SEC registration, Volcker rule to become law

The US Congress has passed sweeping financial reform legislation, which includes the so-called Volcker Rule.

The US Senate today passed long-awaited financial reform, including the Volcker Rule and SEC registration requirements, ending months of congressional debate. President Obama is expected to sign it into law as early as next week.

The bill, the Restoring American Financial Stability Act of 2010, is now fully reconciled between the US House of Representatives, which passed its version in June, and the Senate, which passed it with a vote of 60-39.

Paul Volcker

The finance reforms will require private equity firms with $150 million or more in assets to register with the SEC. Venture capital funds are exempt. Under the new registration requirements, private equity firms will need to establish formal compliance policies to outline how they would deal with potential conflicts of interest. Registration also means firms need to designate or hire a compliance officer, as well as face regular inspections by the SEC.

The so-called “Volcker rule” is also included in the bill, which would limit banks’ proprietary trading activities with regard to hedge and private equity funds. The rule forces banks to hold no more than 3 percent of a private equity fund’s capital.

Former Federal Reserve chairman Paul Volcker developed the rule, which originally called for US banks to choose between running private equity and private equity real estate operations and taking deposits. Banks will have seven years to comply with the rule.