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Statement on Proposed Amendments to the Volcker Rule “Covered Fund” Provisions

Commissioners Elad L. Roisman and Hester M. Peirce

Jan. 30, 2020

  1. Introduction

Thank you to the SEC staff who worked on this proposal, particularly those in the Divisions of Investment Management, Trading and Markets, and Economic and Risk Analysis, and the Office of General Counsel.  Further thanks go to our banking agency colleagues for their collaboration.  As with other projects to implement or amend rules under the Volcker Rule’s Dodd-Frank Act mandate, developing today’s recommendation involved extensive coordination not only within the SEC, but also with many colleagues across the five banking agencies, who share responsibility for administering the Volcker Rule. 

When the Volcker Rule was adopted, some at the Commission felt that the banking regulators did not welcome SEC input, despite our staff’s expertise in areas covered by the rule.[1]  By contrast, our SEC staff took a lead role in drafting many components of these proposed amendments.  We appreciate this development and believe the proposal is better for it.

  1. Volcker Overreach

The proposed amendments seek to address comprehensively the concerns many have expressed about the overbreadth of the Volcker Rule’s covered fund provisions—and there have been many such concerns.  Banks and their affiliates can, of course, finance businesses, infrastructure projects, and real estate developments with their own balance sheets.  Until the Volcker Rule was adopted, banking entities financed many such endeavors through funds or other legal entity structures, in partnership with clients willing to make long-term investments in growing enterprises.  These types of arrangements were mutually beneficial; banking clients could invest alongside their bank, and the bank could share risks of its investment projects with its clients.  Also, businesses and entrepreneurs received capital through these funds. 

Since its adoption, the Volcker Rule has impeded banks’ and their affiliates’ abilities to perform these financing functions through fund structures.  Many banks, particularly regional banks, have been forced to cut back on certain of their investment activities or cease them entirely.[2]  This is not a good result for those banks and their clients, who have lost the benefits of making investments together; but also for those businesses, who lost this capital raising opportunity.

  1. Right-Sizing the Regulation

While our preference in amending the Volcker Rule might have been simply to lean on the “DELETE key,” we recognize the legislative mandate and appreciate the more surgical and careful approach reflected in this proposal.  This proposal seeks to better tailor the aspects of the Volcker Rule covered fund regulations that have been most disruptive to legitimate and beneficial business activities by banks—activities not even tenuously responsible for the financial crisis that led to the conception of this rule.  This proposal also has the benefit of having been informed by nearly a hundred comment letters and meetings following the 2018 proposal, Congressional interest and hearings, as well as several years of regulatory staff overseeing registrants’ Volcker Rule compliance.  The proposal is an important step in recalibrating the rule, and we welcome public input in response to the release’s numerous questions. 

One area of this proposal that we would like to highlight for commenters is the proposed exemption for venture capital funds.  The proposal’s definition of venture capital funds is based largely on existing rules administered by the SEC.[3]  However, additional suggested conditions would further limit banking entities’ use of the exemption.  We hope commenters will provide input on whether this proposal would successfully free up banking entities to fund growing businesses.  Would the proposed or additional suggested conditions undercut the usefulness of this proposed exemption?

  1. Conclusion

We look forward to the answer to this and other questions in the release.  As with other aspects of the Volcker Rule, we are looking for the most effective, efficient, and straightforward approach to implement the statutory mandate.  We rely heavily on public comment to help us discern that approach.


[1]              See, e.g., Commissioner Daniel M. Gallagher, Dissenting Statement Regarding Adoption of Rule Implementing the Volcker Rule (Dec. 10, 2013), available at; Commissioner Michael S. Piwowar, Dissenting Statement Regarding Adoption of Rule Implementing the Volcker Rule (Dec. 10, 2013), available at

[2]              See, e.g., American Bankers Association, The Volcker Rule: Islands of Permission in a Sea of Prohibition (April 2017); Letter from Timothy E. Keehan, Vice President and Senior Counsel, Center for Securities Trusts and Investments, American Bankers Association, to Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency (Sept. 21, 2017), available at

[3]              See Investment Advisers Act of 1940 Rule 203(l)-1, 17 CFR § 275.203(l)-1 (2019).

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