On June 25, 2020, the Federal Reserve Board, FDIC, OCC, SEC and CFTC adopted amendments to sure Volcker Rule restrictions regarding banking entity actions with hedge funds or non-public fairness funds (lined funds). Presently, the Volcker Rule restricts the power of banking entities to carry an possession curiosity in, sponsor or have sure different relationships with a lined fund. The amendments, which is able to turn into efficient on October 1, 2020, cut back the extraterritorial affect of Volcker Rule laws on overseas funds and make clear and broaden the Volcker Rule’s lined fund provisions relevant to banking entities to permit banking entities to offer complete monetary providers in a way in line with the necessities and spirit of the Volcker Rule.
International Funds. The amendments codify a 2017 coverage assertion from the staffs of the federal banking regulators (the Federal Reserve Board, FDIC and OCC) that limits the extraterritorial affect of the Volcker Rule and streamline overseas fund restrictions. The Volcker Rule presently excludes overseas public funds from its lined funds provisions, topic to sure restrictions. The amendments modify these restrictions to extra carefully align with these associated to the exclusion for home registered funding firms. As well as, the amendments exempt from sure lined fund restrictions overseas funds which might be managed by overseas banking entities, which funds are topic to the extra rigorous compliance obligations relevant to banking entities.
Exclusions from the Coated Fund Provisions. The amendments additionally modify, broaden or add exclusions from the Volcker Rule’s lined fund provisions.
The Volcker Rule presently excludes mortgage securitizations from its lined fund provisions. The amendments codify present steering from the staffs of the federal banking regulators, the SEC and the CFTC relating to this exclusion to permit mortgage securitizations to carry a small quantity of debt securities.
The amendments revise the exclusion for small enterprise funding firms to make clear how the exclusion applies to a fund that surrenders its SBIC license in the course of the wind-down section of its life cycle, they usually additionally create a brand new exclusion for enterprise capital funds that enables banking entities to straight spend money on such funds. The amendments additionally make clear the applying of the general public welfare funding exclusion to incorporate rural enterprise funding firms and certified alternative zone funds.
The amendments create a brand new exclusion that may permit banking entities to spend money on, and have sure relationships with, credit score funds that reach credit score that the banking entity might in any other case present straight.
The amendments exclude entities created and used to facilitate buyer transactions and funding methods and exclude wealth administration automobiles for household portfolios, with the purpose of permitting banking entities to offer complete monetary providers by a lined funds construction.
Transactions with Sponsored Coated Funds. The amendments modify the Volcker Rule to allow a banking entity to interact in sure lined transactions with a lined fund sponsored or suggested by the banking entity. This side of the ultimate rule is meant to permit banking entities to offer low-risk, conventional banking providers to associated lined funds, comparable to customary cost, clearing and settlement providers.
Possession Curiosity Definition. The amendments modify the remedy of sure loans to lined funds, that are presently deemed to be possession pursuits of the lending banking entity. The amendments present a protected harbor for bona fide senior loans or senior debt devices to be excluded from the definition of possession curiosity in a lined fund. The amendments additionally simplify the way by which banking entities calculate possession pursuits in lined funds.
The adopting launch for the Volcker Rule amendments is offered right here.
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