Alert December 19, 2014

Federal Reserve Extends Volcker Rule Conformance Period for Covered Funds Activities for One Year

The Board of Governors of the Federal Reserve System announced yesterday afternoon that it has extended the conformance period under the Volcker rule for one additional year—until July 21, 2016—to allow banking entities to conform investments in and relationships with covered funds and certain foreign funds subject to the Volcker rule that were in place prior to December 31, 2013 (“legacy covered funds”) to the requirements of the Volcker rule.

The Federal Reserve Board also announced its intention to act next year to grant banking entities an additional one-year extension of the conformance period—until July 21, 2017—to conform ownership interests in and relationships with such legacy covered funds to the requirements of the Volcker rule. The Federal Reserve Board’s order and the accompanying press release indicate that investments and activities in covered funds made or commenced after December 31, 2013 must conform to the Volcker rule by July 21, 2015. The order does not explicitly address the status of investments in and relationships with covered funds established on December 31, 2013.

This extension of the conformance period only relates to covered funds activities and not proprietary trading activities, which means that proprietary trading activities must conform to the requirements of the Volcker rule by July 21, 2015. The Federal Reserve Board reiterated—as it has done several times previously—that during the conformance period banking entities are expected to engage in good faith efforts to conform their activities and investments to the requirements of the Volcker rule by the end of the applicable conformance period.

We expect that this action will be of interest to sponsors and managers of private investment funds that are part of domestic and foreign banking organizations subject to the Volcker rule and to sponsors and managers of any private investment funds with such banking organizations as investors.

To view the press release issued by the Board of Governors of the Federal Reserve System, please click here.