WASHINGTON (MNI) – The following is the first of excerpts from the
details provided by the Federal Reserve Board Wednesday explaining its
approval of a final rule to implement the Volker Rule:
E. Procedures Governing Extension Requests.
The proposed rule also addressed the process for banking entities
and nonbank financial companies supervised by the Board to request a
one-year extension of the general conformance period and for banking
entities to request up to a five-year extended transition period with
respect to an illiquid fund. The proposed rule generally required that
any request for an extension must: (1) be submitted in writing to the
Board at least 90 days prior to the expiration of the applicable time
period; (2) provide the reasons why the banking entity or nonbank
financial company supervised by the Board believes the extension should
be granted; and (3) provide a detailed explanation of the plan of the
banking entity of nonbank financial company supervised by the Board for
divesting or conforming the activity or investment(s). The proposed rule
also described the factors that the Board may consider in reviewing any
requests for an extension.
The Board received several comments on the procedures for
requesting an extension and the standards for reviewing these requests
set forth in the proposed rule. In general, commenters requested that
the Board allow a firm to submit an extension request well in advance of
the end of the applicable time period. Commenters noted that winding
down the activities and operations subject to the restrictions of the
Volcker Rule could take significant time, and, as a result, companies
subject to the Volcker Rule would benefit from knowing as early as
possible whether or not they had been granted an extension. Some
commenters additionally suggested that the Board modify the final rule
to expressly provide for a standard time period for its review of any
specific extension request, accompanied by an automatic approval of an
extension if the review was not completed in the specified period. One
commenter suggested that the Board require banking entities to provide
extensive information on the steps that the banking entity has taken to
conform to the requirements of the Volcker Rule.
Several comments also addressed the proposed rule’s list of factors
that the Board would take into account in reviewing any request for a
conformance period extension. For example, commenters suggested that the
Board take into account the impact that an extension (or denial of an
extension) related to investments in a hedge fund or private equity fund
would have on unaffiliated, third-party investors in the fund, including
the potential creation of conflicts of interest between a banking entity
that sponsored a private equity or hedge fund and other investors in
such fund.
After considering the comments, the Board has modified the
provisions governing the submission and review of extension requests in
several respects. First, the final rule provides that a banking entity
or nonbank financial company supervised by the Board seeking an
extension of the conformance period must submit its request at least 180
days prior to the expiration of the applicable time period, rather than
90 days as proposed. This additional period is designed to provide the
Board additional time to review any submission, as well as to request
additional information from the requesting company if necessary or
appropriate. This deadline is the date by which an extension request
must be filed. Firms are encouraged to submit their extension requests
to the Board as early as possible. If additional requests are
contemplated as being necessary after a permissible extension has been
granted, a banking entity or nonbank financial company supervised by the
Board may submit an additional request after the first day of the
newly-extended period, and the Board would consider each request
submitted in accordance with the procedures contained in the final rule.
The final rule also provides that the Board will seek to act on any
extension request no later than 90 days after receipt of all necessary
information relating to the request.
The proposed rule provided that, in reviewing a request for an
extension, the Board may consider all the facts and circumstances
related to the activity, investment, or fund, including each of the
following factors (to the extent they are relevant): (i) whether the
activity or investment (A) involves or results in material conflicts of
interest between the banking entity (or nonbank financial company
supervised by the Board) and its clients, customers or counterparties;
(B) would result, directly or indirectly, in a material exposure by the
banking entity (or company) to high-risk assets or high-risk trading
strategies; (C) would pose a threat to the safety and soundness of the
banking entity (or company); or (D) would pose a threat to the financial
stability of the United States; (ii) market conditions; (iii) the nature
of the activity or investment; (iv) the date that the banking entity’s
contractual obligation to make or retain an investment in the fund was
incurred and when it expires; (v) the contractual terms governing the
banking entity’s interest in the fund; (vi) the degree of control held
by the banking entity over investment decisions of the fund; (vii) the
types of assets held by the fund; (viii) the date on which the fund is
expected to wind up its activities and liquidate or its investments may
be redeemed or sold; (ix) the total exposure of the banking entity (or
company) to the activity or investment and the risks that disposing of,
or maintaining, the investment or activity may pose to the banking
entity (or company); (x) the cost to the banking entity (or company) of
disposing of the activity or investment within the applicable period;
and (xi) any other factor that the Board believes appropriate.
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** Market News International Washington Bureau: 202-371-2121 **
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