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Category Archives: Dodd-Frank Act

Regulators Respond to Dodd-Frank

By Barry Hester - Thursday, September 2, 2010

The federal banking regulators recently took their first official Dodd-Frank rulemaking step, inviting public comments in advance of proposed rulemaking on the use of credit ratings in the formulation of risk-based capital standards.  The reality is that years of such rulemaking and interpretation by regulators will determine the true impact of the law.

More important to community banks, the FDIC announced the establishment of a department—the Division of Depositor and Consumer Protection (DCP) —that will soon become a household name for smaller insured state nonmember banks.  This unit will be dedicated to the enforcement of consumer protection rules promulgated by the new Consumer Financial Protection Bureau (CFPB) as to banks exempt from that agency’s oversight.

The New Community Bank “Regulator”—FDIC’s DCP

On August 10, 2010, the FDIC Board created two new offices specifically for the purpose of implementing Dodd-Frank:  the Office of Complex Financial Institutions (CFI) and Division of Depositor and Consumer Protection (DCP).  The first will be the FDIC vehicle for carrying out the agency’s role in overseeing systemic and large bank holding company and non-bank financial firms.  The DCP, on the other hand, is in a sense a community bank regulator.  According to the FDIC, this body will be charged with enforcing consumer protection rules promulgated by the CFPB as against banks outside its purview:  those with $10 billion or less in total assets.  In the words of Chairman Bair:

Our depositor protection and compliance examination and enforcement responsibilities are integral to our unique responsibilities as deposit insurer and supervisor of thousands of community banks. The creation of this new division emphasizes the importance we place on these responsibilities and is directly responsive to Congress’s intent in the new legislation.  DCP will also complement the activities of the new Consumer Financial Protection Bureau that is being established within the Federal Reserve. The FDIC supports the CFPB, and we are committed to doing our part in carrying out the consumer responsibilities Congress has entrusted to us.

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Bryan Cave and BKD Present One Hour Webinar on Dodd-Frank

By Rob Klingler - Monday, August 30, 2010

The Dodd-Frank Reform Act & What It Means to You

Wednesday, September 8, 2010 11:00 AM – 12:00 PM EDT

The Dodd-Frank Wall Street Reform and Consumer Protection Act represents a historic restructuring in the regulation of financial institutions.  This comprehensive reform bill will have substantial effects on all facets of the financial services industry.  The new law requires the development of numerous rules and regulations that will continue to evolve over time.

Join experts from Bryan Cave LLP and BKD, LLP to hear what this reform could mean for you now and in the future.  You will receive insight on specific provisions such as consumer compliance regulations, regulatory agency shifts, the Collins Amendment and other capital requirements.  Other changes covered include those to Federal Deposit Insurance Corporation insurance, affiliate transaction and legal lending limits, private securities offerings and executive compensation.

If you are interested in attending, please register online for this free webinar.

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Enforcement Landmines For Private Funds in Dodd-Frank

By Eric Rieder - Wednesday, August 4, 2010

This post looks at potential enforcement and compliance risks for private funds under the new Dodd-Frank Act.  We believe it should be of interest to managers of hedge funds, private equity funds and venture capital funds, as well as those who invest in or deal with them.  It follows up an earlier post concerning the basic requirement that most private funds register with the SEC; this post focuses on a series of lesser known but significant risks under the Dodd-Frank Act (also available as a printer-friendly Client Alert).

By now, most “private” or “hedge” fund managers know that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires SEC registration of most advisers to private funds, effective July 2011. But SEC registration is not the only aspect of the new law that fund managers need to be aware of. Other provisions of the law will have significant effects on funds.

Key issues include:

  • Funds must meet expanded books and records requirements.
  • Advisers to venture capital funds, exempt from registration under the law, will have to take pains to avoid being treated as private equity or hedge fund advisers, who do have to register.
  • The standard for aiding and abetting liability has been lowered, such that “recklessness” rather than “actual knowledge” is sufficient.
  • Smaller advisers, not subject to SEC registration, will become subject to the vagaries of state regulation.

“Private” or “hedge” funds are swept into the law through Title IV, the “Private Fund Investment Advisers Registration Act of 2010.” While Title IV does contain the registration requirements, it also contains other provisions that expand the scope well beyond the regulatory hook of registration. Further, other provisions of Dodd-Frank – notably, Title IX, entitled “Investor Protections and Improvements to the Regulation of Securities” – also have significant implications for private funds.

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Mortgage Reforms under the Dodd-Frank Act

By John ReVeal - Tuesday, August 3, 2010

The following outlines the primary consumer protection requirements of the Mortgage Reform and Anti-Predatory Lending Act (the “Act” or the “Mortgage Act”), which is Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Effective Dates. The Mortgage Act is somewhat ambiguous as to its effective dates.  There is a possible argument  that those many provisions of the Act for which no regulation is specifically required took effect immediately upon the signing of the Act by the President on July 21, 2010.  We believe do not believe that to be a plausible interpretation.

Under the best interpretation of the Act, those provisions for which no regulations are issued would take effect 18 months after the designated transfer date.  The designated transfer date is the date on which the various consumer protection functions are transferred from the federal banking agencies to the Consumer Financial Protection Bureau (the “Bureau”).  Where regulations are required by the Act, they must be issued in final form within 18 months of the designated transfer date, and the regulation and corresponding Act provision then would take effect within 12 months thereafter.

The Consumer Financial Protection Bureau. The majority of the Mortgage Act’s provisions will be included in the “enumerated consumer laws” that the Bureau will implement and enforce.  However, most of the regulations that the Act requires would be written by the Federal Reserve, presumably due to the delay until the designated transfer date.

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SEC Enforcement and Litigation Implications of Dodd-Frank Act

By Paul Huey-Burns - Tuesday, August 3, 2010

Public companies should be aware of the following potential landmines – there are others – crafted into the Dodd-Frank Act:

Enhancements to whistleblower incentives and protections (§ 922), which may encourage employees to report borderline (or even non-existent) issues to authorities.

The lowering of the standard for “aiding and abetting” liability from “knowing and substantial” assistance to “knowing or reckless and substantial” assistance (§ 929 O), which may encourage the SEC to pursue marginal actions against companies or individuals who potentially may have assisted a violation.  (The Act also mandates a GAO study of the benefits and detriments of enabling private rights of action for aiding and abetting violations.  Such a study could be a basis for legislative attempts, within the next few years, to overturn the long-standing prohibition of such actions established by Central Bank of Denver and other cases.)

Empowerment of the SEC to seek and obtain monetary penalties in administrative proceedings against entities and individuals who are not registered with the Commission, e.g. public companies that are not registered as broker-dealers or investment advisors (§ 929 P).  There is a perception that administrative proceedings – unlike actions in federal district court –provide the SEC with a “home-court advantage.”  Previously, the Commission would have had to file an action in district court were it to seek monetary penalties against a public company.

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Dodd-Frank Changes Regulatory Framework for Alternative Investment Managers

By Nir Yarden - Monday, August 2, 2010

Given the extensive work that many investment advisers will have to undertake in order to fully comply with the Private Fund Act (a process that can stretch into many months), we urge all Firm clients and contacts to promptly begin to consider what impact the Private Fund Act has on their operations and to plan the steps necessary to comply with its various aspects. To assist our clients and contacts in determining whether you will be affected in this area, below is a brief summary of the changes resulting from the Private Fund Act (also available as a printer-friendly Client Alert).

On July 21, 2010, President Obama signed into law the financial reform package known as the Dodd- Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which contains the Private Fund Investment Advisers Registration Act of 2010 (the “Private Fund Act”). The Private Fund Act changes the regulatory framework that governs investment advisers managing private fund investments, including private equity funds, hedge funds and real estate funds. Specifically, the Private Fund Act (i) requires that many investment advisers, including certain foreign investment advisers, that are currently exempt from registration with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), register with the SEC; (ii) requires that certain investment advisers currently registered with the SEC change to state registration and (iii) significantly expands the reporting and record-keeping requirements for domestic and foreign investment advisers to private funds of all types. The Private Fund Act adopts a new set of limited exemptions from SEC registration based on the asset class managed, the amount of assets under management and/or the operational details of foreign managers. At the same time, the Private Fund Act significantly expands the reporting and record keeping requirements to which these limited exempt entities will be subject going forward.

The Private Fund Act becomes effective one year from the date of the Dodd-Frank Act’s enactment, on July 21, 2011. During this one year window, each affected investment adviser will need to become fully compliant with the requirements of the Private Fund Act, including SEC registration (which currently unregistered investment advisers may choose to pursue immediately). Although the Private Fund Act contemplates substantial SEC rule making and guidance over the next year, it is clear that investment advisers will need to devote substantial resources to conformity with the Private Fund Act (including, for example, designation and training of a Chief Compliance Officer, adoption of extensive compliance procedures as mandated by the Advisers Act, and modification or adoption of SEC mandated internal reporting and record keeping systems).

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The State of State Law Preemption

By John ReVeal - Monday, August 2, 2010

This post summarizes the federal preemption standard that will apply to national banks and federal thrifts as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The new preemption rules are included in Title X of the Dodd-Frank Act, also referred to as the Consumer Financial Protection Act of 2010.

The Preemption Standards Before The Act

Understanding the new preemption standard requires an understanding of the historical preemption standards.  Until 2004, federal thrifts operated under one standard and national banks under another.

The OTS (and before them, the FHLBB) took the position that federal thrift regulation “occupied the field” of regulation for federal thrifts.  This broad preemption basically meant that only the most incidental of State laws would apply to federal thrifts.

In contrast, the OCC traditionally claimed federal preemption only on a case-by-case basis and only if the State law in question interfered with a national bank in the exercise of its federally-authorized powers.  In 1996, the U.S. Supreme Court in the Barnett decision upheld this approach when it held that State laws can regulate national banks where doing so does not “prevent or significantly interfere with” a national bank’s exercise of its powers.

In 2004, the OCC issued new regulations that stated the OCC’s preemption authority more broadly.  While the OCC refrained from claiming occupation of the field, the broad preemptive language of the regulation was otherwise very similar to the OTS’ preemption regulation.  Given that the OCC announced this new standard while States, counties and cities were aggressively regulating “predatory lending,” it is perhaps not surprising that the OCC was widely criticized by consumer advocacy groups for preempting consumer protection laws.

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What Non-Bank Public Companies Need to Know About Dodd-Frank

By Amanda Norcross - Sunday, August 1, 2010

Included in the Dodd-Frank Act – aimed primarily at the reform of financial institutions – are provisions that will apply to all publicly traded companies, including provisions relating to “say on pay” shareholder votes, proxy access, executive compensation disclosure and compensation committees. Some of these provisions are effective immediately. Most will become effective only upon rule-making by the Securities and Exchange Commission (SEC or the Commission). These provisions are summarized below (and also available as a printer-friendly Client Alert).

“Say on Pay” and Golden Parachutes (Section 951)

The Act requires that shareholders be given the opportunity – at least once every three years – to approve the compensation paid to the CEO, the CFO and the named executive officers as disclosed pursuant to Item 402. In addition, shareholders must be given the opportunity – at least once every six years – to vote on whether this “say-on-pay” vote will occur every one year, two years or three years.

Public companies must include shareholder resolutions on both of these matters in the proxy statement for the first shareholder meeting held after January 21, 2011 – the six-month anniversary of the enactment of the Act. This means that these provisions will be effective for the 2011 proxy season.

The Act provides that the shareholder votes relating to the say-on-pay matters must be set out in separate proposals and will be non-binding. A “rule of construction” set out in the Act provides that the votes will not be construed as overruling a board decision or creating or implying any change or addition to directors’ fiduciary duties.

In addition, in any proxy or consent solicitation in connection with a shareholder vote on an acquisition, merger, consolidation or proposed sale or other disposition of all or substantially all of the assets of a company, the Act requires the soliciting public company to provide disclosure of compensation payments triggered by the transaction, referred to as golden parachute payments, which may be made to its named executive officers. Then, in a separate resolution in that proxy statement, the issuer must provide shareholders with the opportunity to approve those golden parachute payments, unless the golden parachute payments were previously approved by the shareholders. Like the say-on-pay provisions, the golden parachute payment disclosure and approval provisions are applicable to shareholder meetings occurring after January 21, 2011.

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Dodd-Frank Act Signed into Law

By Rob Klingler - Wednesday, July 21, 2010

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. In connection with the signing, the White House also released the following animated film.

We are continuing to work on providing guidance on compliance with the Dodd-Frank Act for community banks. Links to all of our posts on the Dodd-Frank Act can currently be found here, and we are working to provide a better overview of our content related to the Dodd-Frank Act.

The text of the Dodd-Frank Act can still be difficult to find online (and has been made more difficult by the House Financial Services Committee removing a copy of the Act from their website). However, the Library of Congress has the official version (in both PDF and text) available online (see the links next to #6).

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Dodd-Frank Reform Bill Broadens Affiliate and Insider Transaction Rules to Include Additional Financial Products

By Michael Shumaker - Thursday, July 8, 2010

On June 28, 2010, conferees from the U.S. House and the U.S. Senate approved the financial regulatory reform conference report　(known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act”), and on June 30, 2010, the U.S. House approved a bill that is almost identical to the conference report, except for a change in the so-called “pay-for” amendment (as discussed here). The U.S. Senate will continue its consideration of the legislation following its July District Work Period. Included among its many provisions are amendments to current law governing affiliate transactions between a financial institution and a related party and changes to the legal lending limit for national and state banks. In general, the amendments found in Title VI (see Title VI, starting on page 1 of this PDF version of Title VI) only broaden the existing restrictions on affiliate and insider transactions to include financial products such as derivatives, repurchase agreements (“repos”) and securities purchase or sale transactions that involve a credit exposure, rather than re-writing the general standards governing affiliate and insider transactions.   

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