WASHINGTON – The Federal Reserve is accepting applications for a compliance extension for banks to divest or otherwise align certain proprietary illiquid assets with the Volcker Rule.
In a Monday announcement, the Fed said it would allow banks additional time to comply with the Dodd-Frank-mandated requirement that banks not engage in proprietary trading in the cases where those proprietary assets may be difficult to liquidate, divest or otherwise conform to the rule. The central bank said in a statement that it expects most banks experiencing such challenges will be granted an extension, but also said that banks must demonstrate a good-faith effort to comply.
"The Board expects that the illiquid funds of banking entities will generally qualify for extensions, though extensions may not be granted in certain cases--for example, where the banking entity has not demonstrated meaningful progress to conform or divest its illiquid funds, has a deficient compliance program under the Volcker Rule, or where the Board has concerns about evasion," the Fed said.
Banks will have to submit details on the funds for which they are seeking compliance extensions, as well as details on what efforts have been made to date to comply with the Volcker Rule and how much additional time will be required. The Fed said it can "provide up to an additional five years to conform investments in certain legacy illiquid funds" covered in the proposal.
The Volcker Rule was one of the most complex regulations to emerge from Dodd-Frank and, from banks' perspective, among the most difficult compliance exercises. The rule was finalized in December 2013 by five separate agencies: the Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Securities and Exchange Commission, and the Commodity Futures Trading Commission.
The agencies granted an extension for banks to comply with the Volcker rule with respect to certain covered funds last year, with the full compliance deadline currently set for July 2017. The Volcker Rule is among the most prominent targets for congressional Republicans, though President-elect Donald Trump has at times praised former Fed Chairman Paul Volcker and his eponymous rule.