Limits on new extension

Next steps and extended extension periods


On July 7 2016 the Federal Reserve System board of governors issued an order (the 'new extension') that extends the Volcker Rule(1) conformance period with respect to investments in, and relationships with, covered and foreign funds that were in place before December 31 2013 (legacy covered funds). The board originally provided a general conformance period extension until July 21 2015 covering all Volcker Rule requirements. It subsequently provided a limited conformance period extension until July 21 2016 covering only legacy covered funds (the '2014 extension').(2) The board stated in the 2014 extension that it intended to extend the limited conformance period for legacy covered funds until July 21 2017. The new extension affects this additional extension.

Limits on new extension

The new extension applies to banking entities only with respect to legacy covered funds.(3) All investments in, and relationships relating to, a legacy covered fund made or established after December 31 2013 were required to conform with the Volcker Rule by July 21 2015 and do not benefit from the new extension.

Transactions executed after 2013 will benefit from the new extension only if they arise out of a transaction in place on December 31 2013. Neither extension provides guidance regarding which transactions and other activities will be deemed to be part of a pre-existing 'relationship' with a legacy covered fund, although both extensions focus on the existence of relationships established on December 31 2013 (and not the completion of a particular transaction). In particular, there is no guidance regarding how the conformance period applies to 'covered transactions' with legacy covered funds that are subject to the Volcker Rule's 'Super 23A' restrictions.(4) However, frequently asked questions (FAQs) published by the board and other federal agencies in November 2015 suggest that the board may narrowly interpret the kinds of activity that will be deemed to be part of a pre-December 31 2013 relationship (and thus benefit from the new extension). The November 2015 FAQs state that – following the end of the general conformance period in July 2015 – Super 23A restrictions would apply to "any increase in the amount of, extension of the maturity of, or adjustment to the interest-rate or other material term of" an existing credit extension.(5) Thus, careful consideration is required when a banking entity is considering whether a new transaction with a legacy covered fund benefits from the new extension.

Next steps and extended extension periods

The new extension is the last extension authorised for application to all banking entities under the Volcker Rule. The new extension reiterates the board's statement in the 2014 extension that banking entities are expected, during the conformance period, to make plans regarding how they will conform or divest legacy covered fund investments and relationships "well in advance of the end of the extended conformance period". Banking entities that have not made substantial efforts to prepare and execute a conformance plan should start this process as soon as possible.

If a banking entity holds an ownership interest in an 'illiquid fund' (a limited subset of legacy covered funds), it may seek an extension for up to five years after July 21 2017.(6) Such an extension must be filed at least 180 days before July 21 2017.(7) While the new extension included a statement that the board will "continue to consider whether to take action regarding illiquid funds", no relief was provided and it is unclear whether (or when) such relief will be issued.

For further information on this topic please contact Benson Cohen or William Shirley at Sidley Austin LLP's New York Office by telephone (+1 212 839 5300) or email ([email protected] or [email protected]). Alternatively contact William S Eckland at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email ([email protected]). The Sidley Austin LLP website can be accessed at


(1) The 'Volcker Rule' refers to Section 13 of the Bank Holding Company Act of 1956, which was added by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(2) For further details please see "Volcker Rule: Conformance Period Extended for Certain Legacy Covered Funds". Proprietary trading activities were not covered by the 2014 extension and are not covered by the new extension. The conformance period for such activities expired on July 21 2015.

(3) Although the new extension uses the phrase "prior to December 31, 2013," the board's press release refers to "investments and relationships in a covered fund made after December 31, 2013" as those that were required to conform with the Volcker Rule by July 21 2015. Based on this, it appears that a relationship put in place on December 31 2013 will be eligible for the new extension.

(4) These restrictions preclude a covered fund sponsored by a banking entity from engaging in various transactions with that banking entity or any affiliate thereof.

(5) For further details please see "Applicability of the Restrictions in Section 13(f) of the BHC Act" (November 20 2015). Any transaction that constitutes a 'covered transaction' that was not in place before December 31 2013 was required to conform by July 21 2015.

(6) For further details please see "Conformance Period for Entities Engaged in Prohibited Proprietary Trading or Private Equity Fund or Hedge Fund Activities" (February 14 2011) and "Statement of Policy Regarding the Conformance Period for Entities Engaged in Prohibited Proprietary Trading or Private Equity Fund or Hedge Fund Activities" (June 8 2012).

(7) This deadline is Sunday, January 22 2017. Any filing will need to occur by Friday, January 20 2017.