Five federal regulatory agencies - the Federal Reserve, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission, have finalised a rule that modifies the Volcker rule's prohibition against banking entities investing in or sponsoring hedge funds or private equity funds (known as covered funds), after a long and stormy passage.

The final rule is broadly similar to a rule proposed in January. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Like the proposal, the final rule modifies three areas of the rule by:

• streamlining the 'covered funds' portion of the rule;
• addressing the extraterritorial dimension for certain foreign funds; and
• permitting banking entities to offer financial services and engage in other activities that do not raise any concerns that the Volcker rule was intended to address.

The rule will be effective on 1 October.