Dodd-Frank: Federal Reserve Issues Guidance on Volcker Rule Implementation

The Volcker Rule (an aspect of the Dodd-Frank Act that requires banks to stop trading with their own money) goes into effect on July 21 of this year – and yet: important questions remain unanswered.

Not the least of which: will banks be required to end proprietary trading this July? Or, can they continue until the full-out ban takes effect in July 2014?

Recently the Federal Reserve issued additional guidance to financial institutions in an attempt to answer these and other questions. For your reference, three quick takeaways:

1. The deadline for compliance is not July 21, 2012 but July 21, 2014: 

“… an entity covered by the ‘Volcker Rule,’ section 619 of the Dodd-Frank Act, has until July 21, 2014 to comply… The clarified compliance date reflects the full two-year period provided by the statute for covered institutions to fully conform activities and investments.” (Banking Regulators Clarify Volcker Rule Compliance Timeline, Senators Push for Final Rule by BuckleySandler LLP)

2. Implementation of the rule could be delayed: 

“The Federal Reserve Board on April 19 clarified that an entity covered by … the so-called Volcker Rule, has the full two-year period provided by the statute to fully conform… The Board may further extend the conformance period.” (Volcker Rule Conformance Period Clarified by Katten Muchin Rosenman LLP)

3. Regulators have added a “conformance plan” to the Volcker Rule requirements:

“The interpretation also imposes a formal new requirement for a ‘conformance plan’ and signals the possible imposition of recordkeeping and reporting requirements before the conformance deadline… The conformance plan is in addition to the compliance framework that banking entities engaged in proprietary trading or fund sponsorship or investment must erect. The conformance plan should explain how an entity will conform all of its activities to the Volcker requirements by July 21, 2014.” (Volcker Rule: Guidance on the Conformance Period by Morrison & Foerster LLP)

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