Section 619 of the Dodd-Frank Act

Federal Reserve Acts to Extend Conformance Period Under Volcker Rule for Legacy Covered Funds Until July 2017

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On December 18, the Federal Reserve Board announced that it has acted under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule, to give banking entities until July 21, 2016, to conform investments in and relationships with covered funds (i.e., most private equity and hedge funds) and foreign funds that were in place prior to December 31, 2013 (“Legacy Covered Funds”). The Board also announced its intention to act next year to grant banking entities an additional one-year extension of the conformance period until July 21, 2017, to conform ownership interests in and relationships with Legacy Covered Funds.

Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

The Board previously extended the conformance period to July 21, 2015, when the agencies adopted rules to implement Section 619. The Board also previously issued a statement in April 2014 indicating that it intended to grant two additional one-year extensions of the conformance period for banking entities to conform ownership interests in and sponsorship activities of collateralized loan obligations (“CLOs”) that are backed in part by non-loan assets and that were in place as of December 31, 2013. The December 18 action is consistent with the Board’s previous announcement regarding CLOs and extends the conformance period for other types of Legacy Covered Funds.

Proposed Regulations on Volcker Rule

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On October 11, the SEC, Fed, FDIC and OCC each issued a request for comment on proposed regulations implementing the requirements of Section 619 of the Dodd-Frank Act, otherwise known as the Volcker Rule. The Volcker Rule generally prohibits: (i) insured depository institutions, bank holding companies, and their subsidiaries or affiliates from engaging in short-term proprietary trading of any security, derivative, or certain other financial instruments for a banking entity’s own account; (ii) owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund; and (iii) banking entities from engaging in an exempted transaction or activity if it would involve a material conflict of interest between the banking entity and its clients or counterparties or would result in a material exposure to high-risk assets. Comments must be submitted by January 13. Proposed Rule. Fed Release. FDIC Release. OCC Release.

Agency Consideration of NPR on Volcker Rule

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The FDIC announced that, at its open meeting on October 11, it will consider a Notice of Proposed Rulemaking on “Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds” pursuant to Section 619 of the Dodd-Frank Act, commonly known as the “Volcker Rule“. A live webcast of the open meeting will be available on the FDIC website. FDIC Meeting Discussion Agenda. FDIC Website for Meeting Webcast.

The SEC also announced that it will consider proposed rulemaking with respect to the Volcker Rule at its open meeting on October 12. SEC Open Meeting Notice.