Although the exact future of the Volcker Rule (Section 13 of the Bank Holding Company Act of 1956) under the Trump Administration is unclear, there have been two recent developments that indicate an effort on the part of regulators to make the Rule easier to live with in the short run.

On July 21, the Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint “Statement Regarding Treatment of Certain Foreign Funds under [the Volcker Rule]”. The Statement provides foreign banking entities with no-action relief until July 21, 2018 with respect to involvement with “qualifying foreign excluded funds” that might themselves be considered to be banking entities under relevant definitions in the rules implementing the Volcker Rule. This relief is intended to give regulators additional time to craft a permanent solution to concerns that the Volcker Rule requirements and implementing regulations put foreign excluded funds affiliated with foreign banking entities at a disadvantage in competing with foreign excluded funds that are not affiliated with a banking entity. This relief is consistent with the recommendation made in the Treasury Department’s June 2017 Report issued pursuant to Executive Order 13772 (“June Report”) that “[a]n exemption [from] the Volcker Rule’s definition of “banking entity” should be provided for foreign funds owned or controlled by a foreign affiliate of a US bank or a foreign bank with US operations.”

On July 24, the Board issued Supervisory Letter 17-5 dealing with “Procedures for a Banking Entity to Request an Extension of the One-Year Seeding Period for a Covered Fund.” The Supervisory Letter gives concrete effect to the provisions in the implementing regulations for the Volcker Rule that give the Board the authority to extend, for up to two additional years, the one-year period of time that a banking entity is generally allowed to reduce to 3 percent the level of its investment in a covered fund sponsored by the banking entity. SL 17-5 provides that an application for extension must be made at least 90 days prior to the expiration of the applicable time period, must explain the reasons for the request, and must contain a plan for compliance by the end of the requested extended seeding period. The Board has exclusive jurisdiction over such applications even for banking entities that have a different primary banking regulator.

In a related development, the Financial Stability Oversight Council (FSOC) has announced that the agenda for its Friday, July 28 executive session will include a discussion about the recommendations regarding the Volcker Rule in the June Report.

The announcement from FSOC is available here.