The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency today announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years.

Section 619 Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Volcker Rule, added a new section 13 to the Bank Holding Company Act 1956 (12 USC s1851) that generally prohibits banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund.  These prohibitions are subject to a number of statutory exemptions, restrictions, and definitions.  

A number of foreign banks have beseeched the agencies to think again about the unintended consequences and extraterritorial effect that the Volcker Rule and implementing regulations might have for certain foreign funds (foreign excluded funds) that are excluded from the definition of “covered fund” in section 13. They say that certain foreign excluded funds might be “banking entities” as defined in section 13 if they are affiliates or subsidiaries of foreign banking entities. If this is true, such funds would be subject to section 13 and would face compliance obligations, restrictions on proprietary trading and restrictions on investing in or sponsoring hedge funds or private equity funds.