Agencies Release Volcker Rule FAQ Providing Seeding Period Guidance for RICs and FPFs | Practical Law

Agencies Release Volcker Rule FAQ Providing Seeding Period Guidance for RICs and FPFs | Practical Law

The federal agencies responsible for implementing the Volcker Rule released an FAQ clarifying that they will not treat an SEC registered investment company (RIC) or foreign public fund (FPF) as a banking entity subject to the Volcker Rule solely because a bank may own a significant portion of its shares during a limited seeding period.

Agencies Release Volcker Rule FAQ Providing Seeding Period Guidance for RICs and FPFs

by Practical Law Finance
Published on 22 Jul 2015 • USA (National/Federal)
The federal agencies responsible for implementing the Volcker Rule released an FAQ clarifying that they will not treat an SEC registered investment company (RIC) or foreign public fund (FPF) as a banking entity subject to the Volcker Rule solely because a bank may own a significant portion of its shares during a limited seeding period.
On July 16, 2015, the staff of the federal agencies responsible for implementing the Volcker Rule released an FAQ (number 16) clarifying that they will not treat an SEC registered investment company (RIC) or foreign public fund (FPF) as a banking entity subject to the Volcker Rule solely because a bank may own a significant portion of its shares during a limited seeding period.
It was already clear under the implementing regulations released in December 2013 that RICs and FPFs are not "covered funds" for purposes of the Volcker Rule. The implementing regulations did not, however, clearly address when RICs and FPFs may themselves become banking entities for purposes of the Volcker Rule during a seeding period in which a bank may own all or a significant portion of their equity.
The FAQ acknowledges that:
  • The staff of the agencies will not advise the agencies to treat a RIC or FPF as a banking entity under the implementing rules solely on the basis that the RIC or FPF is established with a limited seeding period, absent other evidence that the RIC or FPF was being used to evade Section 13 and the BHCA and implementing rules.
  • The seeding period for an entity that is a RIC or FPF may in some cases take more than three years (the maximum period of time expressly permitted for seeding a covered fund under the implementing rules). However, some question remains regarding the precise length and the appropriate measure of the permitted seeding period.
  • The agencies will not require a banking entity to submit an application to the Federal Reserve Board to determine the length of the seeding period.
For more information on the Volcker Rule, see Practice Note, Summary of the Dodd-Frank Act: The Volcker Rule.