On April 19, 2012, the Federal Reserve Board (the “Board”) issued an interpretation that provides some clarity on the time period for a banking entity to comply with the Volcker Rule but that raises two other questions about timing. The interpretation also imposes a formal new requirement for a “conformance plan” and signals the possible imposition of recordkeeping and reporting requirements before the conformance deadline.

The purpose of the guidance is to confirm that July 21, 2014, (and not July 21, 2012) is the date on which activities prohibited by the Volcker Rule must cease. By statute, the Volcker Rule takes effect on July 21, 2012, and covered banking entities have until July 21, 2014, to conform their trading operations and sponsorship or ownership of hedge funds or private equity funds to the requirements of the Rule, including the cessation of prohibited trading or fund activities. The statute is explicit on this point, but the Volcker regulations proposed by the Agencies created some uncertainty for the industry on whether the Agencies expected banking entities to end those activities by July 21, 2012.

Two important questions remain open, however. First, will the compliance deadline remain July 14, 2014? Because the Agencies will not finalize the Volcker regulation until after July 21, 2012, banking entities will, under the Board’s interpretation, face a compressed conformance period. The effectiveness and conformance dates in the statute contemplate a two-year conformance period, and the statute authorizes the Board to extend the period. The guidance recognizes this power, but it does not speak to whether the Board might choose to exercise it. Perhaps the Board does not or cannot know, a circumstance underscored by the fact that the Agencies do not now know when they will issue a final rule.