A banking entity as defined in Section 13 (h) (1) of the BHC Act as implemented by the VR Final Rule, as amended, and as the same may be further amended from time to time. Banking entities subject to the reporting requirement must report these metrics within 30 days of the . Banking entities with total consolidated trading assets and liabilities of at least $20 billion would be Prior to enactment of the Regulatory Relief Act, the statutory definition of "banking entity," which defines the scope of firms subject to the Volcker Rule, included any insured depository institution, any company that controls an insured depository institution, or that is treated as a bank holding company . The Volcker Rule generally prohibits banking entities, including certain foreign banks with operations in the United States, such as SG (a), fro. Under the Volcker Rule, a banking entity is generally barred from acquiring or retaining, as principal, an ownership interest in a "covered fund," subject to certain exceptions. As a matter of best practices, however, the banking entity should document its analysis that the foreign public fund and its activities with respect to the foreign public fund meet the definition of "foreign public fund" in the Volcker Rule, as well as comply with applicable law in the home jurisdiction of the foreign public fund. BACKGROUND AND TIMELINE OF THE VOLCKER RULE Dodd-Frank has been gradually (but not yet fully) implemented since its passage in 2010.9 Drafters completed the Final Volcker Rule on De- cember 10, 2013.10 This completion date fell well beyond the initial dead- line of October 18, 2011 as initially contemplated by Dodd-Frank.11 The Under the Volcker Rule and the 2013 Rule, banking entities are generally prohibited from serving as the "sponsor" to a covered fund, absent an exemption or exclusion. The Federal Reserve has authority to grant only two more one-year extensions. Fall 2014] The Volcker Rule, Banking Entities 95 II. also known as the Volcker Rule. Credit Funds. Therefore, they are treated as "banking entities" under the Volcker Rule's expansive definition of that term. *CORE BANKING ENTITY A "core banking entity" means a banking entity as defined in boxes 1, 2 or 3. 7 Definition of Venture Capital Fund As a result, a hedge fund or private equity fund sponsored by a banking entity may share the same name or variation of the same name with a banking entity that is an investment adviser to the fund, subject to certain conditions. The definition of "sponsor" for this purpose includes a banking entity that shares the same name or a variation of the same name with a fund for corporate, marketing . included certain "covered funds" in which banking entities were permitted to hold interests, meaning that they would themselves become subject to the restrictions of the Volcker Rule. As a general matter, banking Rule." The Volcker Rule (the Rule) imposes substantial requirements that will likely require significant effort to implement. U.S. banking organizations exceeding $10 billion in trading assets plus trading liabilities will need to report certain quantitative measures to their regulators. In addition to the proprietary trading ban, subject to enumerated exceptions, the Volcker Rule prohibits a banking entity from, as principal, directly or indirectly, acquiring or retaining any ownership interest in or sponsoring a "covered fund" Sponsorship of a "covered fund" includes (i) serving as a general partner, managing member, trustee or commodity pool operator of any such . The Volcker Rule: A Deeper Look into the Prohibition on Sponsoring or Investing in Covered Funds ( 5) Element Bank Asset Size Total consolidated assets of $50 billion or more or, for a foreign banking entity, total U.S. assets of $50 billion or more 4 Total consolidated assets greater than $10 billion and less than $50 billion Banking entities with "moderate" trading assets and liabilities are required to implement a simplified and tailored compliance program by incorporating Volcker Rule compliance into their existing policies and procedures. The final rule prevents a banking entity from relying on the credit . Congress had intended to restrict through the Volcker Rule, yet under the Proposed Rule these companies will nonetheless be required to implement extensive compliance programs and may need to restructure or divest certain assets to comply with the Volcker Rule. Yes (assuming you are a banking entity to whom the Volcker Rule applies). Banking entities with "moderate" trading assets and liabilities are required to implement a simplified and tailored compliance program by incorporating Volcker Rule compliance into their existing policies and procedures. Volcker Rule. Fall 2014] The Volcker Rule, Banking Entities 95 II. The amendments modify the Volcker Rule's prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as "covered funds". called Volcker Rule, to prevent banking entities from engaging in proprietary trading, which is generally defined as a firm using its own capital to trade for its own account, unless otherwise exempted.2 Congress's decision to exempt certain "market-making related activities" from the Volcker Rule has been greatly debated.3 A In the Volcker XML Schema Definition (XSD), elements are containers that reflect the general segment of the report. 5779 et seq. Section 619 of the Dodd-Frank Act is also known as the Volcker Rule. Under the Proposal, an insured depository institution would be excluded from the Volcker Rule's "banking entity" definition if both of the following conditions are satisfied: The insured . However, the definition of "affiliate" in the Volcker Rule, which is tied to the concept of "control" in the US Bank Holding Company Act, could result in a non-US banking entity being deemed to "control" the non-US fund because of a large ownership in the fund, or the non-US banking entity selects the board of directors of the fund . The Volcker Rule prevents banking entities and insured depository institutions from investing, or owning, any assets into covered funds or vehicles, suggesting that this sort of activity incorporates too much risk and does not benefit the customer base. capital rule covered positions and trading positions (or hedges of other market risk capital rule covered positions), if the banking entity, or any affiliate of the banking entity, is an insured depository institution, bank holding company, or savings and loan holding company, and Banking entities with moderate trading activities and liabilities: These banking entities may satisfy the compliance program requirements by including in their existing compliance policies and procedures appropriate references to Volcker Rule requirements, adjusted as appropriate given the particular banking entity's activities, size, scope . The Volcker Rule prohibits a banking entity from engaging in proprietary trading, subject to certain exceptions discussed below. Banking entities in the "limited" trading assets and liabilities category will benefit from presumed compliance and . "BANKING ENTITY" DEFINITION. Under the Volcker Rule, banking . Reg. Volcker Rule means the common rule entitled " Proprietary Trading and Certain Interests and Relationships with Covered Funds " published at 79 Fed. Under the Volcker Rule, a "banking entity" is defined broadly and includes (i) FDIC-insured depository institutions, (ii) 4 Although conformance is not required until July 21, 2015, a banking entity is "expected to engage in good-faith efforts, As a matter of best practices, however, the banking entity should document its analysis that the foreign public fund and its activities with respect to the foreign public fund meet the definition of "foreign public fund" in the Volcker Rule, as well as comply with applicable law in the home jurisdiction of the foreign public fund. This website uses cookies. Although the Volcker Rule excludes loan securitizations from the definition of covered fund, the regulations implementing the Volcker Rule had limited the ability of banking entities to invest in or sponsor substantially similar investment funds that make loans, invest in debt securities or otherwise extend credit. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or from investing in, sponsoring, or having certain relationships with hedge funds and private equity funds ("covered funds"). Banking entities in the "limited" trading assets and liabilities category will benefit from presumed compliance and . Five federal regulatory agencies on June 25, 2020 finalized a rule modifying the Volcker rule's prohibition on banking entities investing in or sponsoring covered funds. 1. Banking Entity means the Borrower and any of the Borrower 's Subsidiaries which is a bank; Banking Entity. FAQ 14: "How does the final rule apply to a foreign public fund sponsored by a banking entity?" Under the Volcker Rule, foreign public funds are excluded from the definition of "covered fund." - The banking entity may not guarantee, assume, or otherwise insure the obligations or performance of the venture capital fund. a banking entity as a banking entity during a seeding period of up to three years, absent evidence that the seeding vehicles were established in order to circumvent the Volcker Rule. The Final Rule includes a substantially similar definition of "banking entities" to which the Volcker Rule will apply, but specifically excludes: The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which was… The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a covered fund, subject to certain exemptions. Banking Entities Subject to the Volcker Rule The Volcker Rule applies to every "banking entity," which is defined in Section _.2(c)(1) of the Final Regulation as:5 (i) Any Insured Depository Institution. The name-sharing restriction under the Volcker Rule does not allow a banking entity, or a banking entity affiliate, to share the same name, or a variation of the same name, with a private equity fund or hedge fund that it organized or offered. Such a RIC, BDC or foreign public fund would not be subject to the prohibitions in the Volcker Rule on proprietary trading or sponsoring or investing in, or entering into a covered transaction with, a covered fund. To be eligible for the exclusion, a banking entity must (i) document how The Volcker Rule "Covered Funds" Rule: Eight Things To Know . The Volcker Rule contains two prohibitions aimed at "banking entities": A banking entity may not (1) engage in "proprietary trading" or (2) as principal, directly or indirectly, acquire or retain any ownership interest in, or sponsor, "covered funds," which essentially are private equity funds and hedge funds. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading or from investing in, sponsoring, or having certain relationships with hedge funds and private equity . The Volcker Rule contains two prohibitions aimed at "banking entities": A banking entity may not (1) engage in "proprietary trading" or (2) as principal, directly or indirectly, acquire or retain any ownership interest in, or sponsor, "covered funds," which essentially are private equity funds and hedge funds. The Agencies will not require an application to be submitted to the Federal Reserve to determine the length of the seeding period of a particular The definition of banking entity is broader than is necessary to achieve the aims of The Volcker Rule would broadly restrict banking entities from engaging in (i) proprietary trading a. b. A banking entity cannot guarantee the performance of a credit fund; Super 23A, as modified by the revisions, applies to transactions between a banking entity that sponsors or advises a credit fund and the fund; The Volcker Rule prohibition on material conflicts of interest and high-risk trading strategies applies This is relevant to one criteria of a Volcker Rule exception permitting the organizing and offering of a covered fund. The Volcker Rule generally prohibits banking entities (e.g., insured depository institutions and their affiliates) from investing in, sponsoring, or having certain relationships with private equity funds, hedge funds and other entities that are defined under the Volcker Rule as "covered funds," subject to certain exceptions. Background. * * * The original Volcker Rule regulations did not restrict the ability of banking entities to invest in the same assets invested in by a covered fund, but the preamble to the adopting release stated that a banking entity must include, for purposes of its calculation of the per-fund and aggregate fund limitations, the value of any investments made . For foreign banking organizations, this $10 billion . June 10, 2014 (Updated March 4, 2016) In responding to these Frequently Asked Questions ("FAQs"), the staff of the Divisions of Trading and Markets, Investment Management, and Corporation Finance ("staff") are providing guidance on the Commission's final rule implementing section 13 of the Bank Holding Company Act of 1956 ("BHC Act"), commonly referred to as the "Volcker Rule." - Must comply with prudential backstops and comply with applicable banking laws/regulations, including safety and soundness standards. The Volcker Rule was one of the signature reforms of the Dodd-Frank Act and has been the subject of much debate since it was first proposed in Congress. The Volcker Rule and the 2013 Rule permit a foreign banking entity to acquire or retain an ownership interest in, or sponsor, a covered fund if those investments and activities occur solely outside of the United States ("SOTUS") and certain other conditions are met. acquiring or retaining an ownership interest in, or sponsoring, a "private equity fund" or a "hedge fund" (" FACT SHEET: Final Rule Amendments to the Volcker Rule Compliance Program Requirements and Thresholds Similar to the proposal, the final rule includes a three-tiered approach to tailoring the compliance program requirements. Volcker Rule Technical Specifications Guidance . The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with unregistered funds. -2- Volcker Rule July 22, 2017 organized or established outside the United States and the ownership interests of which are offered and sold solely outside the United States (commonly referred to as a "foreign excluded fund").3 As a result, a foreign banking entity is permitted under the Volcker Rule to invest in or sponsor foreign excluded funds In 2013, the Agencies adopted regulations to implement the Volcker Rule (the "2013 Rule"). The Volcker Rule applies to companies that are not predominantly engaged in financial activities, but control an industrial loan company or industrial bank (ILC) or thrift. 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