Key takeaways

• Yesterday, the Federal Reserve issued much-anticipated guidance on how banking entities may seek an extended transition period for “illiquid funds” under the Volcker Rule. The extended transition period allows banking entities to hold illiquid fund interests for up to an additional five years beyond the current July 21, 2017 conformance date.
• The Federal Reserve has indicated that it anticipates that illiquid fund interests will generally qualify for extended transition periods, unless a banking entity has not demonstrated meaningful progress toward conforming its illiquid fund interests, the banking entity has a deficient Volcker Rule compliance program more generally or the Federal Reserve has evasion concerns.
• Debevoise has long advocated for the Federal Reserve to address illiquid funds issues through guidance, and the newly issued guidance is a positive measure that will allow the industry participants to move toward Volcker Rule compliance in an orderly manner.