds, loan securitizations, and small business investment companies;
• Permitting 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;
• Clarifying that credit exposures to a covered fund would generally not constitute ownership interests under the Volcker Rule; and
• Clarifying that parallel direct investments made by a banking entity in the same underlying investments as a sponsored covered fund are not deemed to be investments in the fund itself.

The Proposal spans more than 160 pages (in its original format) and poses 87 separate questions on which it solicits comments (many with multiple subparts). Comments will be due by April 1, 2020.