The Federal Reserve Board (the "Board") announced on December 12, 2016 the procedure for banking entities1 to qualify and apply for an extension of the deadline for divesting interests in assets classified as "illiquid funds" under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule. This Stroock Special Bulletin provides an overview of the Board's December 12th announcement.

Importantly, to qualify for the extension announced by the Board, a banking entity must submit all required materials by no later than Saturday, January 21, 2017.

Extension of Conformance Periods

Extension for "Legacy Covered Funds"

Under the Volcker Rule, banking entities are generally prohibited from acquiring or retaining any equity, partnership or other ownership interest in, or from sponsoring, hedge funds and private equity funds ("covered funds"), subject to certain exemptions, restrictions, and definitions.2 By law, this provision took effect on the earlier of 12 months after the issuance of final rules by the Board or July 21, 2012.3 The Board implemented such final rules in 2011.4 However, the Board was also granted the power to extend the period for conformance by banking entities and nonbank financial entities by up to two years after the date on which the requirements became effective5 and was granted authority to add successive one-year extensions to the two-year period, up to three times.6

The Board has exercised this authority, and the final extension will expire on July 21, 2017.7 To qualify for this more general extension, an investment in a fund must be in a "legacy covered fund" and have been in place prior to December 31, 2013.8

Extension for "Illiquid Funds"

The Board's December 12, 2016 announcement extends the conformance period for a subset of legacy covered funds, called "illiquid funds." In general, an "illiquid fund" is a hedge fund or private equity fund9 that:

  1. as of May 1, 2010, was principally invested in,10 or was invested and contractually committed to principally invest in, illiquid assets, such as portfolio companies, real estate investments, and venture capital investments; and 
  2. (ii) makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets.11 

The conformance period for investments in illiquid funds is in addition to, and longer than, the otherwise existing conformance period for investments in legacy covered funds that are not illiquid funds.

Please click link to continue reading:- Federal Reserve Board Announces Procedure For Banking Entities To Qualify For Extension To Conform Investments In "Illiquid Funds"

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