Monthly LRA Update

REGULATORY DEVELOPMENT

Agencies Propose Changes to Modify Volcker Rule “Covered Funds” Restrictions

On January 30, five federal financial regulatory agencies (the Federal Reserve, CFTC, FDIC, OCC and SEC) released a proposal to modify regulations implementing the Volcker Rule’s general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds.

According to the press release, the proposal seeks to accomplish the following objectives:

• Improve and streamline the covered funds portion of the rule;
• Address the treatment of certain foreign funds; and
• Permit banking entities to offer financial services and engage in other permissible activities that do not raise concerns that the Volcker Rule was intended to address.

The proposal includes modifications to existing Covered Fund exclusions and the addition of new exclusions for Credit Funds, Venture Capital Funds, Family Wealth Management Vehicles, and Customer Facilitation.

BOLI-Specific Implications

Based on a preliminary review and various keyword searches, it does not appear to us that this rule proposal has any direct impact on the existing Covered Fund exclusion applicable to BOLI programs or the exemption from the proprietary trading restrictions for trading done on behalf of a deferred compensation or retirement plan sponsored or maintained by a banking entity.

Parallel Investments Clarification

The proposal includes a new rule of construction in section 12(b) that addresses investments made by banking entities alongside covered funds (so-called “parallel investments”). These provisions would clarify that banking entities are not required to treat these types of direct investments alongside a covered fund as an investment in the covered fund as long as certain conditions are met.

These proposed rules may have some applicability to investments made as part of a compensation arrangement. Please refer to request for comment Question 86.

Comment Period

Comments on the proposal must be submitted by April 1, 2020.