As a regulatory deadline rapidly approaches, big banks are becoming increasingly anxious about how they should comply with a ban on proprietary trading.

Although regulators have issued a proposal on the so-called Volcker Rule, the plan has been widely assailed as too complicated and regulators are unlikely to make a July 21 deadline to release a final rule.

But the ban would take effect whether the final rule is completed or not — leaving banks afraid they will be left in the dark on how to comply with the statute without concrete guidance from regulators.

"The key question that the banks are most critically dependent on — what do we have to do while we're waiting for final standards?" said Karen Shaw Petrou, a managing partner at Federal Financial Analytics.

Regulators insist there are fail-safe ways to provide guidance to the industry in the event they miss the deadline, while also noting that there is a two-year period for institutions to adhere with the new rule.

"There have been occasions in the past where a statutory provision by its terms takes effect and the implementing regulation has not yet been enacted," Fed Gov. Daniel Tarullo said at a Senate Banking Committee hearing last month. "So there is some precedent for the way this can be dealt with … that would deal with any gap between the promulgation of the rule on July 21st."

But such statements, while reassuring, are not good enough, some observers said.

"It's helpful to have their views, but because a statement does not carry the same legal significance as a formal rule we would prefer to have more formal guidance," said Alex Radetsky, vice president and assistant general counsel for The Clearing House. "Either legislation or a regulatory pronouncement is necessary."

Bankers argue that it takes a lot of time and effort to ensure compliance with such a complex regulation, and they cannot continue to wait indefinitely. Without a final rule, or even guidelines, they can't make decisions about whether to participate in certain markets or whether they can continue to perform certain market-making activities they fear will be caught up in the rule.

"To the extent, they don't have that clarity, it's hard to know exactly what you have to do to have certainty you're on the right side of the law," said Kim Olson, a principal for Deloitte & Touche  and worked on supervision issues for the Federal Reserve Bank of New York.

The continuing uncertainty has fueled a big push by banks to urge regulators to provide clarity well-ahead of the July deadline. Banks and are other institutions don't want to be left to find out at the last minute what their responsibilities will be at the stroke of midnight.

"It's important to have clarity sooner rather than later. Right now, Dodd-Frank is the law and the Volcker Rule automatically takes effect in July," said Radetsky. "Every institution has to respect that and be prepared for every possible contingency. At a minimum, institutions would like to see some guidance before the effective date."

To be sure, some observers said regulators are likely to tolerate some violations for a period of time before they begin assuring full compliance with the law.

"There are situations in the past where statutes have gone into effect, and the agencies have done forbearance on enforcement with any violation with an urging of doing it as promptly as you can," said Gil Schwartz, a partner at Schwartz and Ballen and a former attorney for the Fed. "I suspect there will be a similar transition period here where the agencies say, 'Do the best you can.'"

The first question regulators should address, observers said, is whether they will enforce the rule.

"After July, is the statute going to be enforced? Yes or no?" said Olson.

But there are other concerns. One of the key phrases in the proposal, which was released in October, is a call by regulators for firms to bring their operations into compliance "as soon as practicable," which has been a puzzlement to firms, who interpret that to mean as soon as there's a final rule. Another issue is language contained in the preface to the proposal that would prohibit firms from any new activities or new investments during the two-year conformance period, which is designed to give companies a buffer period to comply with the statute.

That is a far harsher view than many expected.

"The regulators have indicated that the conformance period means something more stringent than just a period to get yourself in order and we shouldn't let that uncertainty hang out there too much longer," said Hugh Conroy, a lawyer at Cleary Gottleib, who specializes in bank regulation. "A number of institutions would likely welcome some guidance whether the regulators are going to stick to that position that the conformance period means no new activities or no new investments."

Some in the industry are hopeful they will receive further clarity soon on how banks are supposed to comply prior to the issuance of a final rule. The concern, however, is how early that guidance will be provided.

"There will be something in terms of somehow clarifying what the expectation is," said Olson, who noted the guidance must be approved by five regulators.

It's unclear exactly what regulators would say, however.

Rep. Barney Frank, D-Mass., has already called on regulators to provide detailed guidance well in advance to industry participants to eliminate uncertainty.

"Implementation of the Volcker Rule… presents a special issue," Frank wrote in a letter to regulators on March 22.

If a final rule doesn't emerge until after July, "this would create an untenable situation in which the section would be 'in effect,' but the regulated would not have clear rules under which to operate or an understanding of what kind of enforcement might ensue."

Separately, a bipartisan group of Senators led by Republican Mike Crapo of Idaho introduced a bill that would make a minor fix to the statute in order to offer some further breathing room to the industry on when Volcker would take effect.

Rob Nichols, president and CEO of the Financial Services Forum, described it as a "very sensible approach."

"It would simply prevent the rule from taking effect until the regulators are finished with the rule versus picking an arbitrary date," said Nichols. "That way stakeholders understand what the rule is, instead of trying to guess what the final rule will look like."

But regulators have rejected such an approaching, calling it unnecessary.

"We will make the effort to make sure that those affected understand what our expectations are," said John Walsh, outgoing acting Comptroller of the Currency, at the same hearing. "And the conformance period does provide a period of breathing room, if you will, during which banks are expected to comply."

Observers said regulators are most likely reticent of opening Pandora's Box when it comes to Volcker.

"Once you open up Volcker, God knows what you're going to get," said Shaw Petrou. "Could you keep it to a two-word bill, or quickly blow into something much bigger

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