The last act of the US regulators before the US government shutdown was to propose easing marketing restrictions for bank-affiliated private equity and hedge fund managers and exempting small US banks from the Volcker Rule. But smaller non-US banks might not receive the same treatment.

Since its final adoption in 2013, the US Volcker Rule has created headaches for banks and asset managers globally. The rule requires that “banking entities” stop trading for their own accounts and sponsoring or owning “covered funds.” Banks and funds with only small connections to the United States found themselves struggling to comply with the rule’s 272 pages of compliance requirements.

Among the very last acts of the six Volcker Rule regulators before the US government shutdown was to propose on 21 December 2018 new rules that would exempt small US banks from the Volcker Rule. If adopted, these rules would carve out US banks with total consolidated assets of US$10 billion or less and total consolidated trading assets and liabilities of less than five percent of their total consolidated assets from the Volcker Rule’s key “banking entity” definition.

Unfortunately, the regulators’ proposal does not extend to non-US banks with US branches.

The regulators also proposed softening a marketing requirement applicable to asset managers affiliated with banks. Under the Volcker Rule, banking entities are not permitted to sponsor “covered funds” (a term which generally includes funds privately offered in the United States); the regulators had made clear that banks and their investment adviser affiliates could advise covered funds but could not share the same name as the funds. The proposed rule would eliminate that restriction with respect to bank-affiliated investment advisers, provided that (1) the advisers is not itself insured as a bank or treated as a “bank holding company”, (2) the adviser not share the same name as the bank, and (3) that the adviser’s name not contain the word “bank”.

Comments on the proposed rules will be due within 30 days of when the rule is officially published in the Federal Register and will almost certainly include requests to extend equivalent treatment to non-US banks. Given the US government shutdown, publication of the Federal Register could be delayed.

The proposal may be found here.


Karl Paulson Egbert advises asset managers and their funds on regulatory, corporate and derivatives matters. Karl is a member of the Firm's North American Financial Institutions Steering Committee. Karl has practiced in New York, London, Hong Kong and Washington, D.C., working on fund formation, listed funds, private equity and capital markets transactions.


Kennan Castel-Fodor is a Hong Kong-based US qualified attorney focusing on US financial services regulation and investment funds.