The final revisions to the Volcker Rule are completed

The Final Revisions follow three years of the agencies’ consideration of changes to the Volcker Rule, originally prompted by the June 2017 Treasury Report that solicited changes to ease the compliance burden on banks. The Final Revisions are largely consistent with the notice of proposed rulemaking (the ‘NPR’), but with some clarifications and other adjustments. Many of the changes from the NPR contained in the Final Revisions are in response to industry requests designed to clarify and ease the compliance burden of banking entities subject to the Volcker Rule.

The Final Revisions added to the LSE an allowance to own up to 5% of non-loan debt instruments. This 5% is calculated based on the par value of assets at the time of each acquisition. In a shift from the NPR, the Final Revisions limit the 5% non-complying assets bucket to debt securities. This clarification alleviates the need for further broadening of the non-complying assets bucket for typical ABS transactions while closing any gap in the NPR that would have permitted funds relying on the LSE to acquire equity securities.

The Final Revisions include a safe-harbor carve-out to the definition of ‘ownership interest’ under the Volcker Rule in the same manner as proposed in the NPR. The safe harbor applies to certain senior loan or other senior debt interests that satisfy three tests.

The Final Revisions are effective as of October 1, 2020.