On Friday, February 27, 2015, the Volcker Inter-Agency Group posted a new frequently asked question (FAQ 13), clarifying the scope of the so-called “marketing restriction” under the SOTUS covered fund exemption. The SOTUS covered fund exemption is available to foreign banking entities, including foreign banking organizations (FBOs) and their non-US affiliates, that invest in certain private funds “solely outside the United States,” subject to certain conditions. To qualify for the SOTUS covered fund exemption, the marketing restriction requires that ownership interests in a SOTUS fund must be sold (or must have been sold) pursuant to an offering that does not target residents of the United States. FAQ 13 explains that the marketing restriction applies only to the activities of a foreign banking entity (including its affiliates) and does not apply where the foreign banking entity seeks to invest in a covered fund that is sponsored and marketed by a third party. The complete text of FAQ 13 and a link to the Federal Reserve Board’s webpage is attached to this client alert.

Section 13 of the Bank Holding Company Act of 1956 (also called the Volcker Rule) imposes broad prohibitions and restrictions on proprietary trading and investing in and sponsoring private equity funds and hedge funds (covered funds) for “banking entities” and their affiliates. The Volcker Rule, as implemented by the final rule published by the Agencies in December 2013 (the Final Rule), provides for various exemptions from these prohibitions and restrictions. One exemption permits foreign banking entities to invest in and sponsor covered funds to the extent that these activities are conducted solely outside the United States (the so-called SOTUS covered fund exemption). Among other requirements, the SOTUS covered fund exemption requires that ownership interests in the covered fund in which the foreign banking entity invests are (or have been) sold only in an offering that does not target residents of the United States (the marketing restriction).