Board of Governors of the Federal Reserve System

The objective behind the Volcker covered funds final rule is straightforward: simplifying the Volcker rule in light of our experience over six years of implementation. This is a goal that is shared among all five agencies and among policymakers at those agencies with many different backgrounds. Since the agencies originally finalized the Volcker rule regulation in December of 2013, each agency has collected and reflected on many lessons learned. In particular, it is inescapable that compliance and enforcement have been difficult and can be simplified for both banking entities and regulators while fully achieving the objectives of the law.

The Volcker covered funds final rule has been informed by significant public input. Notably, the Volcker proposal on proprietary trading which we made in 2018 invited comment from the public on how the covered funds provisions could be improved. Many comments were received in response over the subsequent 18 months, and the proposal from earlier this year took into account many of those comments. As a result, this final rule, which received even further input from the proposal we issued earlier this year, is substantially similar to the proposal with a few targeted changes.

Broadly, the changes in the final rule from the 2013 rule can be grouped into three categories:

• First, improving and clarifying the treatment of foreign funds;
• Second, simplifying and clarifying the operation and compliance requirements of the rule, including by limiting the extraterritorial impact of the rule;
• And third, permitting banking entities to engage in certain fund-related activities that do not present the risks that the Volcker rule was intended to address.

Let me focus quickly on the third category of changes. They would allow a banking entity to engage in certain activities indirectly through a fund structure. However, existing law has long allowed banking entities to engage directly in these activities. So today's final rule simply allows banking entities to engage in already permitted activities, such as venture capital investment, through a fund structure. While these activities are appropriate generally, ensuring the ability of the financial sector to support the real economy through the broadest means possible under the law is particularly important today. And to mitigate any risks present with activity through a fund, the final rule does not allow banking entities to engage in proprietary trading through a fund structure, restricts a banking entity from bailing out the funds it sponsors, limits conflicts of interest between the banking entity and fund, and of course, the activity remains subject to robust capital charges even if it is conducted through a fund structure.