Key members of US Congress have asked financial regulators to change critical sections of the Volcker rule, worried the measure would significantly impact the buy-side and restrict their access to hedge funds and private equity.
A letter sent to four financial regulation agencies last week raised concerns that the so-called Volcker rule banning prop trading at deposit-taking institutions would negatively affect investments made by insurance companies by not expressly allowing their general accounts to own or invest in a hedge fund or private equity fund, dubbed covered funds. Bipartisan members of the House Financial Services Committee have asked regulators to make this exemption explicit.
While under the rule, insurance companies have a general exemption from bans on prop trading and investing in covered funds, the signatories said the exemption was not specific enough and they were concerned the agencies were looking to exclude the asset classes from the insurer exemption.
The signatories asserted that Congress had not intended to prohibit insurance companies from investing in covered funds.
“We believe it is imperative that, as the agencies move forward, they follow Congressional intent and permit insurance companies to continue investing in covered funds for their general accounts,” the letter read. “There would be little benefit to restricting these types of investments for insurers.”
The move comes a week after Republicans had slammed the rule during an open committee hearing as too expensive and complex for market participants to implement. A joint rule was proposed in October by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC).
The letter from seventeen members of the Committee was addressed to Federal Reserve chairman Ben Bernanke, SEC chair Mary Schapiro, FDIC acting chairman Martin Gruenberg, and acting comptroller of the OCC, John Walsh. However, the letter did not list as signatories the 44 remaining members of the committee, including committee chair, Republican Spencer Bachus, vice chair, Republican Jeb Hensarling or ranking member, Democrat Barney Frank, one of the authors of Dodd-Frank.
The period for public consultation over the jointly-proposed rule was in December extended from 13 January to 13 February.
The Commodity Futures Trading Commission (CFTC) proposed its version of Volcker on 11 January. The CFTC rule largely mirrors that of the joint-agency proposal and is presently undergoing a 60-day consultation period.