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Fed Clarifies Conformance Period Requirements for Illiquid Funds Under Volcker Rule
Practical Law Legal Update w-004-9892 (Approx. 4 pages)
Fed Clarifies Conformance Period Requirements for Illiquid Funds Under Volcker Rule
by Practical Law Finance
| Published on 15 Dec 2016 • USA (National/Federal) |
The Federal Reserve Board (FRB) has issued additional details on how banking entities should apply for an extension to conform investments in illiquid funds with the Volcker Rule.
On December 12, 2016, the FRB published additional details on how banking entities should apply for an extension to conform investments in illiquid funds with the Volcker Rule (12 U.S.C. § 1851).
The Volcker Rule – created under Section 619 of the Dodd-Frank Act – authorizes the FRB to provide an additional period of up to five years beyond the maximum statutory extensions for a banking entity to conform investments in certain legacy illiquid funds. This is the last conformance period extension that the FRB is authorized to provide banking entities under the statute. Illiquid funds are funds principally invested in real estate, portfolio companies, or venture capital investments that were in place before May 1, 2010 (12 U.S.C. § 1851(h)(7)).
In July 2016, the FRB released the final statutory Volcker Rule extension, to July 21, 2017, in accordance with Section 619 of Dodd-Frank, for the divestment by banking entities of nonconforming interests in covered funds – private equity funds and hedge funds – that were in place before December 31, 2013 (see Legal Update, FRB Issues Final Volcker Extension until July 21, 2017). For details on other Volcker compliance deadlines, see Swaps and Derivatives Compliance Calendar.
The new details explain that banking entities seeking to take advantage of this extension must provide to the appropriate Reserve Bank by January 22, 2017:
- A list and short description of each fund for which the extension is sought.
- A description of the entity’s efforts to divest from the funds or conform.
- A certification by the chief compliance officer or general counsel of the entity that the fund meets the definition of illiquid funds and that the investment was made prior to May 1, 2010.
- The length of the requested extension and the divestment plan for each covered fund.
The extension granted will be for the shortest of:
- Five years from July 21, 2017.
- The date the covered fund is expected to mature or conform by its terms.
- A shorter period determined by the FRB.
For more on the Volcker Rule and the Dodd-Frank Act, see Practice Note, Summary of the Dodd-Frank Act: The Volcker Rule.