the Federal Reserve adopted a set of tough restrictions on dealings by policymakers and other senior officials on Friday following an ethics scandal that led to the resignations of three top officials and threatened to undermine public perception of the U.S. central bank .
Under the new rules, senior Fed officials are prohibited from buying individual stocks or holding investments in individual bonds, agency securities, cryptocurrencies or foreign currencies. They will also be required to provide 45 days non-retractable notice for purchases and sales of approved securities, such as mutual funds, as well as to obtain pre-approval for such transactions and to undertake to maintain the investments for at least one year.
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Buying and selling will be prohibited during times of “increased financial market stress”.
The rules come into effect at the beginning of May. Officials affected by the new guidelines will have until May 1, 2023 to dispose of all unauthorized assets.
“The rules, which were first announced in October 2021, aim to bolster public confidence in the impartiality and integrity of the Committee’s work by preventing even the appearance of any conflict of interest,” says a Fed press release accompanying the rules. “The Federal Reserve expects additional personnel to be subject to some or all of these rules after further review and analysis is completed.”
The Fed implemented the new regulations after two senior officials – Robert Kaplan, president of the Federal Reserve Bank of Dallas, and Eric Rosengren, president of the Federal Reserve Bank of Boston – resigned following revelations that they had bought and sold shares and immovable-assets related to the start of 2020 as the central bank took aggressive policy action to support the economy at the onset of the COVID-19 pandemic.
Outgoing Fed Vice Chairman Richard Clarida came under scrutiny soon after over a New York Times report that revealed he initially did not disclose the scope of a financial transaction he made in early 2020, suggesting he was actively trading days before the president. Jerome Powell suggested that the central bank could intervene to support the economy.
Following the trade scandal, Powell acknowledged that the US central bank’s current rules dictating what its officials are allowed to invest and trade in are “not adequate” and need to be updated.
The rules previously prohibited senior officials from owning Bank equities, limited discussion around monetary policy meetings and cautioned against any activity that might suggest a conflict of interest.
Still, some lawmakers want the US central bank to go further in limiting any possibility of conflict of interest violations.
Senator Elizabeth Warren, for example, called the Security and Exchange Commission to investigate Fed officials’ transactions to determine whether they violated insider trading rules and had previously asked the central bank to disclose all ethical communications provided to officials in 2020 and 2021.