The Federal Reserve Board, FDIC, OCC, SEC and CFTC proposed a set of amendments to the Volcker Rule's "covered funds" provisions.

The Volcker Rule (i.e., Section 619 of Dodd-Frank) generally prohibits banking entities from (i) enaging in proprietary trading and (ii) acquiring or retaining ownership interests in certain hedge funds and private equity funds.

The proposed amendments would clarify certain aspects of the Volcker Rule regarding covered funds provisions by:

  • simplifying existing provisions of the rule related to foreign public funds, loan securitizations, and small business investment companies;

  • permitting banking entities to invest in or sponsor certain types of funds that do not raise the concerns the Volcker Rule was intended to address, such as credit funds, venture capital funds, customer facilitation funds, and family wealth management vehicles;

  • limiting the extraterritorial impact of the rule on foreign funds offered by foreign banks to foreign individuals;

  • clarifying that the so-called "Super 23A" provisions of the Volcker Rule would not prohibit certain low-risk transactions (including intraday credit and payment, clearing, and settlement transactions) between a banking entity and covered funds for which the banking entity serves as investment adviser or sponsor;

  • clarifying that credit exposures to a covered fund would generally not constitute ownership interests under the Volcker Rule; and

  • clarifying an ambiguity contained in the regulations about the treatment of parallel direct investments made by a banking entity in the same underlying investments as sponsored covered funds are not deemed to be investments in the fund itself.