On April 19 2012 the Board of Governors of the Federal Reserve System announced that banking entities subject to Section 13 of the Bank Holding Company Act of 1956 (known as the 'Volcker Rule') will have the full two-year period provided by statute to conform with the Volcker Rule's restrictions on proprietary trading and investment in and sponsorship of covered funds.(1) The announcement was part of a joint statement released by the board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission.(2)

By statute, the Volcker Rule is set to become effective on July 21 2012, regardless of whether the agencies have adopted final implementing regulations. It contemplates a general two-year conformance period (unless extended by the board), within which time banking entities will have an opportunity to adjust to and come into compliance with the new Volcker Rule restrictions.(3) The release follows recent statements by agency officials that they may not have final regulations in place by the deadline and concerns throughout the financial industry as to whether banking entities would still be required to comply with the Volcker Rule, notwithstanding the absence of the final regulations.(4)

Under the newly released guidance, the board confirmed that banking entities have the full two-year period to bring all proprietary trading activities, investments and transactions with covered funds into conformance with the Volcker Rule. Thus, during the conformance period, the Volcker Rule restrictions will not apply and banking entities may continue to carry out these types of activity and investment, but should be in a position to be in full compliance at the end of the conformance period. The board also stated that during the conformance period, any banking entity that engages in these types of activity or investment is expected to engage in good-faith efforts that will result in the conformance of all such activities or investments with the Volcker Rule by July 21 2014. This includes making efforts to evaluate the extent to which it is engaged in such activities or investments, and developing and implementing a conformance plan that is as specific as possible about how it will fully conform by July 21 2014.

This clarification from the board comes amid ongoing uncertainty in the financial industry as to the final Volcker Rule regulations. At this point, it remains unclear whether the agencies will adhere to the form of the regulations that has already been proposed or start anew. There is also no indication of when to expect the next version of the regulations, whatever form they may take. However, the clarification from the board should ease anxiety in the immediate term, as banking entities can now plan to wind down activities prohibited under the Volcker Rule by July 21 2014 while the agencies work to develop the final regulations.

For further information on this topic please contact William S Eckland or Stanley J Boris at Sidley Austin LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email ([email protected] or [email protected]).


(1) The board's interpretation is available at www.federalreserve.gov/newsevents/press/bcreg/bcreg20120419a1.pdf.

(2) The announcement is available at: www.federalreserve.gov/newsevents/press/bcreg/20120419a.htm.

(3) The board has previously adopted a conforming rule consistent with the statute providing that all banking entities must bring their activities and investments fully into line with the Volcker Rule by July 21 2014 (unless extended by the board). See 76 FR 8265 (February 14 2011).

(4) The board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission proposed a joint rule in October 2011, for which comments were due by February 13 2012. See 76 FR 68846 (November 7 2011). The Commodity Futures Trading Commission adopted a substantially similar proposed rule in January 2012 for which comments were due on April 16 2012. See 77 FR 8332 (February 14 2012).