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July 2, 2018

Stroock Special Bulletin

By: K. Thomas Ko, André B. Nance, Eric Requenez, Jeffrey D. Uffner

On May 30, 2018, the Board of Governors of the Federal Reserve System, together with the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency at the Department of Treasury, and the Securities and Exchange Commission (collectively, the “Agencies”), released their long-awaited package of proposed revisions, amendments, and requests for comment to rules and regulations that prohibit and/or restrict banking entities from proprietary trading, ownership in, and relationships with, covered funds, including what are commonly known as hedge funds and private equity funds, subject to certain exemptions (the “Proposals”).

The Proposals represent a major step in the Agencies’ coordinated effort to recalibrate the implementing rules of Section 13 of the Bank Holding Company Act (the “BHCA”), more commonly known as the “Volcker Rule”, and, in particular, focus more on making the implementing rules less burdensome than on modifying the intent and substance of the Volcker Rule itself.  In this respect, banking entities are well advised to continue to comply with all aspects of the Volcker Rule applicable to them regardless of the tiered compliance obligations that apply to them.  In releasing the Proposals, the Agencies cite a desire to provide greater clarity and certainty about what activities are prohibited and improve how banking entities allocate compliance resources.  By tailoring compliance obligations to three categories of banking entities, the Proposals are intended to increase efficiency, reduce demands on available compliance resources, and allow banking entities to more efficiently provide services to clients.  The Agencies request comment on more than 350 questions relating to the implementation of the Volcker Rule.  The Agencies provide for a 60-day comment period from the date the Proposals are published in the Federal Register.

This Stroock Special Bulletin identifies and briefly summarizes certain key effects the Proposals will have on banking entities if the Proposals are enacted in their current form and select questions raised by the Proposals.

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