Volcker Rule: Agencies Approve Long-Awaited Final Rule; Most Requirements to Take Effect on July 21, 2015

Sullivan & Cromwell LLP - December 13, 2013

On December 10, 2013, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation (the “FDIC”), Securities and Exchange Commission (the “SEC”) and Commodity Futures Trading Commission (together, the “Agencies”) approved a final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly referred to as the “Volcker Rule.”

In connection with the Final Rule, the Federal Reserve exercised its independent authority to grant a blanket one-year extension of the Volcker Rule conformance period for all banking organizations. As a result, banking organizations will have until July 21, 2015 to comply fully with most requirements of the Final Rule. An important exception applies for banking organizations with significant trading activities, which will be required to report quantitative metrics on their trading activities beginning in July 2014. The extension also requires banking organizations to use good faith efforts during the conformance period to conform to the Final Rule and promptly cease any “stand-alone” proprietary trading.

The Volcker Rule—one of the centerpieces of financial reform under the Dodd-Frank Act—imposes broad restrictions on proprietary trading and investing in and sponsoring private equity and hedge funds by banking organizations and their affiliates. The long-awaited Final Rule follows a period of unusually public interagency debate over its final terms. The Final Rule itself is 71 pages, and the detailed “Supplementary Information,” which is critical to understanding and interpreting the Final Rule, is nearly 900 pages and includes more than 2,800 footnotes.

In general, although many of the most unclear or troublesome provisions of the proposed rule have been addressed, the Final Rule remains a sweeping regulation, with broad extraterritorial application, that will fundamentally shape how banking organizations do business. Many of its effects may become apparent only over several years as the Agencies apply the Volcker Rule in practice.

The table attached to this memorandum as Annex A provides an initial overview of certain key requirements of the Final Rule and highlights certain changes in these requirements from the Agencies’ October 11, 2011 notice of proposed rulemaking.

In the coming weeks, Sullivan & Cromwell LLP expects to publish a more detailed memorandum summarizing and analyzing the Final Rule. In addition, Sullivan & Cromwell LLP will be co-hosting web-based presentations with Promontory Financial Group on the Final Rule on December 16, 2013 and January 15, 2014. For more information, please contact Nathalie-Claire Chiavaroli (+1-212-558-3976; [email protected]).