On December 10, 2013, five federal agencies released the final rules implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Volcker Rule). The Volcker Rule will be effective on April 1, 2014, and will require the banking entities subject to it to fully conform their activities by July 21, 2015.

Similar to previously proposed versions, the final version of the Volcker Rule will continue to restrict insured depository institutions and companies affiliated with insured depository institutions (the banking entities) by (1) prohibiting short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account, and (2) limiting their investments in or sponsorships of hedge funds or private equity funds, certain foreign funds and certain commodity pools.

As per the statute, the rules will, however, permit banking entities to invest in or sponsor such a fund in connection with organizing and offering a fund and to retain up to 3% of the total investment in a fund that it organizes for its fiduciary customers. In addition, the final rules exempt certain activities, including market making, underwriting, hedging, trading in government obligations and insurance company activities, and clarify that certain activities are not prohibited, including acting as agent, broker or custodian.

On the compliance side, the requirements vary based on the size of the banking entity and the scope of activities conducted. On the one hand, the final rules reduce the burden on smaller, less complex institutions by limiting their compliance and reporting requirements, and a banking entity that does not engage in covered trading activities will not have to establish a compliance program. On the other hand, banking entities with significant trading operations will be required to establish a detailed compliance program and undertake independent testing and analysis of that compliance program. In addition, their CEOs will need to attest that the program is reasonably designed to achieve compliance with the final rules.

See also additional statements by the CFTC.