On July 9, 2019, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading Commission (collectively, the Agencies), announced that it had finalized a February 2019 proposed rule to make two amendments to the Volcker Rule that had been mandated by the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Our blog post on EGRRCPA can be accessed here.
The Volcker Rule generally prohibits “banking entities” (a broad definition that includes affiliates and subsidiaries of banking organizations) as defined in the statute and regulation from engaging in proprietary trading and sponsoring or investing in certain hedge funds or private equity funds (covered fund).
The final rule, which adopted the proposed language without change, makes two amendments.
The first amendment revises the “insured depository institution” part of the definition of “banking entity” subject to the Volcker Rule to exclude an institution that (i) does not have more than $10 billion in total consolidated assets and (ii) total trading assets and trading liabilities that are more than 5% of total consolidated assets, as reported on the most recent applicable report of financial condition filed with the appropriate regulator.
The second amendment revises the current rule prohibiting a covered fund using the same name as that of the banking entity sponsoring the fund. A covered fund sponsored by a banking entity that is an investment advisor to the fund may share the same name as the investment advisor (or a variation thereof) provided that (i) the investment advisor is not and does not share the same name (or variation thereof) as an insured depository institution, a company that controls an insured depository institution, or a non-U.S. bank engaging in banking activities in the United States; and (ii) the investment advisor’s name does not contain the word “bank.”
These amendments will take effect when they appear in the Federal Register, the official US government publication that publishes proposed and final regulations, presidential executive orders and other administrative US government documents. Publication is expected shortly.
Readers should not confuse these amendments to the Volcker Rule with the Agencies’ proposal from June 2018 that would make several amendments to the Volcker Rule. Our blog post on that proposal may be accessed here. That proposal still is pending. At a recent conference, the FRB Vice Chair for Supervision stated that he anticipated a revised Agencies proposal on the Volcker Rule would be forthcoming “early in the fall.”