WASHINGTON— The Federal Reserve is banning its officials and senior staff from purchasing individual securities and barring all trading activity during periods of elevated financial stress following heightened scrutiny of the central bank’s ethics policies.
Under new rules the Fed announced Thursday, senior officials — including members of the Fed’s board of governors, regional Fed banks and high-level staffers — will be limited to purchasing diversified investment vehicles such as mutual funds. Fed policymakers and senior staff will also have to obtain prior approval before they purchase or sell approved securities and provide 45 days of advance notice. They will also be required to hold investments for at least one year.
Regional Fed bank presidents will also have to publicly disclose financial transactions within 30 days, a rule that senior staff and Fed board members are already subject to. New Fed appointees will also be required to divest impermissible assets under the new framework before they join the central bank.
The new guidelines, which senior Fed officials said will supplement the agency’s existing ethics framework, follow revelations that several high-level officials, including Fed Vice Chair Richard Clarida, former Dallas Fed President Robert Kaplan and former Boston Fed President Eric Rosengren, engaged in certain trading activity last year while privy to the central bank’s internal discussions about its coronavirus response. Kaplan and Rosengren
In light of the new rules, some Fed board and regional officials will likely have to divest some current financial holdings, senior Fed officials said, noting that they would be given appropriate time to do so.
“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” said Fed Chair Jerome Powell in a statement. The Fed announced Sept. 16 that Powell had ordered a review of the central bank’s ethics rules following revelations of the trading activity from Rosengren and Kaplan.
Senior Fed officials said the new framework would likely require the central bank to hire more staff for its ethics unit, and to build an electronic system to oversee compliance with the requirements.
Precise guidelines, which are still being finalized, are expected to clarify how the agency will determine when to implement a blanket ban on any trading during periods of financial stress, officials said. The timeline for a final rule laying out the new framework is still unclear.
