Federal Reserve Extends Conformance Period Through July 21, 2017 for Investments in and Relationships With Legacy Covered Funds; Expects to Provide More Information on Illiquid Fund Applications “in the Near Term”

Earlier today, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued an order (the “Order”) with respect to Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly known as the Volcker Rule, formalizing its prior commitment to give all banking entities until July 21, 2017 to conform “investments in and relationships with covered funds and foreign funds” that were in place prior to December 31, 2013 (referred to as “legacy covered funds”) to the requirements of the Volcker Rule. The Order was anticipated and represents the last of the three one-year extensions that the Federal Reserve is authorized to grant under the Volcker Rule.1

The Order reiterates the expectation that banking entities “make plans well in advance of the end of the extended conformance period regarding how they will conform or divest legacy covered fund investments in an orderly and safe and sound manner.” The Order and accompanying press release note that the Federal Reserve consulted with staffs of the other agencies responsible for enforcing the Volcker Rule and the agencies plan to administer the Volcker Rule in accordance with the Federal Reserve’s conformance rule2 and the Order.

The Order did not provide additional guidance regarding the additional five-year conformance period authorized by the statute for certain “illiquid funds.”3 However, the Order states that the Federal Reserve “will also continue to consider whether to take action regarding illiquid funds” and the press release accompanying the Order states that the Federal Reserve “expects to provide more information in the near term as to how it will address [illiquid fund] applications.” Timely guidance from the Federal Reserve regarding illiquid funds will be critical for banking organizations’ conformance planning purposes and to avoid unnecessary disruptions that could be caused by significant divestitures of illiquid funds within a compressed time frame.

A copy of the Order is attached as Appendix A.