Fed Confirms Two-Year Conformance Period for Volcker Rule

Paul Volcker
Along with reform of derivatives trading, the Volcker Rule has proven to be one of the more contentious in the Dodd-Frank Act.

Concerns eased over possible 21 July enactment.

The US Federal Reserve Board (Fed) has confirmed that entities covered by the so-called Volcker Rule will have a two-year conformance period to prepare for compliance.

The announcement, made in conjunction with the Securities Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) ameliorates concerns that firms would be forced to comply by the original enactment date of 21 July 2012.

Earlier in 2012, the regulators were beseiged by thousands of comment letters ahead of the public submission deadline, leading many industry participants to believe that a finalized rule this year is ambitious. The regulators themselves, while saying that banks must make good faith moves towards preparing for compliance, have given themselves the option to extend the deadline until 2017 if necessary, and may phase in reporting requirements earlier.

"The clarification of the Volcker Rule conformance period which was issued today is entirely appropriate and necessary," says Kenneth E Bentsen Jr, EVP for public policy and advocacy at the Securities Industry and Financial Markets Association (SIFMA). "The industry has been concerned throughout this process over what was to be expected on July 21, 2012, and that concern was heightened as it appears likely that regulators may not be able to promulgate a final rule by that date. Today's guidance that firms subject to Volcker will be able to use the full two year conformance period to come into compliance with the rule as provided for by the statute is critically important because it alleviates concerns over potentially having to comply with a rule whose details had not yet been made clear."

Officially section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the regulation is informally known as the Volcker Rule after Paul Volcker, the former Fed chairman and author of the original outline. Among other areas, the rule restricts the level of proprietary trading that banks can engage in, as a safeguard against systemic risks such as the bank collapses seen during the recent financial crisis.

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