United States: Agencies Issue Final Rule Conforming Volcker Rule Regulations To 2018 Regulatory Relief Act

On July 22, 2019, five federal agencies (the “Agencies”)1 published a final rule (the “Final Rule”), which conforms the regulations implementing the Volcker Rule2 to statutory modifications provided by Sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Regulatory Relief Act”).3 The Final Rule does not change the manner in which the Volcker Rule is currently applied, since the relevant provisions of the Regulatory Relief Act were effective upon enactment.4 The Final Rule became effective upon publication in the Federal Register.


The Volcker Rule generally prohibits banking entities5 from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with private equity funds and hedge funds. Since the Volcker Rule’s implementation, banking entities have found compliance with its restrictions quite burdensome and the regulations exceedingly complex. And, as a policy matter, questions have been raised as to whether the costs of applying the rule to community banks (which are not generally engaged in the type of activities covered by the Volcker Rule) outweigh the benefits.6

In May 2018, Congress adopted the Regulatory Relief Act, which provides the statutory basis for the Final Rule. Consistent with the Regulatory Relief Act, the Final Rule amends the regulations in two respects. First, the Final Rule incorporates the Regulatory Relief Act’s exclusion of certain community banks from coverage of the rule. Second, the Final Rule incorporates the Regulatory Relief Act’s provision alleviating the restrictions on banking entities using the same name as hedge funds and private equity funds.

Community Bank Exclusion

The Final Rule excludes community banks that meet certain criteria from the definition of “banking entities.” Specifically, a community bank is not considered a “banking entity” if the community bank, and any company that controls the community bank, has both (i) total consolidated assets of $10 billion or less; and (ii) total trading assets and trading liabilities, on a consolidated basis, that are 5% or less of total consolidated assets. Note that the community bank exclusion provided by the Regulatory Relief Act and the Final Rule is not available for a company that is a “banking entity” because it, or its parent company, is treated as a bank holding company for purposes of Section 8 of the International Banking Act of 1978 (i.e., a “foreign banking organization”).7

In the preamble to the Final Rule, the Agencies confirmed that eligibility for the exclusion is determined using the most recent quarterly call report (for banks and savings associations) and the most recent FR Y-9C (for companies controlling banks and savings associations).8

Some commenters to the proposed rule argued that Section 203 of the Regulatory Relief Act should be literally read to exclude institutions of any size from the Volcker Rule as long as their trading assets and liabilities are 5% or less of total consolidated assets. The Agencies rejected this argument based on their reading of the statute and understanding of congressional intent. Instead, under the Final Rule, both conditions must be satisfied for the exclusion to apply.

Naming Restriction

The Volcker Rule restricts the ability of a banking entity to use the same name as a private equity fund or hedge fund. This restriction appears in two places in the Volcker Rule and its implementing regulations: (i) as one of the conditions to an exemption referred to as the “Asset Management Exemption”; and (ii) within the definition of the term “sponsor.”

Asset Management Exemption

As long as all of its many conditions are met, the Asset Management Exemption permits banking entities to invest in, sponsor, organize, and offer hedge funds and private equity funds, if such funds are organized and offered only in connection with bona fide trust, fiduciary, investment advisory, or commodity trading advisory services on behalf of customers.9 One of the conditions of the Asset Management Exemption is that the hedge fund or private equity fund may not use the same name (or a variation thereof) as the banking entity or any of its affiliates.10

The Final Rule amends the regulations to incorporate the Regulatory Relief Act’s liberalization of this condition. Specifically, under the Final Rule, a banking entity that serves as an investment advisor to a covered fund11 is permitted to use the same name as such fund and still rely on the Asset Management Exemption (assuming all other conditions are met) if the banking entity (i) is not an insured depository institution (IDI), does not control an IDI, and is not a foreign banking organization; and (ii) does not use the same name (or a variation thereof) as an IDI, a company that controls an IDI, or a foreign banking organization. In addition, as is the case under the existing regulations, the Final Rule does not permit a covered fund to use the term “bank” in its name, where the banking entity sponsoring, organizing, offering, or investing in the covered fund relies on the Asset Management Exemption.


The Volcker Rule and its implementing regulations prohibit banking entities from serving as the “sponsor” of a hedge fund or private equity fund, unless an exemption or exclusion applies.12 Prior to the Regulatory Relief Act, a banking entity was deemed to be a sponsor of a hedge fund or private equity fund if it used the same name as the fund (or a variation thereof) for corporate, marketing, promotional, or other purposes.13

The Regulatory Relief Act liberalized the naming restriction contained in the definition of the term “sponsor” to the same extent as the restriction was liberalized for the Asset Management Exemption. In other words, under the Regulatory Relief Act, as long as the two conditions described above are met, and the fund does not contain the word “bank,” a banking entity can use the same name as a hedge fund or private equity fund and not be deemed to be the sponsor of such fund (unless it meets the other prongs of the “sponsor” definition). The Final Rule adopts the same approach in the regulations.


1 The five federal agencies (i.e., the Agencies) responsible for implementing the Volcker Rule are: the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System (“Federal Reserve”); the Federal Deposit Insurance Corporation; the U.S. Securities and Exchange Commission; and the U.S. Commodity Futures Trading Commission.

2 The “Volcker Rule” is the common name for Section 13 of the Bank Holding Company Act of 1956, as amended.

3 The Regulatory Relief Act was enacted on May 24, 2018. For our client alert regarding the Regulatory Relief Act, please see: https://www.mofo.com/resources/publications/180522-financial-regulatory-reform.html.

4 The Agencies also previously confirmed that the regulations would not be enforced in a manner inconsistent with the statute. See “Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds,” 83 Fed. Reg. 33434 (July 17, 2018).

5 A “banking entity” is defined in the existing regulations to include: (1) any insured depository institution (“IDI”); (2) any company that controls an IDI; (3) any company that is treated as a bank holding company for purposes of Section 8 of the International Banking Act of 1978 (i.e., “foreign banking organization”); and (4) any subsidiary or affiliate of the above. 12 C.F.R. § 248.2(c) (defining the term “banking entity”).

6 For further discussion, please see our client alert on the proposed rule: https://www.mofo.com/resources/publications/181220-volcker-rule-regulations.html. In addition, for a discussion of the more comprehensive proposal to revise the Volcker Rule published by the Agencies in June 2018, please see our client alert: https://www.mofo.com/resources/publications/180619-volcker-rule.html.

7 Foreign banking organizations fall within the definition of a “banking entity” under a separate prong of the definition of “banking entity” that was not impacted by the Regulatory Relief Act or the Final Rule.

8 In addition, banking entities should look to the call report or FR Y-9C instructions to determine how to classify assets for purposes of determining eligibility for the exclusion.

9 12 U.S.C. § 1851(d)(1)(G); see also 12 C.F.R. § 248.11(a).

10 12 U.S.C. § 1851(d)(1)(G)(vi); see also 12 C.F.R. § 248.11(a)(6).

11 The term “covered fund” is used in the regulations implementing the Volcker Rule to include hedge funds and private equity funds. See 12 C.F.R. § 248.10(b) (defining “covered fund”).

12 12 U.S.C. § 1851(a)(1)(B); see also 12 C.F.R. § 248.10(a).

13 12 U.S.C. § 1851(h)(5)(C); see also 12 C.F.R. § 248.10(d)(9)(iii).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions