Clifford Chance

US Regulators Make Sense of Volcker Rule’s “SOTUS” Covered Fund Exemption, Explain That US Marketing Restriction Does Not Apply to Third-Party Covered Funds

7 April 2015

The Board of Governors of the Federal Reserve System and the other US Federal financial regulators recently published an addition to their list of Frequently Asked Questions about Section 13 of the Bank Holding Company Act of 1956, as amended (otherwise known as the Volcker Rule), and the final regulations adopted by the Agencies in December 2013 to implement the Volcker Rule. The Implementing Regulations include an exemption from the Volcker Rule’s “covered funds” prohibition that permits non-US banking entities to sponsor or acquire ownership interests in covered funds “solely outside of the United States” (the SOTUS Covered Fund Exemption). The SOTUS Covered Fund Exemption requires, among other things, that “[n]o ownership interest in the covered fund is offered for sale or sold to a resident of the United States”. The new Frequently Asked Question – the thirteenth to be published, according to the Fed’s numbering scheme – clarifies the intent of the US Marketing Restriction and decisively limits its extraterritorial impact on the global banking and alternative investment management sectors.

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