The Volcker Rule: A Deeper Look into the Prohibition on Sponsoring or Investing in Covered Funds | March 2015

The Volcker Rule: A Deeper Look into the Prohibition...

In December 2014, the Federal Reserve Board announced that banking entities would have until July 21, 2016, to conform their investments in, and relationships with, covered hedge or private equity funds established prior to December 31, 2013. Notably, the agency also announced its intention to grant banks an additional one-year extension of the conformance period, which would give banks a reprieve until July 21, 2017, and reiterated its ability to potentially provide banks with an additional transition period of up to five years to conform certain illiquid funds, an area of concern for many market participants. Just as importantly, however, while the Federal Reserve Board’s extension grants banks additional time to divest or conform their legacy covered fund investments, all investments and relationships in a covered fund made after December 31, 2013, will still need to be in full conformance with the Volcker Rule’s restrictions by July 21, 2015.  While stating that their decision is primarily intended to prevent the disruptive effects that large-scale divestures in covered funds could have on the broader market, the delay also acknowledges the complexity of the work that lies ahead for banks needing to comply with this highly intricate regulation.

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Against this backdrop, the Financial Services Regulatory Risk Advisory practice and the Americas Financial Services Regulatory Center of Excellence (CoE) have developed a point of view on the importance of establishing a strong compliance program with a clearly articulated governance and management framework and a flexible infrastructure to capture and report the relevant data in order to achieve compliance with the rule’s provisions.

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