Volcker Rule: Federal Reserve Issues Statement of Policy Clarifying the Conformance Period Under the Volcker Rule

On April 20, 2012, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued guidance (the “Guidance”) regarding the two-year conformance period (the “Conformance Period”) for compliance with the so-called “Volcker Rule” enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Federal Reserve issued the Guidance in response to questions raised by commenters regarding how quickly and to what extent affected banking entities would be required to conform their activities, upon the Volcker Rule’s effective date of July 21, 2012, to the Rule’s broad restrictions on proprietary trading and on sponsoring and investing in hedge funds and private equity funds. The preambles to the notices of proposed rulemaking implementing the Rule’s substantive provisions that had been issued by the Federal Reserve, the other federal banking agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission had referenced conformance “as soon as practicable” during the Conformance Period. Concerns had been raised in light of this language, and in the absence of final substantive rulemaking from the regulators. Our memorandum sets forth our views regarding the implications of the Guidance for banking entities’ efforts to conform their activities to the Volcker Rule during the Conformance Period, and highlights certain additional open issues.

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