Yesterday, the Federal Reserve Board issued guidance (the "Guidance") clarifying what is expected of entities subject to the Volcker Rule during the two-year conformance period provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). The Guidance makes clear that no activities or investments will be prohibited by the Volcker Rule until the end of such period, which is scheduled to occur on July 21, 2014.
As it currently stands, the Volcker Rule will take effect on July 21, 2012. However, Dodd-Frank provides that a covered entity has "not later than 2 years after the [effective date]" to bring its activities and investments into compliance with the Volcker Rule. Until now, there has been uncertainty about what would be required during this two-year period. For example, guidance accompanying the joint Notice of Proposed Rulemaking to implement the Volcker Rule stated that the federal financial regulators "expect a banking entity to fully conform all investments and activities to the requirements of the proposed rule as soon as practicable within the conformance periods" (emphasis added). This language resulted in ambiguity regarding whether covered entities would be given the full two-year period to bring their activities and investments into conformance with the Volcker Rule, or rather if they would be expected to do so as soon as practicable, with the end of the two-year period serving only as the outermost deadline.
The Guidance eliminated any such uncertainty by stating that during the two-year conformance period, "every banking entity that engages in an activity or holds an investment covered by [the Volcker Rule] is expected to engage in good-faith efforts, appropriate for its activities and investments, that will result in the conformance of all of its activities and investments to the requirements of [the Volcker Rule] by no later than the end of the conformance period." Thus, covered banking entities will have the full two-year period before any activity or investment would become impermissible under the Volcker Rule. However, the Guidance suggests that as part of the necessary "good faith efforts," covered entities may be required to comply with any reporting or recordkeeping requirements of the Volcker Rule prior to the end of the conformance period (if such elements are included in the final rules implementing the Volcker Rule).