Key takeaways

• More than two years after they were originally proposed, on December 10, 2013, the federal banking agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission adopted final regulations to implement Section 13 of the Bank Holding Company Act (commonly known as the "Volcker Rule").
• U.S. banks and non-U.S. banks (and their affiliates) still face significant constraints with respect to sponsoring and investing in hedge funds, private equity funds and a wide range of other “covered funds.” Furthermore, these banking entities also face the so-called “Super 23A restrictions” with respect to “covered funds” to which they act as investment manager, adviser or sponsor. The final regulations do include a wide range of exclusions to reduce the scope of “covered funds” and a number of exemptions for permissible activities, including exemptions for organizing and offering so-called bank “customer” funds, for foreign funds that are “solely outside the United States” and for activities by insurance companies. The application of the covered fund restrictions to specific facts and circumstances and the interaction of the exclusions and exemptions can be complex. In addition, as has been seen through the numerous news reports, these restrictions have the potential to have a significant impact on a variety of markets, some of which may not have been foreseen.
• For the benefit of clients and friends seeking a way to understand the new regulatory framework and the principal features of the covered funds restrictions, this Client Update presents in question-and-answer format a discussion of the most prominent components relating to the covered fund aspects of the final rule.

For a companion Q&A that discusses the proprietary trading aspects of the final rule, please see our Client Update available here.