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Dodd-Frank Act Reforms

March 23, 2017

Authors

Robert Klingler

Dodd-Frank Act Reforms

March 23, 2017

by: Robert Klingler

Much of the discussion we’re having with our clients and other professionals relates to the prospects for financial regulatory reform.  To that end, and looking at it from the political rather than industry perspective, Bryan Cave’s Public Policy and Government Affairs Team has put together a brief client alert examining the political, legislative and regulatory issues currently under consideration.

In his first weeks in office, President Trump has taken steps to undo or alter major components of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). These include delaying implementation of the “Fiduciary Rule,” which regulates the relationship between investors and their financial advisors, directing the Treasury Secretary to review the Dodd-Frank Act in its entirety, and signing a resolution passed by Congress that repeals a Dodd-Frank regulation on disclosures of overseas

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Impact of Proposed “Regulatory Off-Ramp” for Community Banks

February 15, 2017

Authors

Robert Klingler

Impact of Proposed “Regulatory Off-Ramp” for Community Banks

February 15, 2017

by: Robert Klingler

A key component of the proposed roadmap for Republican efforts to provide regulatory relief is based on reduced regulatory burdens in exchange for holding higher capital levels.  Specifically, Title I of the proposed Financial Choice Act, as modified by Representative Hensarling’s “Choice Act 2.0 Changes” memo of February 7, 2017, proposes to provide significant regulatory relief for institutions that maintain an average leverage ratio of at least 10 percent.

The principal concepts of this “regulatory off-ramp” have, so far, remained relatively constant since first published by the House Financial Services Committee in June of 2016; any institution that elects to maintain elevated capital ratios (set at a 10% leverage ratio) would enjoy exemptions from the need to comply with certain other bank regulatory requirements.

Choice 2.0

In February 2017, Jeb Hensarling, Chairman

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Core Principles for Financial Regulation

February 7, 2017

Authors

Robert Klingler

Core Principles for Financial Regulation

February 7, 2017

by: Robert Klingler

On February 3, 2017, President Trump issued an executive order setting forth his administration’s core principles for the regulation of the U.S. financial system.  While generally touted as the administration’s first affirmative steps to dismantle the Dodd-Frank Act, the executive order actually does little to implement any immediate change but says a lot about the overall framework by which the Trump Administration intends to approach financial regulation.

In addition to standard executive order boilerplate, the executive order sets forth two specific actions.  First, it establishes the “principles of regulation” that the administration will look at in evaluating regulations.

Section 1. Policy. It shall be the policy of my Administration to regulate the United States financial system in a manner consistent with the following principles of regulation, which shall be known as the Core

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Second Circuit Adopts Broad Interpretation of Dodd-Frank’s Anti-Retaliation Provision

November 4, 2015

Authors

Bryan Cave

Second Circuit Adopts Broad Interpretation of Dodd-Frank’s Anti-Retaliation Provision

November 4, 2015

by: Bryan Cave

On September 10, 2015, a divided Second Circuit appeals court held in Berman v. Neo@Ogilvy LLC, that an employee who reports wrongdoing internally to management is considered a “whistleblower” under the Dodd-Frank Act, thereby strengthening retaliation protections for employee whistleblowers.

There has been a history of tension between the Dodd-Frank statutory definition of “whistleblower” and the applicability of the Dodd-Frank anti-retaliation provisions to employees who report suspected misconduct internally.    The Act defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission…”  However, section 78u-6(h)(1)(A)(iii) of the Act prohibits retaliation against “a whistleblower” who makes disclosures “required or protected” by the Sarbanes-Oxley Act.  The U.S. Securities and Exchange Commission’s regulations interpret the term “whistleblower” to include for retaliation purposes employees who report or disclose potential wrongdoing either internally or to the SEC (SEC Rule 21F-2(b)(1)).  This has led to a Circuit split

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Banks Score Come From Behind Victory on Interchange Fees

March 24, 2014

Authors

Dan Wheeler

Banks Score Come From Behind Victory on Interchange Fees

March 24, 2014

by: Dan Wheeler

In the bankers’ version of March Madness drama, on March 21, 2011, a three judge panel of the U.S. Court of Appeals for the D.C. Circuit handed down a decision that is broadly perceived as a significant victory for banks at the expense of merchants.  (The decision is captioned NACS f/k/a National Association of Convenience Stores, et al. v. Board of Governors of the Federal Reserve System.)

The issue was the legality of the Federal Reserve’s rules implementing the “Durbin Amendment” portion of Dodd-Frank.  That portion of the legislation is generally viewed as having required regulatory caps on the interchange fees that can be charged to merchants.  Merchants criticized the Federal Reserve’s rules for allowing interchange fees at a level much higher than allowed by Dodd-Frank and for allowing interchange competition rules less strict (and thus more favorable to banks) than permitted under Dodd-Frank.  The merchants essentially won this argument

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Regulators Go After Banks for Vendor Management

February 20, 2014

Authors

Bryan Cave

Regulators Go After Banks for Vendor Management

February 20, 2014

by: Bryan Cave

While the issue of vendor oversight and management is not new to the financial services industry, recent enforcement actions by the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) manifest heightened attention by federal regulators.  A bank’s board of directors is required to remain vigilant to the hazards posed by outsourcing functions to third parties, or else risk significant financial and reputational harm to its institution.

Federal regulators traditionally have looked with an understanding, yet skeptical, eye towards the issue of outsourcing. Current guidance is clear, however, as to where the responsibility lies. As summarized by the Federal Deposit Insurance Corp. (FDIC) in FIL-44-2008, “An institution’s board of directors and senior management are ultimately responsible managing activities conducted through third-party relationships, and identifying and controlling the risks arising from such relationships, to the same extent as if the activity were handled within the

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CFPB Regulations on Providing Applicants With Appraisals Go Into Effect

February 6, 2014

Authors

Jerry Blanchard

CFPB Regulations on Providing Applicants With Appraisals Go Into Effect

February 6, 2014

by: Jerry Blanchard

Prior to Dodd-Frank, Section 701(e) of the Equal Credit Opportunity Act provided that a loan applicant had the right to request copies of any appraisals used in connection with his or her application for mortgage credit.  Section 1474 of Dodd-Frank amended Section 701(e) to require that lenders affirmatively provide copies of appraisals and valuations to loan applicants at no additional cost and without requiring applicants to affirmatively request such copies.

The appraisal documentation must be provided to the loan applicant in a timely manner and no later than three days prior to the loan closing unless the applicant waives the timing requirement.  The lender must provide a copy of each written appraisal or valuation at no additional cost to the applicant, though the creditor may impose a reasonable fee on the applicant to reimburse the creditor for the cost of the appraisal.

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Regulators Provide Creative Volcker Rule Fix for TruPS

January 14, 2014

Authors

Robert Klingler

Regulators Provide Creative Volcker Rule Fix for TruPS

January 14, 2014

by: Robert Klingler

In facing Congressional and industry backlash related to the effect of the Volcker Rule on TruPS CDOs, federal regulators were expected to choose between two options.  Door 1 was to provide an exemption for TruPS CDOs held by all institutions.  Door 2 was to provide an exemption only for TruPS CDOs held by banks with less than $15 billion in assets, consistent with the Collins Amendment to Dodd-Frank.

The regulators chose neither door, instead opening Door 3: the regulators have exempted TruPS CDOs for all institutions, so long as the TruPS CDO primarily holds TruPS of banks with less than $15 billion in assets.  It will likely take a few days for the full analysis to come in, but I would expect that this has the effect of exempting all TruPS CDOs, as the CDO structure was primarily used in conjunction with private offerings of TruPS by smaller financial institutions.

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Draft Rule May Force Some Banks to Exit Municipal Advisory Business

January 13, 2014

Authors

Dan Wheeler

Draft Rule May Force Some Banks to Exit Municipal Advisory Business

January 13, 2014

by: Dan Wheeler

On January 9, 2014, the Municipal Securities Rulemaking Board (the “MSRB”) published draft MSRB Rule G-42, which sets forth standards of conduct and duties of municipal advisors when engaging in municipal advisory activities other than the undertaking of solicitations.  As written, section (f) of the draft rule appears likely to force some banks who, directly or through an affiliate, are registered as a municipal advisor to exit the municipal advisor business.  The rule does not allow municipal advisors to both give “advice” to their municipal clients and to conduct other business with those clients.  Forced to choose between being a pure fiduciary /advice municipal advisor and engaging in other business with municipal entities, including more lucrative services as a depository bank, investment advisor, lender or swap provider, some banks will have no practical alternative but to exit the pure fiduciary business entirely.  Forcing banks to unbundle their services appears

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Regulators Poised to Remove TRuPS CDOs from Volcker Rule Grasp

January 3, 2014

Authors

Robert Klingler

Regulators Poised to Remove TRuPS CDOs from Volcker Rule Grasp

January 3, 2014

by: Robert Klingler

According to a story in the American Banker (subscription required), the federal banking regulators are looking at exempting all existing collateralized debt obligations backed by trust-preferred securities from compliance with the Volcker Rule.

From a technical perspective, it seems likely that the regulators would effect such an exemption by excluding the debt tranches of CDO’s backed by TRuPS from the definition of an “ownership interest” under the Volcker Rule, thereby allowing continued ownership by banking entities.  Whether the revision is limited to existing TRuPS CDO’s or all is likely largely irrelevant, as the elimination of preferred capital treatment for Trust Preferred securities has eliminated the creation of new TRuPS CDO’s.

As previewed by the regulators’ late Christmas gift, the regulators are considering limiting the relief to banking entities with less than $15 billion in total assets.  Without

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