January 22, 2019

January 22, 2019

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Agencies Propose Volcker Rule Regulatory Amendments re: Trading and Interests in Hedge and Private Equity Funds

Pursuant to statutory provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. 115-174 (May 24, 2018) (“EGRRCPA”), on December 21, 2018, the Office of the Comptroller of the Currency (“OCC”), Board of Governors of the Federal Reserve System (“Board”), Federal Deposit Insurance Corporation (“FDIC”), Securities and Exchange Commission (“SEC”), and Commodity Futures Trading Commission (“CFTC”) jointly issued proposals to amend Bank Holding Company Act (“BHCA”) regulatory prohibitions and restrictions on proprietary trading and certain interests in, and relationships with, hedge funds and private equity funds. Both of the proposals would implement regulation amendments passed as part of the EGRRCPA related to exclusions of certain banking entities from the scope of the Volcker Rule, and certain exceptions to its name-sharing restrictions.

The first proposal would implement the regulatory exclusion from the definition of “banking entity” to conform with statutory Section 203 of the EGRRCPA. Under this exclusion, the Volcker Rule restrictions and prohibitions would not apply to an institution that meets both the following criteria: “First, the insured depository institution, and every entity that controls it, must have total consolidated assets equal to or less than $10 billion. Second, total consolidated trading assets and liabilities of the insured depository institution, and every entity that controls it, must be equal to or less than five percent of its total consolidated assets.”

The second proposal involves a modification of name-sharing restrictions of the Volcker Rule. This would implement amendments under the EGRRCPA to permit a hedge fund or private equity fund sponsored by a banking entity to share the same name or a variation of the same name with a banking entity that is an investment adviser to the fund, subject to the following conditions: the investment adviser is not, and does not share the same name (or a variation of the same name) as, an insured depository institution, a company that controls an insured depository institution, or a company that is treated as a bank holding company for purposes of section 8 of the International Banking Act of 1978. Additionally, the name cannot contain the word “bank” under current rules.

Comments were requested by the agencies and are due within 30 days following publication in the Federal Register. Specifically, the agencies questioned whether these proposed rules provide sufficient clarity for firms to determine application of the exclusion and permissible name-sharing. As of the date of this article, publication had not yet been completed. 

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About this Author

J. Andrew Gipson, Banking and financial services lawyer, Jones Walker law firm
Special Counsel

Andy Gipson is special counsel in the firm's Banking & Financial Services Practice Group and practices from the firm's Jackson office. He focuses his practice in securities, banking, communications, and insurance regulatory law. In 2007, he was elected to the Mississippi Legislature representing District 77 in the Mississippi House of Representatives.

Mr. Gipson is a member of The Mississippi Bar and was selected as a member of Leadership Simpson County, Class of 2006–2007 and of Leadership Jackson, Class of 2003–2004. He also was elected to...

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