New Plea for Insurance-Linked Securities Volcker Exemption

Chris Westfall
Chris Westfall

Wall Street banks have sent another request to U.S. regulators to exempt insurance-linked securities from a list of prohibited transactions being considered as part of the much debated Volcker Rule.

The Securities Industry and Financial Markets Association (SIFMA) reiterated its stance that ILS should be exempt from the definition of “covered transactions” prohibited by the rule while offering a compromise on the definitions of asset-backed securities and private equity.

“As we noted in our comment letter and at our meetings, although they are not hedge funds and private equity funds, many issuers of asset-backed securities and insurance-linked securities rely upon one of those exemptions and therefore could be characterized as covered funds under the Agencies’ proposed definition,” SIFMA said in letter sent Monday to regulators. “Such characterization could [prevent] banking entities from sponsoring and owning insurance-linked securities, a result we do not believe was intended by Congress in passing the Volcker Rule.”

Representatives from the major U.S. banking regulators — including the Federal Reserve and the Securities and Exchange Commission – we copied in the correspondence.

While forcing the ILS issue, SIFMA offered a compromise with federal regulators that would limit collateral options other types of securitzation, including ABS and defining private equity use if Net Asset Value.

Under the proposed Volcker Rule included in the Dodd-Frank Wall Street Reform Act, regulated banks would be prohibited from running certain covered transactions.