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Yesterday, the Federal Reserve announced a “simplified and streamlined” process for considering requests by banking entities for a special extension under the Volcker Rule for “illiquid funds.” Banking entities seeking extensions will be required to submit streamlined information regarding the funds for which an extension is requested, a description of specific efforts made to divest or conform funds, and plans for divesting or conforming each illiquid fund within the requested extension period. Also, in a departure from previous statements, the Federal Reserve will not require banking entities to exercise a “regulatory-out” provision or otherwise seek general partner consent to terminate an investment in order to qualify for an extension. 

The Federal Reserve expects that illiquid funds “will generally qualify for extensions” and that complete requests will be acted on within 30 days of receipt. Absent an extension, banking entities are required to divest or conform their investments in covered private equity funds and hedge funds by July 21, 2017. Because an illiquid fund extension is for up to five years and in addition to other extensions, a full five-year extension (when taken together with the three separate one-year extensions the Federal Reserve has already granted) means that a banking entity would have until July 21, 2022 to divest or conform an illiquid fund. The Volcker Rule does not authorize the Federal Reserve to grant any additional extensions beyond this date.

Extension requests must be submitted to the appropriate Federal Reserve Bank by January 21, 2017.