On November 7, 2011, the federal bank regulatory agencies together with the Securities and Exchange Commission issued in the Federal Register proposed regulations implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 619 contains prohibitions and restrictions affecting the ability of banks and other financial companies to engage in proprietary trading. These prohibitions and restrictions of the
Because most community banks have nothing to do with propriety trading, hedge funds or private equity funds, they generally can ignore the voluminous and controversial regulations implementing the Volcker Rule. However, the Volcker Rule regulations will require some action by all community banks. The proposed regulations require that by July 21, 2012, every bank, not just the "too big to fail" investment banks at which the Rule was aimed, have in place policies and procedures designed to prevent it from commencing such activities without first establishing a compliance program as required by the proposed regulations.
The Volcker Rule restricts proprietary trading by insured depository institutions and their holding companies. "Proprietary trading" is defined as engaging in the purchase or sale of one or more covered financial positions as principal for the trading account of a bank. A "covered financial position" includes any position in a security. Thus, any security investment made by a bank will be considered a covered financial position. These investments are restricted, however, only if the investment is made for a trading account of the bank.
A "trading account" is defined as "any account used for acquiring or taking positions in securities principally for the purpose of selling in the near term or otherwise with the intent to resell in order to profit from short-term price movements." If a bank's investment account does not meet the definition of a "trading account," investments in that account will not be restricted by the Volcker Rule.
While many community banks do have accounts that might fall within the definition of a trading account, these accounts typically invest only in government securities, and the proposed regulations exempt from the proprietary trading restrictions purchases and sales of
The proposed regulations require a bank that is engaged in proprietary trading to establish a compliance program for monitoring compliance with the Volcker Rule. The proposed regulations further require that a bank that is not engaged in any activities restricted by the Volcker Rule must still have in place policies and procedures that prevent the bank from becoming engaged in such activities and require the bank to develop a compliance program prior to engaging in such activities. A community bank that does not engage in any proprietary trading will still need to implement policies and procedures that will restrict the bank from commencing such activities without first developing a compliance program.
Public comments on the proposed regulations are due on or before January 13, 2012. While the requirements may change with the issuance of the final regulations, the Volcker Rule requirements become effective on July 21, 2012.
Day Pitney Alert
On April 9, Jed Davis was one of the presenters on a webinar, "Cybersecurity Regulation: Navigating the New DFS Cybersecurity Regulation," distributed through Thomson Reuters.
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On December 7, Day Pitney, ICSGroup and CohnReznick co-sponsored "Launching a Private Fund: What You Need to Know."
Jed Davis was quoted in a breaking news article, "New York eases proposed cyber regulations after industry complaints," published by Reuters.
Day Pitney Press Release
Eliza Fromberg was quoted in an article, "FINRA's Capital Acquisition Broker Rules Face Tough Sell," in Law360.