19 December 2014
On December 18, 2014, the Federal Reserve Board (“Board”) announced that it is extending the Volcker Rule conformance period for certain fund investments and relationships from July 21, 2015, until July 21, 2016, and that it intends next year to grant a further extension of the conformance period for such fund activities until July 21, 2017. The order granting the extension is available here.
The extension provides banking entities with additional time to conform investments in, and relationships with, (i) covered funds and (ii) foreign funds that may be subject to the provisions of section 13 (collectively, “legacy covered funds”), provided that the investment or relationship was in place prior to December 31, 2013. We interpret the reference to “foreign funds that may be subject to the provisions of section 13” as encompassing so-called “foreign non-covered funds” or “foreign excluded funds” that are controlled by a banking entity, meaning that such funds will not be subject to the Volcker Rule restrictions on proprietary trading and covered fund investments until July 21, 2017, so long as the fund was established (or otherwise controlled) by a banking entity prior to December 31, 2013. Absent further relief, it appears that foreign non-covered funds established (or acquired) on or after December 31, 2013, that are deemed to be banking entities would be subject to the Volcker restrictions as of July 21, 2015.
The extension granted today does not apply to proprietary trading activities, which must still be conformed no later than July 21, 2015 (absent an individual request for relief that is granted by the Board). Any investments or relationships related to investments in covered funds that were made after December 31, 2013, must also be conformed no later than July 21, 2015.
The order reiterates that banking entities are expected to engage in good-faith efforts to conform their activities and investments to the Volcker Rule by no later than the end of the applicable conformance period. Good-faith efforts include evaluating the extent to which a banking entity is engaged in activities and investments covered by the Volcker Rule and developing and implementing a conformance plan that is appropriately specific about how the banking entity will fully conform all of its covered activities and investments by the end of the applicable conformance period. Banking entities are expected to make plans for conforming or divesting legacy covered funds “well in advance” of the end of the extended conformance period.
The Board’s order does not appear to include an extension for the implementation of covered fund compliance programs, which must be implemented no later than July 21, 2015.