On July 17, 2019, the time period for a no-action position with respect to enforcement action under the Volcker Rule for certain non-US funds was extended for two more years.

On July 21, 2017, the Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (the “US Banking Agencies”), issued a joint Statement indicating that they were coordinating their review of the applicability of the Volcker Rule to certain non-US funds and said that no enforcement action would be taken with respect to those funds until after July 21, 2018. The no-action position was extended in 2018 to July 17, 2019. On July 17, the US Banking Agencies extended the no-action position until July 17, 2021, provided that the conditions imposed in 2017 continue to be followed. Our blog post on the July 17, 2017, Statement can be accessed here.


The Volcker Rule, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and its regulations, adopted by the US Banking Agencies along with the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), generally prohibit banking entities and affiliates from engaging in proprietary trading or sponsoring or acquiring ownership interests in certain private equity funds (“covered funds”). “Banking entities” is a broad term and generally includes US banks and their holding companies and affiliates, as well as non-US banks that maintain banking operations in the United States (such as a branch, agency or US bank subsidiary) and their subsidiaries and affiliates.

“Non-US affiliated Funds”

The Volcker Rule does not apply to a non-US bank’s investment in or sponsorship of non-US funds organized and offered only outside the United States. However, the definition of “affiliate” in the Volcker Rule could result in a non-US banking entity being deemed to “control” the non-US fund because of a large ownership in the fund, or the non-US banking entity selects the board of directors of the fund, or acts as a general partner or trustee of the fund. If the non-US banking entity is deemed to “control” the non-US fund, that would make the non-US banking entity an affiliate of the fund (a “non-US affiliated fund”), and as a result, the non-US affiliated fund will be considered to be a banking entity itself and subject to all the restrictions of the Volcker Rule on covered funds.

This result had “unintended consequences and extraterritorial impact,” as the 2017 Statement noted. Non-US banking entities asserted that there is a competitive advantage for non-US funds that are not affiliated with a non-US banking entity subject to the Volcker Rule over those non-US funds that are considered affiliates of a non-US banking entity subject to the Volcker Rule.

As counterpoint, the Banking Agencies noted that a non-US banking entity with such a non-US affiliated fund could use that fund to conduct activity prohibited under the Volcker Rule, which in turn could provide that non-US banking entity with a competitive advantage over US banking entities.

The 2017 Statement

In 2017, the US Banking Agencies stated that they were reviewing how best to resolve the situation and announced they would not take action until after July 21, 2018, against a non-US banking entity that has a non-US affiliated fund, or the non-US affiliated fund itself, under the following circumstances:

(I) The non-US banking entity’s acquisition or retention of any ownership interest in or sponsorship of a non-US affiliated fund would meet the requirements of the “Solely Outside the United States” (“SOTUS”) exemption under the Volcker Rule regulations if the non-US affiliated fund were indeed subject to the Volcker Rule; and

(II) the fund in question qualifies as a “qualifying foreign excluded fund” which is defined as an entity that:

  • Is organized or established outside the United States and the ownership interests of which are offered and sold solely outside the United States;
  • Would be a “covered fund” for Volcker Rule purposes were the entity organized or established in the United States, or is, or holds itself out as being, an entity or arrangement that raises money from investors primarily for the purpose of investing in financial instruments for resale or other disposition or otherwise trading in financial instruments;
  • Would not otherwise be a “banking entity” for Volcker Rule purposes except by virtue of the non-US banking entity’s acquisition or retention of an ownership interest in, or sponsorship of, the entity;
  • Is established and operated as part of a bona fide asset management business; and
  • Is not operated in a manner that enables the non-US banking entity to evade the requirements of the Volcker Rule or its implementing regulations.

The 2018 and 2019 extensions

On July 17, 2018, the US Banking Agencies, SEC  and CFTC issued several material proposed changes to the Volcker Rule, and the US Banking Agencies extended the July 2018 no-action date to July 2019. Our blog post on that proposal can be accessed here.

In the July 17, 2019, Statement, the US Banking Agencies noted that because the proposed changes to the Volcker Rule still were being finalized, the US Banking Agencies would not take action against such a non-US affiliated fund until July 21, 2021, so long as the non-US affiliated funds met the conditions described above.