Fund managers that are affiliated with U.S. banks, or that have historically courted U.S. banks (or their affiliates) as investors in their funds, are by now very familiar with the restrictions imposed by the “Volcker Rule” since its adoption in December 2013. A massive regulatory undertaking, the rule was adopted by five of the U.S. financial regulators (namely, the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency, the SEC, and the CFTC) acting in concert, and resulted in sweeping changes to how U.S. banks and their affiliates make proprietary investments and how they interact with so-called “covered funds.” From the perspective of a ’40 Act practitioner, it was clear at the time, and has remained so ever since, that the group of august regulators did not, collectively, grasp some of the implications of the way the final regulation approached some issues involving covered funds–including the very way that term was defined.
After several years of Congressional logjam and the regulators addressing some of the more vexing issues in the Volcker Rule through FAQs, we now suddenly find ourselves moving forward with changes to the Volcker Rule on multiple fronts. Unfortunately–at least from this practitioner’s perspective as an investment management lawyer–most of the changes we’ve seen so far are targeted at the proprietary trading side of the rule, rather than the covered fund side. That said, there are still a few things on the covered fund side worth mentioning, especially for industry participants interested in making their voice heard by the regulators.