Middle-Market Public Policy Roundup
Changes to the Volcker Rule may be delayed as talk of a rulemaking “do over” picks up steam. Meanwhile, the SEC introduces some modernization efforts.
This week’s Public Policy Roundup looks into how changes to the Volcker Rule may be delayed as talk of a rulemaking “do over” picks up steam. Meanwhile, as part of its continuing modernization efforts, the SEC has issued a no-action letter that allows members of the board of directors of registered management investment companies, such as business development companies, to vote remotely on certain issues.
Potential Volcker Proposal Do-Over
Previously proposed changes to the Volcker Rule may be scrapped in favor of another proposal by the five regulators responsible for enforcing the rule, this time without the so-called “accounting standard.”
The accounting standard would ban banks from trading any financial instrument–such as a security–that is, under generally accepted accounting principles, “recorded at fair value on a recurring basis.” This standard would replace the Volcker Rule’s general prohibition on trades “intended” to be short-term, as well as those held for 60 days or less.
The previous proposal, released in June, was designed to simplify the Volcker Rule and tailor it for banks, but according to various comment letters to regulators, the new proposal could potentially have the opposite effect if the accounting standard is included. Commenters raised concerns that the accounting standard could have the unintended effect of banning currently allowed trades and requiring banks to restructure their risk hedging, trading and merchant banking practices.
“I think we have to step back and think through that again … Maybe we overshot,” said Joseph Otting, chief of the Office of the Comptroller of the Currency, one of the five agencies overseeing the Volcker Rule rewrite.
The Volcker Rule, passed as part a package of sweeping financial reform legislation after the 2008 financial crisis, is aimed at preventing potential systemic risk by preventing banks from taking part in so-called “proprietary trading,” whereby banks trade on their own accounts for their own profit, rather than on behalf of their clients.
The Volcker Rule also broadly banned banks from sponsoring, acquiring or retaining ownership interests in covered funds, which include hedge fund and private equity funds. ACG filed a comment letter in response to last year’s proposal, advocating that middle-market private funds do not pose a systemic risk and should therefore be excluded from the definition of a covered fund under the Volcker Rule.
SEC Modernizes In-Person Voting Requirements
The Securities and Exchange Commission issued a no-action letter in February allowing the board members of investment companies to vote remotely under some circumstances.
According to the letter, published by the Division of Investment Management on Feb. 28, board members are allowed to vote using a telephone or video conferencing services when voting in-person creates a “significant or unnecessary burden.”
The ability to remotely vote can only be used when voting on certain issues, such as renewing an investment advisory contract, approving of an interim advisory contract, selecting a fund’s independent public accountant and renewing a fund’s 12b-1 plan.
While the no-action relief does not carry the full weight of law and can be rescinded by SEC staff at any time, this is a meaningful step forward for registered management investment companies, such as business development companies.
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Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.
Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.
