Agencies Propose Regulatory Reforms to Volcker Rule’s ‘Covered Funds’ Provisions 

The federal banking agencies today issued a joint proposal to amend the “covered funds” regulatory provisions of the Volcker Rule, which places significant restrictions on financial institutions’ ability to have certain interests in, or relationships with, hedge funds and private equity funds. The proposal would also make changes to the rule’s “Super 23A” provision, which restricts certain transactions with affiliates that apply to those types of relationships.

Specifically, the agencies proposed to simplify several of the rule’s provisions related to foreign public funds, loan securitizations, and small business investment companies, and establish new qualifying exclusions for credit funds, venture capital and family offices, among other things. The proposal would also permit a banking entity to engage in “a limited set of covered transactions with a covered fund the banking entity sponsors or advises, or with which the banking entity has certain other relationships.” Together, these changes would enable banks to raise funds that would benefit start-up businesses, local communities, and the national economy.

The American Bankers Association has long advocated for changes to the covered fund and Super 23A provisions of the Volcker rule that would properly align regulatory requirements with congressional intent and better serve banking customers. “We appreciate the board’s proposal to make measured changes to the Volcker Rule that promote investment in new and emerging businesses while maintaining safety and soundness,” said ABA President and CEO Rob Nichols. “These proposed changes will allow banks to do more to help grow the economy and foster job creation.”

Comments on the proposal are due April 1.