The Federal Reserve announced Friday the adoption of several new rules prohibiting senior department officials from purchasing a range of investments from individual stocks to cryptocurrencies.
The rules regarding investments will take effect May 1, and affected officials will have one year to "dispose of all impermissible holdings," according to the announcement. New officials will have six months from the date they join the Fed to do the same, the release states.
The new rules follow a series of scandals and three resignations of Fed officials that took place last year and early in 2022. Richard Clarida, former Federal Reserve vice chair, announced his resignation last month, following the September resignations of Eric Rosengren and Robert Kaplan, who were then the presidents of the Boston and Dallas regional Federal Reserve banks.
It was reported that the three men had invested in several different stock funds and securities over the course of the pandemic, and while technically legal, the investments raised concerns of conflict of interest as they could have profited from economic recovery decisions being made by the Fed. The trades were perceived by many critics to be unethical, and several lawmakers including Senator Elizabeth Warren called for a ban on Fed officials owning stocks.
"The rules, which were first announced in October 2021, aim to support public confidence in the impartiality and integrity of the [Federal Open Market] Committee's work by guarding against even the appearance of any conflict of interest," the Federal Reserve said Friday.
Senior Fed officials will be banned from "purchasing individual stocks or sector funds," as well as from "holding investments in individual bonds, agency securities, cryptocurrencies, commodities or foreign currencies; entering into derivatives contracts; and engaging in short sales or purchasing securities on margin," the Fed announced.
In addition, those officials will be required to hold any new investments for at least one year and must issue a 45-day, non-retractable notice of their intention to buy or sell a security and obtain approval of the transaction. They will also be unable to buy or sell investments during "periods of heightened financial market stress."
Federal Reserve bank presidents will also be required to make a public disclosure of their securities transactions within 30 days, which other senior Fed staff already have to do. Those disclosures and others filed by the bank presidents must be posted on their bank's website.
The rules regarding advance notice and required approval of transactions will go into effect July 1, the Fed said.
Update 2/18/22, 4:00 p.m. EST: This story has been updated with additional context and information.
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