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US Congress agrees to SEC registration, Volcker rule

Lawmakers agreed to require private equity and private equity real estate firms to register with the SEC, while the 'Volcker rule' was softened to allow limited holdings in private equity real estate assets. A formal vote is expected next week.

US lawmakers agreed to sweeping finance reforms that will require private equity and private equity real estate firms to register with the SEC and force banks to hold no more than 3 percent of a private equity real estate fund’s capital. A formal vote on the final bill is expected next week.

Negotiators had set a goal to finish work on reconciling the separate versions of the financial reform bills before President Obama goes to Canada Friday for a summit.

In a joint session of Congress Friday morning, the US House of Representatives and Senate agreed to include the “Volcker rule” in the bill, which would limit banks’ proprietary trading activities with regard to hedge and private equity funds.

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.

The agreement in Congress was softened to allow banks to hold up to 3 percent of a private equity real estate fund’s capital. Banks will have seven years to comply with the rule.

Congress’ stance on SEC registration for private equity firms, however, remained unchanged. Lawmakers agreed that any private equity firm with $150 million or more in assets must register with the SEC. Venture capital funds remain exempt in the compromise.

Under the new regulations, 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.