WASHINGTON Federal regulators announced Thursday that they are delaying implementation of certain aspects of the Volcker Rule's prohibition on bank ownership of private equity and hedge funds, giving institutions an additional two years to comply.
Under the rule named after former Fed Reserve Board Chairman Paul Volcker, who proposed it banks are forbidden from proprietary trading and investing in certain private equity or hedge funds. While regulators left the proprietary trading implementation date alone, they extended for one year, until July 21, 2016, the effective date governing investment in so-called "legacy covered funds." The agencies further signaled their intent to delay the effective date of that part of the rule again until July 21, 2017. The delay only covers funds already owned by banks prior to Dec. 31, 2013.
Investments in funds made this year would still be subject to the 2015 compliance date.
Banks have had a challenging time complying with the covered funds aspect of the rule because some collateralized debt and loan obligations confer controlling interests that could arguably run afoul of the Volcker Rule. Banks were originally slated to comply with the rule by July 21, 2014, but the Dodd-Frank Act allows regulators to extend that deadline by one-year increments for a maximum of three years.
The regulators the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., the Securities and Exchange Commission and the Commodity Futures trading Commission struggled to finalize the Volcker Rule by last year amid disagreements and technical challenges.
Observers had expected the Fed to push back the compliance date, at least for the covered funds portion of the rule, because of the persistent confusion about which funds would be considered covered and which would be allowed.