Financial institutions that have a large exposure to real estate will reportedly have to wait until 2013 to read a final draft of the closely watched Volcker Rule.
The US Securities and Exchange Commission (SEC), one of the rule’s lead authors, declined to comment on any implementation timetable, though regulatory lawyers speaking with sister publication PE Manager confirmed the delay.
“It was originally hoped we would see the rule before year-end – but now the thinking is we’ll probably see it mid to late first quarter,” said Greg Lyons, a financial institutions partner at law firm Debevoise & Plimpton.
The rule’s sheer complexity was cited as the primary reason for the holdup. The Dodd-Frank Act instructed regulators to restrict banks from trading off their own accounts as well as limit their investments in private funds, including those focused on real estate, to no more than 3 percent of any one fund’s capital. It is that latter requirement that regulators have particularly struggled to define, according to sources.
The SEC’s and banking regulators’ heavy workload this year, coupled with an approaching holiday season, were also cited as roadblocks.
“A lot of agency staff likely haven't even taken their due vacation time yet given the demands of this year, and so are expected to be away for parts of the remainder of this year,” said Lyons.
Complicating the matter further is the recent resignation of SEC chairwoman Mary Schapiro. Later this month she will be replaced by SEC commissioner Elisse Walter, who commentators describe as a close ally of Schapiro and her priorities at the agency. The transition, some speculate, could further slowdown Dodd-Frank mandated rulemaking, including the Volcker Rule. However, Congress has been pressuring regulators to unveil the rule in the near-term.
For banks the delay raises further questions about their ability to comply with the rule by July 2014. Gaps in banks’ compliance programmes remain unfilled until final language becomes available, according to sources. This has raised fears that a short 12 month to 18 month compliance window will result in a fire-sale of assets covered by the rule, such as private equity and real estate holdings, unless extensions are provided by regulators.