In my July 2018 column I discussed proposed changes to the Volcker Rule issued for comment by the federal banking, commodities and securities regulators (collectively, the Agencies).

An extended comment period ended Oct. 17, 2018. This month's column will discuss some of the comments submitted by non-U.S. banks operating in the United States, their trade associations and other non-U.S. government entities (collectively, the Commenters), focusing on some of the issues of particular importance to them.

Proposed SOTUS Changes

Many banks rely on the “Solely Outside the United States (SOTUS)” exemption from the Volcker Rule's restrictions on proprietary trading and certain private equity funds (“covered funds”). Revisions to the SOTUS exemption for proprietary trading include elimination of the prohibition that no financing for the banking entity's purchase or sale be provided by any U.S. branch or affiliate of the banking entity (the “Financing Prohibition”); a narrowing of the restrictions on trading with U.S. counterparties (the “Counterparty Restriction”) and a narrowing of the requirement that no banking entity personnel who arrange, negotiate, or execute such purchase or sale can be located in the United States to a restriction that only “relevant” personnel engaged in the banking entity's decision in the purchase or sale cannot be located in the United States (the “Personnel Restriction”).

With respect to the covered fund restrictions, in addition to eliminating the Financing Prohibition, the marketing prohibition on a non-U.S. covered fund being offered or sold to U.S. residents would be clarified to apply only if the offering actually is targeted at U.S. residents, thus incorporating into the regulation an interpretation on this issue released by the Agencies in 2015.