The Federal Reserve Board has granted the final permitted broad-based extension of the deadline by which banking entities must bring their trading activities and hedge and private equity fund activities into conformity with the restrictions imposed by the Dodd-Frank Act. Section 619 of the act generally prohibits banking entities from engaging in proprietary trading and from holding interests in, sponsoring, or maintaining some other relationships with hedge or private equity funds—a provision commonly called the Volcker Rule.
The rule took effect on July 21, 2012, but the Dodd-Frank Act permitted covered institutions an additional two-year term to conform their activities to its requirements. In addition, it authorized the Fed to grant up to three one-year delays if doing so was consistent with the purposes of the Volcker Rule and not contrary to the public interest.
The newest extension is the third, and final, extension the Fed can allow, and it gives covered institutions until July 21, 2017, to come into full compliance. However, the Fed’s release emphasized that the extension applies only to investments in prohibited hedge or private equity funds before Dec. 31, 2013, which are referred to as legacy covered fund investments. There is no extension for proprietary investment activities or investments made after Dec. 31, 2013. The full-compliance deadline for these investments was Dec. 31, 2015, the end of the first one-year extension.
Individual extensions. The Fed also has the authority to grant an additional extension of up to five years to a specific banking entity that needs more time to deal with an investment in an illiquid fund if the institution had a contractual obligation to make the investment as of May 1, 2010. No such individual extensions have been granted so far.
MainStory: TopStory BankHolding DoddFrankAct FederalReserveSystem FinancialStability SecuritiesDerivatives VolckerRule
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