May 19, 2024
Funds

Agencies extend Regulation O relief for some companies controlled by funds | Orrick, Herrington & Sutcliffe LLP


On December 15, the Fed, FDIC, and the OCC announced the issuance of an interagency statement to further extend the “Extension of the Revised Statement Regarding Status of Certain Investment Funds and their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations.” The original statement was issued on December 22, 2022, with an expiration of January 1, 2024. The new interagency statement effectively extends the prior no-action position (covered by InfoBytes here) until either January 1, 2025 or the effective date of amendments to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex–controlled portfolio companies that are bank insiders.

The agencies noted that they will refrain from acting against banks extending credit to complex-controlled portfolio companies that would otherwise violate Regulation O, provided the company controls (directly or indirectly) less than 15 percent of the bank’s voting securities (or 20 percent under certain circumstances) and does not plan to place representatives or exercise a controlling influence over the bank. Additionally, the agencies will not pursue action against insured depository institutions for failing to report credit extensions that would violate Regulation O but fall under the interagency statement’s coverage. The agencies explained how credit extensions must be on “substantially the same terms as those prevailing for comparable transactions with unaffiliated third parties” and may not “involve more than normal risk of repayment or present other unfavorable features.”



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