Fed Grants Additional Volcker Extension for Legacy Covered Funds

Practical Law Legal Update 2-593-9186 (Approx. 4 pages)

Fed Grants Additional Volcker Extension for Legacy Covered Funds

by Practical Law Finance

Published on 23 Dec 2014 • USA (National/Federal)

The Federal Reserve Board has granted an additional extension, until July 21, 2017, for banks to conform investments in and relationships with covered funds and foreign funds that were in place prior to December 31, 2013 (legacy covered funds). This Update includes a helpful Volcker compliance table.

On December 18, 2014, the Federal Reserve Board (FRB) announced that it will provide banks with two one-year extensions, until July 21, 2017, to conform investments in and relationships with covered funds and foreign funds that were in place prior to December 31, 2013 (legacy covered funds). Section 619 of the Dodd-Frank Act, commonly known as the Volcker Rule, authorizes the FRB to extend the conformance period only one year at a time for a maximum of three years. Therefore, the FRB officially extended the conformance period to July 21, 2016, but also announced its intention to grant an additional and final one-year extension next year to extend the confirmation period for legacy covered funds until July 21, 2017.

This extension permits FDIC-insured depository institutions (IDIs) additional time to divest or conform only legacy covered fund investments. All investments in and relationships with a covered fund made after December 31, 2013, as well as proprietary trading activities, must conform with the Volcker Rule by its effective date of July 21, 2015, or in accordance with any application for extension (see below, Volcker Compliance Table).

In April 2014, the FRB announced its intention to grant two additional one-year extensions of the conformance period, until July 21, 2017, for banks to divest certain collateralized loan obligation (CLO) interests that are prohibited under the Volcker Rule and which were in place as of December 31, 2013 (see Legal Update, Fed Grants Banks Two-year Volcker CLO Extension, Banking Groups React Negatively). The current extension expands the conformance period to include most non-conforming bank ownership interests such as private equity funds and hedge funds.

Volcker Compliance Table

January 22, 2015	Deadline for written applications to request the first of two available one-year extensions for an exemption from the Volcker Rule for proprietary trading. These extensions are rarely granted.
July 21, 2015	Effective date of the Volcker Rule for proprietary trading activities and non-legacy covered funds (see Swaps and Derivatives Compliance Calendar: July 21, 2015).
January 22, 2016	Deadline for written applications to request the second of two available one-year extensions for an exemption from the Volcker Rule for proprietary trading. These extensions are rarely granted.
July 21, 2016	Interim Volcker Rule compliance date for legacy covered funds, including certain CLOs. Note this date is a mere formality, as the FRB has announced that this date will be extended to July 21, 2017. Compliance date for parties that have been granted their request for a one-year extension for proprietary trading (rarely granted). For further details on this date, see Swaps and Derivatives Compliance Calendar: July 21, 2016.
July 21, 2017	Effective date of the Volcker Rule for: Legacy covered funds (in place by December 31, 2013). Legacy CLO interests (in place by December 31, 2013) that do not qualify for the exclusion in the final rule for loan securitizations (see Practice Note, CLOs Under the Volcker Rule: Loan Securitizations). Parties that have been granted their request for a second one-year extension for proprietary trading (rarely granted). For further details, see Swaps and Derivatives Compliance Calendar: July 21, 2017.

Fed Grants Additional Volcker Extension for Legacy Covered Funds | Practical Law