The SEC, FRB, OCC and FDIC (collectively, the “Agencies”) recently issued FAQs regarding implementation of Section 13 of the Bank Holding Company Act (the “Volcker Rule”).  (The FAQs issued by each of the Agencies are substantially identical.  The version published by the SEC is available here.)  The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from sponsoring and/or acquiring or retaining an ownership interest in, a hedge fund or private equity fund.  On December 10, 2013, the Agencies and the Commodity Futures Trading Commission issued regulations implementing the Volcker Rule.  The FAQs address certain questions related to implementation of the Volcker Rule:

• The FAQs provide additional guidance on when banking entities subject to the requirement to report certain quantitative measurements must begin reporting data.
• The FAQs address the definition of trading desk and conclude that, in some circumstances, a trading desk may span more than one legal entity.  The FAQs also explain how the relevant entities should calculate and report quantitative metrics in this circumstance.
• With respect to the conformance period, the FAQs confirm that a banking entity is not required to deduct its permitted investment in covered funds from its Tier 1 capital until the end of the conformance period, which is currently July 21, 2015.
• With respect to loan securitization vehicles that are not covered funds, the FAQs state that servicing assets may be any type of asset but that any servicing asset that is a security must be a permitted type of security, including cash equivalents.  The FAQs explain that the Agencies interpret “cash equivalents” to mean high quality, highly liquid short term investments whose maturity corresponds to the securitization’s expected or potential need for funds and whose currency corresponds to either the underlying loans or asset-backed securities.
• The FAQs confirm that an entity that is formed and operated pursuant to a written plan to become a foreign public fund will not be treated as a covered fund during its seeding period in a manner consistent with the treatment of investment companies and business development companies for purposes of the Volcker Rule.
• The FAQs also provide additional guidance on the name sharing restrictions applicable to covered funds organized and offered by a banking entity as part of a trust, fiduciary, investment or commodity trading advisory business.

Separately, the OCC also recently issued interim examination procedures applicable to national banks, federal savings associations, and federal branches and agencies of foreign banks with respect to activities subject to the Volcker Rule. The interim procedures are focused on assessing the extent to which OCC supervised banking entities have identified their activities and investments that are subject to the Volcker Rule and have begun to conform these activities to the requirements of the Volcker Rule as well as progress toward creating required policies and procedures.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.