IMN: Volcker reprieve
27 January 2015 San Francisco
Image: Shutterstock
Users of ’40 Act private funds as cash collateral reinvestment vehicles have been given a regulatory reprieve with the delay in the effective date of the Volcker Rule, said panellists at the Beneficial Owners’ International Securities Lending and Collateral Management Conference.
The Volcker Rule, codified as Section 619 of the US Dodd-Frank Act, imposes limits on banks’ investments in, and other relationships with, hedge and private equity funds.
The Dodd-Frank rule would capture private funds under the ’40 Act, which agent lenders use as reinvestment vehicles, requiring them to cease providing extensions of credit to those funds.
It was finalised in December 2013 with a view to banks becoming compliant by July of this year, but regulators recently extended the compliance date to July 2017, giving agent lenders time to decide what they will do about covered funds.
The panel, which included Scott Olson of State Street Global Markets and Joseph Sarbinowski of Deutsche Asset Management, said that clients could be moved into separate accounts to side step the Volcker Rule, although that strategy would not work for smaller funds.
Another way around the Volcker Rule would be outsource custody of affected accounts, said the panel.
The panel also warned against hoping for any major repeal of the Volcker Rule or Dodd-Frank now that US Congress is Republican-led, predicting that only minor tweaks or roll-backs are likely.
The Volcker Rule, codified as Section 619 of the US Dodd-Frank Act, imposes limits on banks’ investments in, and other relationships with, hedge and private equity funds.
The Dodd-Frank rule would capture private funds under the ’40 Act, which agent lenders use as reinvestment vehicles, requiring them to cease providing extensions of credit to those funds.
It was finalised in December 2013 with a view to banks becoming compliant by July of this year, but regulators recently extended the compliance date to July 2017, giving agent lenders time to decide what they will do about covered funds.
The panel, which included Scott Olson of State Street Global Markets and Joseph Sarbinowski of Deutsche Asset Management, said that clients could be moved into separate accounts to side step the Volcker Rule, although that strategy would not work for smaller funds.
Another way around the Volcker Rule would be outsource custody of affected accounts, said the panel.
The panel also warned against hoping for any major repeal of the Volcker Rule or Dodd-Frank now that US Congress is Republican-led, predicting that only minor tweaks or roll-backs are likely.
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