Client Alert

Agencies Issue Final Rule Conforming Volcker Rule Regulations to 2018 Regulatory Relief Act

24 Jul 2019

On July 22, 2019, five federal agencies (the “Agencies”)[1] published a final rule (the “Final Rule”), which conforms the regulations implementing the Volcker Rule[2] 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 entities[5] 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 fund[11] 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:

[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: 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:

[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).



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