U.S. financial regulators issued final rules on Tuesday implementing the contentious Volcker Rule, which prohibits financial institutions from trading for their own gain.
“This provision of the Dodd-Frank Act has the important objective of limiting excessive risk taking by depository institutions and their affiliates,” Fed Chairman Ben Bernanke said. “Getting to this vote has taken longer than we would have liked, but five agencies have had to work together to grapple with a large number of difficult issues and respond to extensive public comments.”
The final rules, as in Dodd-Frank, exempt certain activities, including market-making, underwriting, hedging, insurance company activities and trading in government obligations, and clarify which activities are not prohibited, including acting as an agent, broker or custodian.
Compliance will vary based on the size of the institution and its scope of activities. Banks with significant trading operations will be required to develop and implement a detailed compliance program, and their executives must attest that the program is designed to comply with the final Volcker Rule.
Additionally, the final rules limit the compliance burden on smaller institutions by reducing compliance and reporting requirements, and banks that do not engage in activities covered under the rule will not be required to implement a compliance program.
“Implementation will be particularly important in shaping the Volcker Rule going forward,” Fed Governor Daniel K. Tarullo said. “Because the bulk of the activities encompassed by the statute take place in broker-dealers and national banks, for both of which the Federal Reserve is not the primary supervisor, we will have a somewhat lesser role in this implementation process. Still, because we are the primary supervisor for state member banks, foreign broker-dealer subsidiaries of bank holding companies, and state-chartered branches of foreign banking organizations, we will have a role to play.”
Banking organizations covered under the Volcker Rule will be required to come into full compliance by July 21, 2015.