U.S. Senate Approves Significant Revision of Financial Services … · 2014-01-03 · U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010 technical

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May 22, 2010

U.S. Senate Approves Significant Revision of Financial Services Regulation Legislation Would Impose Substantial New Requirements and Restrictions and Address Systemic Risk and “Too Big to Fail” Issues

EXECUTIVE SUMMARY On May 20, 2010, the U.S. Senate approved, by a vote of 59 to 39, a sweeping financial regulatory

reform bill, entitled the “Restoring American Financial Stability Act of 2010” or “RAFSA.”

Arising out of the nation’s recent severe financial crisis, RAFSA is intended to address perceived

deficiencies and gaps in the federal regulatory framework for financial services in the United States,

reduce the risk of bank failure and better equip the nation’s financial regulatory authorities to guard

against or mitigate any future crises. If enacted, RAFSA would implement far-reaching changes across

the financial regulatory landscape, including provisions designed to:

• establish a new interagency council to manage systemic risk in the financial system;

• subject systemically important financial companies (including nonbank financial companies) and activities to heightened prudential standards and regulation by the Board of Governors of the Federal Reserve System (the “FRB”);

• address “too big to fail” and other concerns by establishing a new resolution procedure for large financial companies (but not their bank subsidiaries);

• centralize responsibility for consumer financial protection by creating a new agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws, and establish many new consumer protection measures;

• apply the same leverage and risk-based capital requirements that apply to insured depository institutions to bank holding companies, savings and loan holding companies and systemically important nonbank financial companies, which could potentially exclude all trust preferred and cumulative preferred (including TARP preferred) securities from Tier 1 capital;

U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

• abolish the Office of Thrift Supervision and reallocate its supervisory responsibilities to the other federal banking regulators;

• change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital;

• impose new regulatory requirements and restrictions on federally insured depository institutions, their holding companies and other affiliates, as well as other systemically important nonbank financial companies, including the so-called “Volcker rule” ban on proprietary trading and sponsorship of, and investment in, hedge funds and private equity funds;

• impose comprehensive regulations on the over-the-counter derivatives market, including the so-called “Lincoln push-out provision” that would effectively prohibit insured depository institutions from conducting derivatives businesses in the institution itself;

• require persons offering asset-backed securities to retain some of the risk associated with the offered securities, so-called “skin in the game”;

• implement certain corporate governance reforms, including with regard to executive compensation, director elections and proxy access, that would apply to all companies, not just financial institutions;

• eliminate the private adviser exemption from registration, thereby requiring advisers to hedge funds to register with the SEC, while providing a new exemption from registration for advisers to venture capital funds and private equity funds (although advisers to private equity funds would be required to provide such reports to the SEC as the SEC may by rule require);

• reform the regulation of credit rating agencies; and

• establish an Office of National Insurance within the Treasury Department and reform the regulation of the nonadmitted property and casualty insurance market and the reinsurance market.

As a general theme, RAFSA would impose more stringent requirements on the largest financial

institutions, and many of the new requirements that are neutral on their face would have a substantially

greater impact on these large institutions. For example, the revised assessment base for determining

federal deposit insurance premiums would significantly increase the largest banks’ share of these

premiums.

RAFSA’s focus is on U.S. financial institutions and regulatory frameworks, but many of the reforms would

significantly affect non-U.S. financial institutions operating in the United States and, potentially,

extraterritorially.

RAFSA must now be reconciled with the financial reform bill passed by the U.S. House of

Representatives in December 2009 (the “House bill”), entitled the “Wall Street Reform and Consumer

Protection Act of 2009” (H.R. 4173). We expect that reconciliation process to occur in a House-Senate

Conference Committee. Any compromise bill adopted by this committee would then have to be approved

by the House and the Senate before legislation may be sent to President Obama for his signature.

The official version of RAFSA, reflecting the many amendments adopted during the Senate floor debate,

is not expected to be released for several days, and the final text of the bill is subject to additional


technical changes prior to its release. Accordingly, the summary provided in this memorandum is based

on our best assessment of the bill and the amendments approved by the Senate.

After a brief summary of the most significant changes that RAFSA would implement, this memorandum

provides descriptions of its principal provisions, organized by category.

Both the Senate and House bills would defer many of the details of these reforms to future rulemakings

by a variety of federal regulatory agencies. Tables summarizing these directed rulemakings and the

governmental studies contemplated by RAFSA are attached to this memorandum as Annex A (organized

by title of RAFSA) and Annex B (organized by the relevant governmental agency). Attached as Annex C

is a summary of the effective dates of the principal provisions of RAFSA, organized by title.

-i- U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

Table of Contents I. SYSTEMIC RISK REGULATION ............................................................................................................ 16

A. Financial Stability Act of 2010 ................................................................................................. 16 1. Establishment of Financial Stability Oversight Council .............................................. 16 2. Entities Potentially Subject to Increased Supervision ................................................ 20 3. New Obligations and Restrictions for Covered Nonbank Companies ........................ 23 4. Enhanced Supervision and Prudential Standards for All Covered Nonbank

Companies and Covered BHCs ................................................................................. 25 5. Additional Requirements for Covered Nonbank Companies, Covered BHCs

and Certain Other BHCs and Nonbank Financial Companies ................................... 28 6. Increased Leverage and Risk-Based Capital Requirements ..................................... 31

B. Payment, Clearing, and Settlement Supervision Act of 2010 ................................................. 33 1. Designation and Supervision of Systemically Important Payment, Clearing

and Settlement Activities and “Financial Market Utilities” .......................................... 33 2. Designation by the Council ......................................................................................... 33 3. Risk-Management Standards ..................................................................................... 34 4. Advance-Notice Requirements ................................................................................... 34 5. Examination and Enforcement ................................................................................... 35 6. Payment System Access for, and Emergency Lending to, Designated FMUs .......... 35

II. RESOLUTION AUTHORITY................................................................................................................... 35

III. BANKING REFORMS ........................................................................................................................... 42

A. Enhancing Financial Institution Safety and Soundness Act of 2010 ....................................... 42 1. Transfer of Supervisory and Other Responsibilities and Functions ........................... 42 2. Elimination of OTS ...................................................................................................... 43 3. Savings Provisions ..................................................................................................... 43 4. Collection of Supervision Fees ................................................................................... 44 5. Deposit Insurance Assessments ................................................................................ 44 6. Termination of Federal Thrift Charter ......................................................................... 45 7. De Novo Branching .................................................................................................... 45

B. Bank and Savings and Loan Holding Companies and Depository Institution Regulatory Improvements Act of 2010 .................................................................................... 45 1. Moratorium and Study of Exemption for Certain Depository Institutions ................... 45 2. Examination of Holding Companies and Subsidiaries ............................................... 46 3. Heightened Standards for Expansion Proposals ....................................................... 48 4. Amendments to Sections 23A and 23B of the Federal Reserve Act ......................... 48 5. Amendments to National Bank Lending Limit ............................................................ 50 6. Charter Conversions and Branching .......................................................................... 51 7. Regulation of Certain Lending and Purchase Transactions ....................................... 51 8. Capital Rules and Source of Strength ........................................................................ 52 9. Revised Regulatory Frameworks ............................................................................... 52 10. The Volcker Rule ........................................................................................................ 53 11. Concentration Limit on Expansion by Large Financial Firms ..................................... 56 12. GAO Study of Prompt Corrective Action .................................................................... 57

C. Federal Reserve System Reforms and Emergency Financial Stabilization ............................ 57 D. National Credit Union Share Insurance Fund .......................................................................... 62

IV. DERIVATIVES REFORMS .................................................................................................................... 63

V. AMENDMENTS TO THE SECURITIES LAWS AND OTHER REFORMS ............................................ 71

A. Securities Act and Exchange Act Reforms .............................................................................. 71 1. Securities Reforms ..................................................................................................... 71

-ii- U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

2. Amendments to SRO Rules ....................................................................................... 72 3. Securities Lending ...................................................................................................... 73 4. Studies on Accredited Investor Status, Private Fund SRO and Short Selling ........... 73 5. Disclosure Relating to Conflict Materials from the Democratic Republic of

Congo ......................................................................................................................... 73 B. Investment Adviser Regulation ................................................................................................ 74

1. Registration Requirements for Investment Advisers .................................................. 74 2. Information and Reporting Requirements for Investment Advisers ........................... 77 3. Additional Amendments and Rulemakings Applicable to Investment Advisers ......... 78

C. Corporate Governance ............................................................................................................ 80 1. Executive Compensation ............................................................................................ 80 2. Shareholder Voting ..................................................................................................... 83

D. Securitization Reforms ............................................................................................................ 85 1. “Skin in the Game” Regulations ................................................................................. 85 2. ABS Reporting and Disclosure Obligations ................................................................ 87 3. Regulation of ABS Offerings....................................................................................... 87

E. Credit Rating Agencies ............................................................................................................ 88 1. Supervision of Credit Rating Agencies ....................................................................... 88 2. Assigned Ratings of Structured Finance Products ..................................................... 89 3. Liability Provisions ...................................................................................................... 92 4. Corporate Governance Requirements for NRSROs .................................................. 93 5. Disclosure Rules ......................................................................................................... 93 6. Methodologies and Rating Practices .......................................................................... 94 7. Removal of References to Credit Ratings in Federal Laws ....................................... 94 8. Additional Studies Relating to NRSROs ..................................................................... 96

F. Municipal Securities Regulation .............................................................................................. 96 G. Public Company Accounting Oversight Board ........................................................................ 98 H. SEC Management, Administration and Funding Reforms ...................................................... 98

1. Management and Administration ................................................................................ 98 2. SEC Self-Funding ..................................................................................................... 100

I. Council of Inspectors General ............................................................................................... 101 J. Limitation on IMF Loans ........................................................................................................ 101

VI. INSURANCE REFORMS .................................................................................................................... 101

A. Office of National Insurance Act of 2010 ............................................................................... 101 B. Nonadmitted and Reinsurance Reform Act of 2010 .............................................................. 105

VII. CONSUMER AND INVESTOR PROTECTION .................................................................................. 108

A. Consumer Financial Protection Act of 2010 .......................................................................... 109 B. Securities Investor Protections and Related Reforms ........................................................... 114

1. SEC Investor Advisory Committee and Office of the Investor Advocate ................. 114 2. Whistleblower Incentives and Protections ................................................................ 115 3. Increased SIPC Borrowing Limit .............................................................................. 115 4. Studies Relating to Investor Protection .................................................................... 116 5. Study on Fannie Mae and Freddie Mac ................................................................... 117

C. Improving Consumer Access to Financial Services .............................................................. 118 D. Special Investor-Protection Grant Program to Benefit Seniors ............................................. 118

VIII. GLOSSARY OF DEFINED TERMS .................................................................................................. 119

Annex A Summary of Rulemakings and Principal Studies and Recommendations Under RAFSA, Sorted by RAFSA Title

Annex B Summary of Rulemakings and Principal Studies and Recommendations Under RAFSA, Sorted by Agency

Annex C Effective Dates of Principal RAFSA Provisions


SUMMARY OF PRINCIPAL REFORM AREAS

Systemic Risk Regulation

Creation of Financial Stability Oversight Council. Title I of RAFSA would create a new systemic risk

oversight body, the Financial Stability Oversight Council (the “Council”), to identify, monitor and address

potential threats to U.S. financial stability. The Council would consist of the heads of eight primary federal

financial regulatory agencies, including the director of the Bureau of Consumer Financial Protection (to be

created under RAFSA Title X) and an independent member having insurance expertise appointed by the

President. The Council would be chaired by the Treasury Secretary. In many instances, the Council

must act by a two-thirds vote of its members, including that of the Treasury Secretary.

The Council would be responsible for determining which financial companies, financial activities and

“financial market utilities” could pose a threat to U.S. financial stability in times of financial distress and

should therefore be subject to heightened prudential standards and supervision by the FRB. The Council

would make recommendations to the FRB regarding the establishment of the supervisory requirements

and prudential standards applicable to these entities and activities and work with all primary financial

regulatory agencies (including state insurance regulators) to establish regulations, as necessary, to

address financial stability concerns.

New supervisory requirements on nonbank financial companies and large, interconnected bank holding companies. Title I would impose new supervisory requirements on nonbank financial

companies, including non-U.S. nonbank financial companies with substantial U.S. operations or assets,

that the Council determines should be subject to FRB supervision (“Covered Nonbank Companies”) on

the basis of a list of factors, including size, leverage and interrelationships with other significant financial

companies. The FRB would have examination and enforcement authority over these Covered Nonbank

Companies. In addition, heightened prudential standards would be applied to these companies, as well

as to large, interconnected bank holding companies and non-U.S. banking organizations treated as bank

holding companies (together, “Covered BHCs”), and be tailored to the particular characteristics of these

covered companies. The heightened prudential standards include more stringent risk-based capital,

leverage and liquidity requirements than those applied to other bank holding companies (“BHCs”) or

financial companies, and could be applied on a graduated basis using the factors considered by the

Council for systemic determinations. The Council could also recommend (after notice and opportunity for

comment) that the relevant primary financial regulatory agency (including state insurance regulators)

apply heightened prudential standards and safeguards with respect to a financial activity or practice

conducted by any institution subject to the agency’s jurisdiction if the Council found that the activity or

practice could increase the risk of significant liquidity, credit or other problems spreading among BHCs,

nonbank financial companies or the U.S. financial markets. The primary financial regulatory agency

would be required to adopt, or explain its reason for not adopting, the recommendation.

-2- U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

The FRB could require Covered Nonbank Companies to conduct their activities that are financial in nature

in a separate intermediate holding company and could impose restrictions on transactions between the

intermediate holding company and its affiliates.

In addition, Covered Nonbank Companies and Covered BHCs would be required to prepare and file

resolution plans (so-called “living wills”) and credit exposure reports and to limit their aggregate credit

exposures (broadly defined) to any unaffiliated company to 25 percent of the capital stock and surplus of

the Covered Nonbank Company or the Covered BHC. The FRB and the Council would also have the

discretion to require these companies to issue contingent capital instruments and to provide enhanced

public disclosure. These companies would also be subject to periodic stress tests to evaluate capital

adequacy in adverse economic conditions.

Title I would require the FRB, in consultation with the Council and the Federal Deposit Insurance

Corporation (the “FDIC”), to issue regulations that establish remediation requirements to address financial

distress at Covered Nonbank Companies and Covered BHCs at an early stage in order to minimize the

likelihood that the company would become insolvent or the potential harm to U.S. financial stability if the

company did become insolvent.

Title I would also provide the FRB and the Council with the authority to require risk mitigation actions,

such as forced divestitures of assets or termination of certain activities of a Covered Nonbank Company

or Covered BHC, if the company were deemed to pose a grave threat to financial stability. The FRB

would be authorized to adopt rules concerning the application of this provision to non-U.S. companies,

giving due regard to the principle of national treatment and competitive equity.

In certain circumstances, Covered Nonbank Companies and Covered BHCs with total consolidated

assets equal to or greater than $50 billion would be required to give prior notice to the FRB of acquisitions

of certain financial companies with consolidated assets of $10 billion or more.

Increased leverage and risk-based capital requirements. The “Collins amendment” to Title I would

apply the same leverage and risk-based capital requirements that apply to insured depository institutions

to all BHCs, SLHCs and Covered Nonbank Companies, which could have a significant impact on BHCs

as it would potentially exclude all trust preferred and cumulative preferred (including TARP preferred)

securities from Tier 1 capital. The Collins amendment may also have unintended consequences,

including for non-U.S. banking organizations with depository institution subsidiaries in the United States

and small bank holding companies.

Supervision of payment, clearing and settlement activities. Title VIII of RAFSA provides for the

designation and supervision of systemically important payment, clearing, and settlement activities and

“financial market utilities” engaged in those activities (“Designated FMUs”). The FRB would prescribe

risk-management standards applicable to the operations of Designated FMUs and the conduct of


designated activities by financial institutions relating to, among other things, capital, margin and collateral

requirements; the risk of participant or counterparty default; and timely completion of clearing or

settlement transactions. Designated FMUs would be required to provide advance notice to the FRB

before making certain changes to their rules, procedures or operations that could materially affect the

nature or level of risks presented by the Designated FMU. Examination and enforcement of the

standards governing Designated FMUs would be carried out by the primary financial regulatory agency

for the utility or, in the absence of such an agency, the FRB.

The FRB would be authorized to permit Federal Reserve banks to provide services to, and establish

interest-bearing accounts for, Designated FMUs. If authorized by the FRB, Designated FMUs would also

have the same Federal Reserve discount window access and borrowing privileges as those provided to

depository institutions.

Resolution Authority

Title II of RAFSA would establish a new system for resolution of systemically important nonbank financial

companies, including BHCs (but not their depository subsidiaries), and thereby address the “too big to

fail” issue by providing a means of liquidating such firms in an orderly manner. These companies could

be removed from the usual bankruptcy process and be the subject of special orderly liquidation authority

(“OLA”) administered by the FDIC as receiver upon a determination by the Treasury Secretary that the

company is subject to the OLA process, is in default or in danger of default and that such default presents

a systemic risk to U.S. financial stability. This determination, if challenged by the company, would be

subject to judicial review and confirmation within 24 hours in a confidential proceeding in the U.S. District

Court for the District of Columbia, with such confirmation subject to the court finding that the Treasury

Secretary’s determination was not “arbitrary or capricious.”

As receiver, the FDIC would be given authority to liquidate the nonbank financial company and its

nonbanking financial subsidiaries, including through the use of a “bridge” financial company, except that

insurance companies would remain subject to state rehabilitation and liquidation laws. The FDIC’s

authority would be generally similar to its receivership authority under the Federal Deposit Insurance Act

(the “FDI Act”), but there are a number of significant differences. Among important differences from the

FDI Act, the FDIC would have three days (instead of one) to transfer “qualified financial contracts” to a

successor and would be authorized to act as receiver for nonbank subsidiaries (other than insurance

companies and insured banks). In addition, the Title II provisions governing creditors’ rights have been

modified from those included in the FDI Act in order to avoid imposing substantially different substantive

rights if creditors find themselves in a proceeding under OLA as compared to those they would have in a

proceeding under the Bankruptcy Code, the insolvency law that would otherwise apply in most cases.

To fund any liquidation proceedings under Title II, an Orderly Liquidation Fund would be established in

the Treasury Department. The Orderly Liquidation Fund would be funded through assessments and


repayments to the FDIC by covered financial companies, together with borrowings from the Treasury

Department. For the first 30 days after appointment as receiver or, if sooner, until a determination is

made of the fair value of the total consolidated assets of the receivership available for repayment, the

FDIC would be given authority to borrow from the Treasury up to 10 percent of the book value of the

consolidated assets of the financial company in receivership. Thereafter, the FDIC would have authority

to borrow up to 90 percent of the fair value of the assets available for repayment of each financial

company subject to OLA. Funds needed to repay borrowings from the Treasury Department and

otherwise to fund liquidation proceedings would be raised from ex-post assessments under a risk-based

system to be established by the FDIC. The risk-based assessments generally would be made by the

FDIC first, on entities that received more in the OLA resolution than they would have received in a

liquidation of the financial company to the extent of such excess (less amounts necessary to initiate or

continue receivership or bridge financial company operations), and second, if necessary, on BHCs with

total consolidated assets of $50 billion or more, Covered Nonbank Companies and other financial

companies with total consolidated assets of $50 billion or more.

Bank Regulatory Restructuring

Elimination of OTS; change in deposit insurance assessments. Title III would abolish the Office of

Thrift Supervision (the “OTS”) and transfer its responsibilities for the supervision and regulation of:

• federal savings associations to the Office of the Comptroller of the Currency (the “OCC”);

• state savings associations to the FDIC; and

• savings and loan holding companies (“SLHCs”) to the FRB.

Title III would authorize the FDIC and the OCC, and require the FRB (in the case of large institutions), to

assess fees to cover the cost of supervision.

Deposit insurance assessment base. The FDIC would be required to amend its regulations regarding

the assessment for federal deposit insurance to base such assessments on the average total

consolidated assets of the insured depository institution during the assessment period, less the average

tangible equity of the institution during the assessment period. This provision would significantly shift the

burden of FDIC assessments to larger banks—particularly those banks that rely the least on U.S.

deposits for funding.

Enhanced regulation of depository institutions and their holding companies. Title VI contains a

number of requirements designed to strengthen the federal supervision of depository institutions and their

holding companies. It also imposes a three-year moratorium on the grant of federal deposit insurance

and, with limited exceptions, approval of a change in control, for certain industrial banks, credit card

banks and trust companies that are exempt from the Bank Holding Company Act of 1956 (the “BHC Act”)

“bank” definition if they are (or would be) controlled by commercial firms. The Government Accountability


Office (the “GAO”) is directed to conduct a study regarding these exemptions and the consequences of

their repeal.

Title VI would also:

• require prior notice to the FRB by Covered BHCs and Covered Nonbank Companies for certain acquisitions of nonbank financial companies with assets of $10 billion or more;

• require prior FRB approval for a financial holding company to acquire a nonbank company with assets of $25 billion or more;

• add enhanced approval standards for both bank and nonbanking acquisitions, including consideration of the risk the proposed acquisition would pose to the stability of the U.S. banking or financial system;

• require examinations by either the OCC or the FDIC of the activities of nondepository institution subsidiaries of BHCs and SLHCs engaged in depository institution-permissible activities (these subsidiaries are also subject to FRB examination);

• increase significantly the coverage and scope of Sections 23A and 22(h) of the Federal Reserve Act, including coverage of the credit exposure on derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions (these sections apply severe restrictions on credit and other covered financial transactions by depository institutions with their affiliates and insiders);

• cover under the national bank lending limit the credit exposure on the transactions listed in the preceding bullet point;

• apply the national bank lending limit to insured state-chartered depository institutions;

• require that the purchase or sale of assets by a depository institution involving an insider be on market terms;

• prohibit the charter conversion of depository institutions that are subject to supervisory orders or agreements (which codifies existing supervisory policy);

• require BHCs, SLHCs and other insured depository institution holding companies to serve as a source of financial strength to their subsidiary depository institutions;1

• provide the FRB with explicit authority to establish capital requirements for BHCs and SLHCs;

• establish a framework under which securities holding companies that are required by a non-U.S. jurisdiction to have a comprehensive consolidated supervisor may register with and be supervised by the FRB; and

• authorize national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location.

Volcker rule. Title VI would also implement the so-called “Volcker rule,” which would require agency

rulemaking to prohibit proprietary trading and the sponsorship of, or investment in, hedge funds and

private equity funds by insured depository institutions, their holding companies and non-U.S. banks

treated as BHCs, and any subsidiaries of such institutions or companies. This prohibition would not apply

1 This would require the holding company, at the direction of its appropriate federal banking agency, to

provide financial assistance (including capital and liquidity support) to any of its insured depository institution subsidiaries in the event of financial distress at the subsidiary.


to investments or activities conducted “solely” outside of the United States by non-U.S. banks and their

subsidiaries as authorized under the BHC Act. The Volcker rule would also prohibit any entity subject to

the rule that acts as investment adviser or investment manager to a hedge fund or private equity fund

from engaging, directly or indirectly, in credit and other covered transactions (as defined in Section 23A of

the Federal Reserve Act) with that fund.

The Council would be required to study the restrictions of the Volcker rule and make recommendations

regarding the definitions in and implementation of the rule, which could include modifications to the

Volcker rule’s restrictions. The appropriate federal banking agencies would be required to implement

these restrictions through joint rulemaking, which must reflect the recommendations of the Council. The

FRB would also be required to adopt additional capital and quantitative limits for Covered Nonbank

Companies that engage in these activities. Significantly, the Council may recommend that, instead of the

Volcker rule’s absolute prohibitions applicable to the banking organizations listed above, the agencies

could instead impose a quantitative limit on the amount of such activities that may be conducted by such

organizations and additional capital requirements for any permitted activities conducted below the limit.

This would mirror the Volcker rule’s requirements for Covered Nonbank Companies.

Concentration limit on expansion by large financial firms. Title VI would prohibit any acquisition of a

bank or nonbank by any insured depository institution, BHC, SLHC, non-U.S. banking organization that is

treated as a BHC, or Covered Nonbank Company if, after the proposed acquisition, the resulting

organization’s total consolidated liabilities would exceed 10 percent of the liabilities of the U.S. operations

of all covered financial companies. “Liabilities” for this purpose would be defined as total risk-weighted

assets (as adjusted) less total risk-based capital. This new prohibition would be subject to modification

based on the results of a study and recommendation by the Council and FRB rulemaking.

Federal Reserve System lending authority and emergency stabilization. Title XI would limit the

FRB’s emergency authority to lend to nondepository institutions to programs and facilities “with broad-

based eligibility” and would require a GAO review of any such facility or program. The FRB would be

required to report to the appropriate committees of Congress the establishment of any such facility or

program within seven days, including the justification for, and details regarding, the program or facility.

The identity of the participants in the programs and facilities and certain other details would be kept

confidential at the request of the chairman of the FRB, but would be required to be submitted to the

chairpersons and ranking members of the appropriate committees of Congress.

Title XI would authorize establishment of a widely available emergency financial stabilization program

under which the FDIC could guarantee the debt obligations of solvent insured depository institutions and

solvent BHCs and SLHCs (and their subsidiaries). The program could only be initiated if the FRB and

FDIC, by a two-thirds vote of their members, determined that a severe “liquidity event” existed in financial

markets, and the program would have to be approved by the Treasury Secretary. The Treasury


Secretary, in consultation with the President, would also have to establish the amount of debt that may be

guaranteed under the program. However, the FDIC could not issue guarantees under the program

without Congressional authorization. There would be a fast-track procedure under which Congress would

consider a request by the President to authorize the program. The FDIC would assess participants in the

program for losses and administrative expenses resulting from the program. The FDIC’s current systemic

authority under the FDI Act to provide this type of assistance would be eliminated. The FDIC’s current

authority to provide open bank assistance under its systemic authority (but not under its least-cost

resolution authority) would also be eliminated.

Title XI would also require the FRB to publish on its website, no later than December 1, 2010, the identity

of each institution that received assistance between December 1, 2007, and the enactment of RAFSA

under specified credit facilities, including the FRB’s emergency credit facilities and the Term Auction

Facility, as well as the date, amount, value and terms of the assistance.

There are also several provisions of Title XI affecting the governance structure of the FRB and Federal

Reserve banks, including the ability of member banks to vote for Federal Reserve bank directors and the

ability of current and former member bank officers, directors and employees to serve as Federal Reserve

bank directors. The Federal Reserve Act would be amended to add monitoring and mitigating risks to the

financial stability of the United States as a third function of the FRB.

Derivatives Provisions

Title VII, the “Wall Street Transparency and Accountability Act,” is based on the legislative proposal to

regulate the over-the-counter (“OTC”) derivatives markets, which was approved by the Senate Agriculture

Committee on April 21, 2010. Title VII would give the Commodity Futures Trading Commission (the

“CFTC”) and the SEC extensive new authority, and impose significant requirements on the agencies to

regulate the OTC derivatives markets, products and market participants. Title VII also contains the

“Lincoln push-out provision,” which would effectively prohibit insured depository institutions from

conducting derivatives businesses in the institution itself.

Under Title VII, the CFTC would be given authority over swaps, swap dealers and major swap

participants, and the SEC would be given authority over security-based swaps, security-based swap

dealers and major security-based swap participants (respectively, “swaps,” “swap dealers” and “major

swap participants”). Under the new regulatory regime, swap dealers and major swap participants would

be required to execute their transactions on a centralized exchange or regulated facility and to clear the

transactions through a regulated clearing house. Swap dealers and major swap participants would also

be subject to capital and margin requirements, as well as business conduct rules. While commercial end-

users hedging commercial risk would be exempted from the clearing, execution and margin requirements,

the exemption is very narrowly defined and would not apply to financial entities that use derivatives for

balance sheet and interest rate hedging. As a result, these financial entities would be subject to certain


provisions of the new regulatory regime. Title VII would further require the CFTC and the SEC to

promulgate numerous rulemakings to implement the legislation, both jointly and separately.

The “Lincoln push-out provision” in Title VII would prohibit a swap dealer or major swap participant,

among other entities, from receiving federal assistance for any activities in connection with swaps or any

investments in a swap facility, including a clearing house, derivatives clearing organization, exchange or

swap trading facility.

Like the House bill, Title VII would leave many significant issues to be addressed by the CFTC and the

SEC, including defined terms that will determine which market participants would be subject to the new

regulatory regime.

Impact on Non-U.S. Institutions

RAFSA will have broad applicability to non-U.S. financial institutions, depending on their regulatory

status, the nature of their U.S. activities and the nature of certain transactions they conduct with U.S.

counterparties. Non-U.S. banking organizations that have U.S. subsidiary banks, or branches or

agencies in the United States, would be subject to most of the extensive reforms in RAFSA applicable to

BHCs. As noted, the enhanced supervision and prudential standards of Title I could apply to non-U.S.

banking organizations with $50 billion or more in assets that have U.S. operations and would apply to

non-U.S. nonbank financial companies that are designated by the Council as Covered Nonbank

Companies, unless modified in a manner to be determined by the FRB giving due regard to national

treatment and competitive equity. Under the Collins amendment, a U.S. BHC owned by a non-U.S.

banking organization would be required to comply with U.S. capital standards. It may also require a non-

U.S. banking organization that owns an insured U.S. depository institution to comply with U.S. capital

standards in addition to its home country standards.

It is unclear the extent to which the Volcker rule would be applied to limit activities conducted by non-U.S.

banking organizations or nonbank financial companies outside the U.S. that involve U.S. investments or

investors.

In addition, given the significant authority provided to the CFTC in Title VII, it is likely that the CFTC would

look to exert jurisdiction over non-U.S. entities trading with U.S. market participants. The CFTC or SEC

would also be authorized to prohibit non-U.S. entities from participating in swaps with U.S. counterparties

if necessary to the stability of the U.S. financial system. Finally, some of the U.S. securities law reforms

also could apply to non-U.S. companies, especially those that are listed on an exchange in the United

States.

Consumer and Investor Protection

Consumer financial services protection. Title X of RAFSA would create a new consumer financial

services regulator, the Bureau of Consumer Financial Protection (the “Bureau”), that would assume most


of the consumer financial services regulatory responsibilities now exercised by the federal banking

regulators and other agencies, and would also acquire additional powers created by RAFSA. The

“business of insurance” is expressly excluded from the Bureau’s jurisdiction. The Bureau would nominally

be part of the Federal Reserve System, but in substance would function as an independent agency; the

director of the Bureau would be appointed by the President with the advice and consent of the Senate.

The federal prudential regulatory agencies (acting through the Council) would have very limited ability to

intervene in Bureau rulemaking, enforcement or other activities.

The Bureau would issue rules under the federal consumer financial laws and, for many types of

institutions, examine for and enforce compliance with those laws. In particular, depository institutions with

assets over $10 billion, their affiliates and persons (other than depository institutions) involved in making

or brokering consumer real estate-secured loans or who are “larger participants” in markets for consumer

financial services would be subject to direct Bureau supervision, including examination and enforcement

authority. Depository institutions with $10 billion or less in assets would also be subject to Bureau

jurisdiction, but consumer compliance examination and enforcement authority would generally remain

with their federal prudential regulator.

Title X also includes an amendment to the National Bank Act addressing the preemption of state

consumer laws by federal law. It seeks to codify the preemption standard articulated in the U.S. Supreme

Court’s decision in Barnett Bank v. Nelson, 517 U.S. 25 (1996), but would place new procedural and

other requirements on preemption decisions that could make them more difficult to obtain. In addition, it

would provide that federal preemption would not apply to activities conducted by subsidiaries and

affiliates of national banks that are not themselves national banks—effectively overturning the Supreme

Court’s decision in Watters v. Wachovia Bank, 550 U.S. 1 (2007). In addition, Title X provides that, in

accordance with the Supreme Court’s decision in Cuomo v. Clearing House Association, 557 U.S. __

2710 (2009), the visitorial powers provisions of the federal banking laws should not be construed to limit

the ability of state attorneys general to bring actions in court against a national bank to enforce any

applicable provision of federal or state law if the law authorizes such actions. However, Title X would bar

state attorneys general from bringing actions against national banks or federal savings associations for

violations of Title X, though they would be permitted to bring actions to enforce regulations issued by the

Bureau under Title X.

Securities investor protection. Subtitle A of RAFSA Title IX would establish within the SEC a new

Investor Advisory Committee (the “IAC”). The IAC would advise and consult with the SEC on investor

protection, securities regulation, the effectiveness of disclosure and other issues. The IAC would be

composed of a newly created office of the Investor Advocate, a representative of the state securities

commissions, a representative of “the interests of senior citizens,” and between 10 and 20 individuals

appointed by the SEC who would represent the interests of individual and institutional investors. The

SEC would be required publicly to disclose any IAC finding or recommendation that it received and the


action the SEC would take to address it. The Investor Advocate would serve a range of functions

associated with investor protection matters, including assisting retail investors in resolving significant

problems they have with the SEC or SROs; identifying areas in which investors would benefit from SEC

or SRO rule changes; and proposing legal, administrative or personnel changes to mitigate any identified

investor protection concerns.

RAFSA would also add a new Section 21F to the Exchange Act, designed to compensate and protect

whistleblowers who voluntarily provide original, independently derived information to the SEC. Subject to

certain disqualifications, whistleblowers would be entitled to receive a payment equal to between 10 and

30 percent of the amount of certain monetary penalties, with the amount within that range to be

determined by the SEC.

Finally, RAFSA would require a number of studies related to investor protection, including:

• a study by the SEC to evaluate the effectiveness of the existing legal and regulatory standards of care imposed on broker-dealers and investment advisers;

• a study by the GAO on mutual fund advertising to produce recommendations to improve investor protection in mutual fund advertising; and

• a study by the GAO on potential conflicts of interest between investment banking and research analyst (both equity and fixed income) functions at securities firms.

Consumer access to financial services. Title XII of RAFSA would encourage initiatives to promote the

availability of financial products and services that are appropriate and accessible for Americans who are

not fully incorporated into the financial mainstream. This title would authorize the Treasury Department to

create grants and programs to assist low- and moderate-income individuals who currently may not have

access to mainstream financial products and services, and would encourage non-governmental agencies

to provide financial products and services to these individuals.

Amendments to the Securities Laws and Other Reforms

Securities Act and Exchange Act reforms. RAFSA includes a number of amendments to the

Securities Act of 1933 and to the Securities Exchange Act of 1934, and affecting regulations thereunder.

Section 926 would require the SEC to promulgate rules disqualifying persons determined to be “bad

actors,” principally based on activities in connection with purchases or sales of securities or fraudulent,

manipulative or deceptive conduct, from eligibility to use Rule 506 under the Securities Act (which

provides an exemption from Securities Act registration, and preemption of state securities registration

requirements, for certain private offerings). Additionally, Section 412 would require the SEC to exclude

from the net worth threshold for accredited investor status (currently set at $1 million) the value of the

person’s primary residence, and would also require the SEC periodically to review (and update, if

appropriate) the accredited investor definition as applied to natural persons.

RAFSA would also:


• provide the SEC with authority to require broker-dealers to provide retail investors with documents or information before the purchase of an investment product or service by the retail investor;

• streamline the process for consideration and implementation of proposed changes to rules of self-regulatory organizations (“SROs”) such as the Financial Industry Regulatory Authority (“FINRA”);

• require the SEC to promulgate rules designed to increase the transparency of information available with respect to lending or borrowing securities; and

• require the SEC to issue rules requiring specific disclosures from certain issuers who use in their products certain minerals and derivatives thereof that can be sourced from the Democratic Republic of Congo, in support of a conclusion that exploitation and trade in these minerals with persons in the Democratic Republic of Congo and its neighboring countries is contributing to an emergency humanitarian situation and armed conflict in the Democratic Republic of Congo.

Investment adviser regulation. Title IV of RAFSA, called the “Private Fund Investment Advisers

Registration Act of 2010,” would make several changes to the registration requirements of the Investment

Advisers Act of 1940, including:

• eliminating the “private adviser” exemption from registration currently provided in Section 203(b)(3);

• making the intra-state adviser exemption from registration in Section 203(b)(1) unavailable to an intra-state adviser that advises any private funds;

• codifying, with additional restrictions, prior SEC staff positions regarding non-U.S. advisers with limited operations in the United States;

• establishing an exemption for advisers who solely advise small business investment companies and certain affiliates;

• creating new exemptions from registration for advisers to “venture capital funds” and “private equity funds,” as future SEC rules define those terms;

• creating an exemption for certain family offices; and

• raising the minimum asset level for mandatory federal registration from $25 million to $100 million.

Title IV would also impose additional data-collection requirements regarding systemic risk; add new

reporting, examination and disclosure requirements; grant specific rulemaking authority to the SEC; and

codify the SEC’s authority to regulate custody of client assets by advisers.

Executive compensation. Subtitle E of Title IX would add a requirement that proxy statements that

include compensation disclosure under SEC rules must also provide for a “say-on-pay” shareholder

vote—that is, a separate, non-binding resolution to approve the compensation of the named executive

officers. In addition, the SEC would be directed to issue rules requiring:

• national securities exchanges to prohibit the listing of any security of an issuer whose board does not have an independent compensation committee, with independence to be defined based on consideration of specified factors, including “affiliate” status;


• expanded compensation disclosure in proxy statements, including information on the relationship between executive compensation and stock price, and the ratio of the median compensation of all employees to the CEO’s compensation; and

• national securities exchanges to prohibit the listing of any issuer that does not develop, implement and disclose a “claw-back” policy allowing the issuer, in the event of an accounting restatement due to material non-compliance with financial reporting requirements, to recover from any current or former executive any excess incentive-based compensation paid based on the erroneous data during the three-year period preceding the restatement.

These provisions would apply to all issuers, not only financial institutions.

In addition, Section 956 of RAFSA would amend Section 5 of the BHC Act to require the FRB, in

consultation with the OCC and the FDIC, to issue rules that establish standards prohibiting, as an unsafe

and unsound practice, any compensation plan of a BHC that provides an executive officer, employee,

director or principal shareholder of the BHC with “excessive compensation, fees, or benefits,” or that

could lead to material financial loss to the BHC.

Shareholder voting. Subtitles E and G of Title IX would impose additional rules and disclosure

requirements under the federal proxy rules. Section 971 would mandate voting standards by which

directors of issuers registered under the Exchange Act are elected:

• In uncontested elections, directors would be elected by a majority of votes cast, and any director who receives less than a majority of votes cast would be required to tender a resignation to the board of directors. The board could either accept the resignation or, upon unanimous consent, reject the resignation and make a public statement discussing its reasons and analysis for reaching its conclusion.

• In contested elections, if the number of nominees exceeds the number of directors to be elected, directors would be elected by a plurality vote.

Section 972 of RAFSA would authorize (but not require) the SEC to issue proxy access rules that may

require an issuer’s proxy solicitation to include a nominee submitted by a shareholder and otherwise

permit the use by shareholders of an issuer’s proxy solicitation materials for the purpose of nominating

directors.

Section 957 would amend Section 6(b) of the Exchange Act to require registered national securities

exchanges to prohibit any member that is not the beneficial owner of a security and that did not receive

voting instructions from the beneficial owner from granting a proxy to vote the security in connection with

a shareholder vote with respect to (1) the election of directors (consistent with current New York Stock

Exchange rules), (2) executive compensation (including, presumably, the new “say-on-pay” vote

described above) or (3) any other “significant matter,” as determined by SEC rulemaking.

Securitizations. Subtitle D of Title IX would require the SEC and the federal banking agencies jointly to

develop new rules and regulations to address the perceived problem that asset-based loan originators,

securitizers and underwriters have not adequately performed due diligence and other loan-assessment


functions, leading to bad loans being originated, packaged and sold to unsuspecting buyers.2 These

proposals include “skin-in-the-game” requirements for asset originators, securitizers and underwriters,

and other requirements designed to encourage improved underwriting, risk assessment, risk

management and disclosure practices.

Specifically, Title IX would add a new Section 15G to the Exchange Act that would direct the OCC, the

FRB, the FDIC and the SEC jointly to prescribe regulations that would require any securitizer to retain an

economic interest in a “portion” of the credit risk for any asset that the securitizer, through the issuance of

an asset-backed security, transfers, sells or conveys to a third party, with exceptions for certain “qualified

residential mortgage” assets. The regulations would be required to provide for risk-sharing by allocating

risk-retention requirements between securitizers and originators of assets sold to securitizers.

RAFSA would also amend Section 7 of the Securities Act and Section 15(d) of the Exchange Act to add

new disclosure and reporting obligations with respect to asset-backed securities.

Credit rating agencies. Subtitle C of RAFSA Title IX provides for increased regulation of credit rating

agencies and would create within the SEC a new Office of Credit Ratings, which would administer the

SEC’s rules and examine each nationally recognized statistical rating organization (“NRSRO”) annually.

Additionally, RAFSA would remove references to credit ratings from a number of federal statutes.

Significantly, Subtitle C of Title IX would prohibit issuers of structured finance products from requesting

initial credit ratings for those products directly from NRSROs. Instead, each initial credit rating would be

assigned by an NRSRO chosen by an SEC-established Credit Rating Agency Board.

Subtitle C of Title IX would also substantially increase the liability exposure of credit rating agencies.

RAFSA would subject all credit rating agencies to private rights of action under Section 21D of the

Exchange Act and would expand the SEC’s enforcement powers with respect to NRSROs.

Additionally, an NRSRO would be required to have a board of directors that meets specified

independence standards. The chief compliance officer of each NRSRO would be given additional duties,

and NRSROs would be required to file reports with the SEC on the effectiveness of their internal controls.

The SEC would also issue rules with the goal of eliminating or reducing conflicts of interest in the ratings

process.

To increase ratings transparency, Subtitle C of Title IX would also require additional disclosures by

NRSROs of their ratings methodologies, inputs and histories. Although most of these requirements would 2 “Securitizer” would include not only issuers of asset-backed securities, but also any person “who

organizes and initiates [an asset-backed securities transaction] by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer.” An “originator” would be any person who either sells an asset to a securitizer or who, through the extension of credit or otherwise, creates a financial asset that collateralizes an asset-backed security.


apply only to NRSROs, certain disclosures would be required from issuers and underwriters of asset-

backed securities if they obtain third-party due diligence reports.

Municipal securities regulation. Section 975 of RAFSA would require “municipal advisors” to register,

and thus become subject to regulation, under Section 15B of the Exchange Act and would impose liability

on municipal advisors for fraudulent, deceptive or manipulative acts or practices. “Municipal advisor”

would be defined as a person that provides advice to or on behalf of a municipal entity with respect to

municipal derivatives or investment strategies or the issuance of municipal securities, participates in the

issuance of municipal securities or undertakes a solicitation of a municipal entity, but would exclude,

among others, a broker-dealer or municipal securities dealer serving as an underwriter or any registered

investment adviser and associated persons from providing investment advice.

Section 975 would also expand the authority of the Municipal Securities Rulemaking Board (the “MSRB”)

with respect to rulemaking, the assessment of fees, and disciplinary proceedings. Section 979 would

create a new Office of Municipal Securities within the SEC to administer SEC rules in connection with

municipal securities and to coordinate with the MSRB in rulemaking and enforcement actions.

RAFSA would also require several studies relating to the municipal securities market, including one

addressing the extent of the disclosure municipal issuers are required to provide and one analyzing the

transparency, efficiency, fairness and liquidity in this market.

Public Company Accounting Oversight Board. RAFSA would expand the role and function of the

Public Company Accounting Oversight Board (the “PCAOB”), including by:

• authorizing the PCAOB confidentially to share information with non-U.S. auditor oversight authorities; and

• requiring auditors of registered broker-dealers to register with the PCAOB and granting the PCAOB oversight authority to inspect and examine such auditors.

Administration of the SEC. Subtitle F of RAFSA Title IX sets forth a number of provisions that are

designed to improve the management and administration of the SEC and that would require the SEC or

the GAO to report to Congress about those matters. The required reports would include:

• an annual assessment by the SEC of the effectiveness of the SEC’s internal supervisory controls with respect to examinations of registered entities, enforcement investigations and reviews of corporate financial securities filings;

• a report by the GAO every three years on the quality of the SEC’s personnel management; and

• an annual report by the SEC that describes and assesses the SEC’s internal control structure for financial reporting, and an assessment by the GAO of the effectiveness thereof.

Subtitle J of RAFSA Title IX would provide for the SEC to become a self-funded agency, with fees and

assessments set at levels designed to fund the SEC’s budget and potentially to establish a reserve. To


enable this change, RAFSA would provide the SEC with greater flexibility in setting and adjusting its fees

and assessments.

Insurance Reforms

Subtitle A of Title V would establish an Office of National Insurance (the “ONI”) within the Treasury

Department, with authority extending to all lines of insurance except health insurance and crop insurance.

The ONI would monitor all aspects of the insurance industry (including identifying gaps in regulation that

could contribute to a systemic crisis), recommend to the Council that it designate an insurer and its

affiliates as a Covered Nonbank Company, advise the Treasury Secretary on major domestic and

prudential international issues, assist the Treasury Secretary in the negotiation of international insurance

agreements on prudential measures, and determine whether state insurance measures are preempted by

such international agreements. However, the ONI would not have any general supervisory or regulatory

authority over the business of insurance.

Subtitle B of Title V would reform the regulation of the nonadmitted property/casualty insurance market

(commonly referred to as excess and surplus lines) and the reinsurance markets. Subtitle B would

require that the placement of nonadmitted coverage across state lines be subject to the statutory and

regulatory requirements only of the insured’s home state, and it would also restrict the payment of

premium taxes to only that state. Subtitle B envisions that states would allocate such taxes by way of

interstate compact. RAFSA would also promote the eligibility requirements of the National Association of

Insurance Commissioners for nonadmitted insurers as the standard for the surplus lines marketplace.

Additionally, Subtitle B would limit state-law restrictions on the ability of a surplus lines broker to place

commercial insurance with a nonadmitted carrier. With respect to reinsurance, Subtitle B would restrict

the ability of non-domiciliary state insurance regulators to deny credit for reinsurance when recognized by

the ceding insurer’s domiciliary state regulator.

Rulemakings and Studies

Significant aspects of the reforms contemplated by RAFSA are expressly subject to future rulemakings or

studies by a number of financial regulatory authorities and agencies. Tables summarizing these

rulemakings and studies are attached to this memorandum as Annexes A and B organized, respectively,

by title of RAFSA and by governmental agency.

Timing of Effectiveness

Section 4 provides that the provisions of RAFSA are effective one day after its enactment, except as

specifically provided otherwise in the statute. Attached as Annex C is a summary of the effective dates of

the principal provisions of RAFSA.


I. SYSTEMIC RISK REGULATION

A. FINANCIAL STABILITY ACT OF 2010

Title I of the “Restoring American Financial Stability Act of 2010,” or “RAFSA,” would establish a new

systemic risk oversight body to identify financial companies and certain financial activities that may pose

a threat to U.S. financial stability. Those companies and activities would be subject to heightened

supervisory and prudential requirements.

1. Establishment of Financial Stability Oversight Council

Title I would establish the Financial Stability Oversight Council (the “Council”), which would be

responsible for identifying risks to the financial stability of the United States that could arise from the

material financial distress or failure of large, interconnected bank holding companies, including non-U.S.

banking organizations treated as BHCs (together, “BHCs”)3 or systemically important nonbank financial

companies (as defined on page 20 below) that are subject to supervision by the FRB. The Council would

also be directed to promote market discipline, by eliminating the expectation of shareholders, creditors

and counterparties of such companies that the government will shield them in the event of failure and to

respond to emerging threats to the stability of the U.S. financial markets.

a. Membership and Procedures of the Council

The Council would be chaired by the Treasury Secretary. The other voting members would be the

chairman of the Board of Governors of the Federal Reserve System (the “FRB”); the Comptroller of the

Currency; the director of the Bureau of Consumer Financial Protection (to be created under Title X of

RAFSA); the chairman of the Securities and Exchange Commission (the “SEC”); the chairperson of the

Federal Deposit Insurance Corporation (the “FDIC”); the chairperson of the Commodity Futures Trading

Commission (the “CFTC”); the director of Federal Housing Finance Agency; and an independent member

having insurance expertise appointed by the President with the consent of the Senate, who would serve

for a six-year term. In addition, the Council would include the director of the Office of Financial Research

(the “OFR”), also newly created under Title I (as discussed below), as an advisory member. The director

of the OFR would be a non-voting member but could not be excluded from any proceedings, meetings,

discussions or deliberations of the Council.

The Council would generally act by majority vote, but certain actions would require the affirmative vote of

two-thirds of the members, including that of the Treasury Secretary. Each voting member would have

3 For purposes of Title I, BHCs include non-U.S. banks that operate branches, agencies or commercial

lending companies in the United States (and their non-U.S. holding companies), which are treated as BHCs pursuant to the International Banking Act of 1978. All references in this memorandum to BHCs in the context of Title I include such non-U.S. banking organizations.


one vote. The Council would meet at the call of the chairperson or a majority of the members then

serving, but not less frequently than quarterly.

b. Powers and Duties of the Council

Section 112 of Title I of RAFSA would direct the Council to perform the following functions:

• collect information from agencies represented by a member of the Council (or “member agencies”) and other federal and state regulatory agencies to assess risk to the U.S. financial system, and direct OFR to collect information from BHCs and nonbank financial companies;

• provide direction to, and request data and analyses from, OFR to support the work of the Council;

• monitor the financial services marketplace in order to identify potential threats to the financial stability of the United States;

• facilitate information-sharing and coordination among the member agencies and other agencies regarding domestic financial services policy development, rulemaking, examinations, reporting requirements and enforcement actions;

• recommend to member agencies general supervisory priorities and principles reflecting the outcome of discussions among the member agencies;

• identify gaps in regulation that could pose risks to the financial stability of the United States;

• require FRB supervision of nonbank financial companies that may pose risks to the financial stability of the United States in the event of their material financial distress or failure (“Covered Nonbank Companies”);

• make recommendations to the FRB concerning establishment of heightened prudential standards for risk-based capital, leverage, liquidity, contingent capital, resolution plans and credit exposure reports, concentration limits, enhanced public disclosures and overall risk management for Covered Nonbank Companies and larger, interconnected BHCs supervised by the FRB;

• identify systemically important financial market utilities (as defined below) and payment, clearing and settlement activities and require such activities (and entities providing such activities) to be subject to standards established by the FRB;

• make recommendations to primary financial regulatory agencies (including state insurance regulators) to apply new or heightened standards and safeguards for financial activities or practices that could create or increase the risk that significant liquidity, credit or other problems spread among BHCs, nonbank financial companies or the U.S. financial markets;

• make determinations regarding exemptions in Title VII of RAFSA (relating to the regulation of over-the-counter derivatives markets), where necessary;

• provide a forum for discussion of emerging market developments, financial regulatory issues and resolution of jurisdictional disputes among members;4 and

• annually report to and testify before Congress on significant market developments and potential emerging threats to U.S. financial stability, all determinations made under Section 113 (regarding the supervision of Covered Nonbank Companies) and Title VIII (regarding

4 Section 119 provides procedures for the Council to resolve member agency disputes regarding

jurisdiction over a particular BHC, nonbank financial company, financial activity or product. Decisions of the Council would be binding on member agencies that are parties to the dispute.


payment, clearing and settlement supervision) of RAFSA, and recommendations to enhance the U.S. financial markets, promote market discipline and maintain investor confidence.

To carry out its duties, the Council could appoint special advisory, technical or professional committees,

including an advisory committee consisting of state regulators. Members of such committees may be

members of the Council or other persons. The Council may also seek assistance from non-member U.S.

departments or agencies.

The Council would be required to adopt rules, as necessary, for the conduct of its business. The rules

would not be subject to the notice and comment rulemaking procedures of the Administrative Procedure

Act. In addition, the Federal Advisory Committee Act would not apply to the Council or any special

committee appointed by the Council, but the Council would be required to publish a list of names of

committee members who are not U.S. government employees.

i. Information and Monitoring by the Council

OFR. Title I would create the OFR to collect and analyze data and perform research and analysis on

systemic risk issues. After a two-year transition period during which the FRB would provide funding, the

OFR would be funded by assessments on all BHCs with $50 billion or more in assets and Covered

Nonbank Companies. The expenses of the Council would be treated as expenses of, and paid by, the

OFR.

Collection of information. The Council could request data and information from the OFR and member

agencies as necessary to monitor the financial services marketplace, to identify potential risks to the

financial stability of the United States and otherwise to carry out its duties.

The Council, through the OFR, could request information from any BHC or nonbank financial company to

determine whether the company is, or participates in a financial activity or market that is, a threat to U.S.

financial stability, subject to a requirement to mitigate the reporting burden on any regulated entity by

relying, where possible, on information provided by the entity’s primary financial regulatory agency.

If the Council were unable to determine whether a nonbank financial company poses a threat to U.S.

financial stability based on the information provided, discussions with management and publicly available

information, the Council could request that the FRB conduct an examination to assist in making the

determination.

In addition, Title I would specifically require that any information submitted remain confidential and

provides that submission of data does not constitute a waiver of privilege. However, the information


submitted to the Council discussed above and information collected by the OFR would generally be

subject to the Freedom of Information Act (“FOIA”).5

The Council, through the OFR, could require a BHC with total assets of $50 billion or more or a Covered

Nonbank Company to submit confidential reports, to the extent the information is not already available, as

to:

• its financial condition;

• its systems for monitoring and controlling financial, operating and other risks;

• transactions with any subsidiary depository institution; and

• the extent to which the activities and operations of the company and any of its subsidiaries could disrupt financial markets or U.S. financial stability.

ii. Council Determinations

The Council would be responsible for making two principal determinations under RAFSA: (1) which

nonbank financial companies should be subject to stricter supervision; and (2) which financial activities

and utilities should be subject to standards established by the FRB.

Nonbank financial companies. The Council, by a vote of not less than two-thirds of the members then

serving, including the affirmative vote of the Treasury Secretary, may determine that a U.S. or non-U.S.

nonbank financial company must be treated as a Covered Nonbank Company and accordingly

supervised by the FRB and subject to prudential standards. To make this determination, the Council

would be required to find that material financial distress at the U.S. or non-U.S. nonbank financial

company would pose a threat to the financial stability of the United States. The Council would be

required to consult with the primary financial regulatory agency, if any, for each nonbank financial

company or subsidiary of a nonbank financial company that is being considered for FRB supervision prior

to making any final determination.

U.S. nonbank financial companies. The factors the Council would be required to consider in making a

determination that a U.S. nonbank financial company should be subject to FRB supervision are:

• the company’s leverage;

• the amount and nature of the company’s financial assets;

• the amount and type of liabilities of the company, including the degree of reliance on short-term funding;

• the extent and types of liabilities, including reliance on short-term funding;

• the extent and type of off-balance sheet exposure of the company;

5 There is an exception for certain information provided by investment advisers to the Council under

Section 404 of RAFSA, which is not subject to FOIA, as discussed below.


• the extent and type of interrelationships with other significant financial companies;

• the importance of the company as a source of credit for households, businesses, and state and local governments, and as a source of liquidity for the U.S. financial system;

• the recommendations of members of the Council;

• the operation or ownership of clearing, settlement or payment businesses;

• the extent to which the company’s assets are managed rather than owned and how widely dispersed the ownership of assets under management is; and

• any other factors the Council deems appropriate.

Non-U.S. nonbank financial companies. With respect to non-U.S. nonbank financial companies, the

Council would be required to consider the factors discussed above, with the following differences,

intended to limit consideration to the company’s U.S. operations and activities:

• the amount and nature of the U.S. financial assets of the companies;

• the amount and types of liabilities of the company used to fund activities and operations in the United States, including the degree of reliance on short-term funding;

• the extent of the United States-related off-balance sheet exposure of the company;

• the importance of the company as a source of credit for U.S. households, businesses and state and local governments, and as a source of liquidity for the U.S. financial system; and

• the operation of, or ownership interest in, any clearing, settlement or payment business of the company would be entirely excluded from the considerations for non-U.S. nonbank financial companies.

A Covered Nonbank Company, whether U.S. or non-U.S., would be provided notice of, and an

opportunity for an informal hearing on, the determination, although the procedures may be truncated in an

emergency. Final determinations would be subject to judicial review in U.S. District Court. The Council

would reevaluate the list of Covered Nonbank Companies annually and may rescind determinations on a

two-thirds vote of the Council, which must include the affirmative vote of the Treasury Secretary.

2. Entities Potentially Subject to Increased Supervision

Title I defines “nonbank financial company” and those BHCs that may be subject to enhanced prudential

standards as described below.

Nonbank financial companies. “Nonbank financial companies” are defined as U.S. and non-U.S.

companies that are “predominantly engaged” in financial activities in the United States. A nonbank

financial company would be considered to be “predominantly engaged” in financial activities if (1) the

annual gross revenues derived by the company and all of its subsidiaries from activities that are financial

in nature (as defined in Section 4(k) of the Bank Holding Company Act of 1956 (the “BHC Act”)) and, if

applicable, from the ownership or control of one or more insured depository institutions, represent 85

percent or more of the consolidated annual gross revenues of the company; or (2) the consolidated

assets of the company and all of its subsidiaries related to activities that are financial in nature (as defined


in Section 4(k) of the BHC Act) and, if applicable, related to the ownership or control of one or more

insured depository institutions, represent 85 percent or more of the consolidated assets of the company.

Section 4(k), added to the BHC Act by the Gramm-Leach-Bliley Act of 1999, authorizes BHCs that elect to

become financial holding companies to engage in a broader range of financial activities than those

permitted for BHCs (such as securities underwriting and dealing, insurance underwriting and brokerage,

and merchant banking), as well as the nonbanking activities permitted for BHCs prior to the 1999 statute

(such as ownership of finance, mortgage banking and leasing companies). The FRB would be required

to promulgate regulations establishing requirements for determining whether a company is

“predominantly engaged” in financial activities.

Section 113(b) provides that a non-U.S. nonbank financial company would be required to have

“substantial” U.S. operations or assets to be potentially subject to FRB supervision.

A savings and loan holding company (“SLHC”) could potentially be designated as a Covered Nonbank

Company if it were predominantly engaged in financial activities.

In general, only those nonbank financial companies for which a final determination has been made may

be subject to supervision by the FRB and heightened prudential standards. However, as described

below, the Council could recommend additional standards relating to activities or practices for financial

stability purposes that would apply to any nonbank financial company engaged in such activities and that

has a primary financial regulatory agency (including state insurance regulators), regardless of whether a

determination has been made to subject it to FRB supervision.

Section 170 of RAFSA provides that the FRB, in consultation with the Council, may by regulation set forth

“safe harbor” criteria for exempting certain types or classes of U.S. or non-U.S. nonbank financial

companies from FRB supervision.

Anti-evasion provisions for nonbank financial companies. Section 113(c) provides that to avoid

evasions of RAFSA, the Council, on its own initiative or at the request of the FRB, may determine on a

non-delegable basis and by a vote of not fewer than two-thirds of the members then serving, including the

Treasury Secretary, that (1) material financial distress related to financial activities conducted directly or

indirectly by a U.S. company or the financial activities in the United States of a non-U.S. company would

pose a threat to the financial stability of the United States based on a consideration of the factors that

Council must use to designate a financial company as a Covered Nonbank Company; (2) the company is

organized or operates in such a manner as to evade the application of Title I; and (3) such financial

activities of the company will be supervised by the FRB and subject to heightened prudential standards.

The Council would be required to submit a report to the appropriate committees of Congress detailing the

reasons for making the determination. As with determinations made by the Council under the regular

procedures described above, the Council would be required to consult with the primary financial


regulatory agency, if any, for the company that is being considered for FRB supervision, and the company

would be provided notice of, and an opportunity for hearing on, the determination. Final determinations

would be subject to judicial review in U.S. District Court.

If an “anti-evasion” determination is made by the Council or the FRB, a company may establish an

intermediate holding company. The FRB may also require the company to establish such a holding

company, in accordance with the FRB’s authority under Section 167 (described under “Intermediate

holding company and affiliate transactions” on page 25), in which the financial activities of the company

and its subsidiaries other than internal financial activities (described in Section 167, summarized below)

will be conducted in compliance with any regulations or guidance provided by the FRB with respect to

internal financial activities. The intermediate holding company would be subject to FRB supervision and

to prudential standards under Title I as if the intermediate holding company were a Covered Nonbank

Company.

Pursuant to the anti-evasion provisions in Section 113(c), “financial activities” include activities that are

financial in nature (as defined in Section 4(k) of the BHC Act) and include the ownership or control of one

or more depository institutions, but do not include internal financial activities conducted for the company

or its affiliates, including internal treasury, investment and employee benefit functions.6

Under Section 113(c), non-financial activities of companies that become Covered Nonbank Companies

by virtue of the anti-evasion provisions would not be subject to FRB supervision and prudential standards.

Section 113(c) also provides that financial activities of those companies will be subject to the same

requirements as a nonbank financial company (which presumably is meant to refer to Covered Nonbank

Companies) and, further, that the provision is not designed to prohibit or limit the authority of the FRB to

apply prudential standards under Title I to the financial activities of the companies for which an “anti-

evasion” determination has been made.

Former TARP-recipient BHCs. Under Section 117 (the so-called “Hotel California” provision), BHCs

with $50 billion or more in assets as of January 1, 2010, that (1) cease to be BHCs after January 1, 2010,

and (2) received financial assistance under the TARP Capital Purchase Program, would be treated as

Covered Nonbank Companies. These former BHCs could appeal the determination to the Council, and if

that appeal is denied, the Council would be required to review the decision annually.

BHCs. Under Title I, “large, interconnected” BHCs (“Covered BHCs”) would be subject to enhanced

prudential or other requirements that are applied to Covered Nonbank Companies. The statute does not

define which BHCs are large and interconnected, but Sections 115 and 165 provide that a BHC must

have a minimum of $50 billion in assets to be subject to heightened prudential requirements. This

6 These are the same activities identified as “internal financial activities” in Section 167.


threshold may be increased on the recommendation of the Council and may not be decreased by the

FRB.

3. New Obligations and Restrictions for Covered Nonbank Companies

Registration. Section 114 would require a Covered Nonbank Company to register with the FRB within

180 days after a final determination of the Council that it is to be supervised by the FRB. Section 114

provides that the FRB would prescribe registration forms that would require such information as the FRB

deems necessary or appropriate to carry out Title I.

Reporting. Under Section 161, the FRB may require each Covered Nonbank Company, and any of its

subsidiaries, to submit reports, to the fullest extent possible using the information already available from

existing reports and other supervisory information, as to:

• the financial condition, systems for monitoring and controlling financial, operating and other risks, and the extent to which the activities and operations of the company or subsidiary pose a threat to U.S. financial stability; and

• compliance with Title I of RAFSA.

Examination. Section 161 provides that the FRB could also examine any Covered Nonbank Company

and any of its subsidiaries to determine:

• the nature of the operations and financial condition of the company or subsidiary;

• the financial, operational and other risks within the company that may pose a threat to the safety and soundness of such company or to the financial stability of the United States;

• the systems for monitoring and controlling such risks; and

• compliance with Title I.

Enforcement. Under Section 162, Covered Nonbank Companies and their nondepository institution

subsidiaries would be subject to the enforcement provisions in the Federal Deposit Insurance Act (the

“FDI Act”), such as cease and desist, removal and prohibition, and penalties, as if the company were a

BHC. The FRB could recommend to the primary financial regulatory agency for a functionally regulated

subsidiary of a Covered Nonbank Company that an enforcement action be brought by such regulator

against the subsidiary. If the primary financial regulator did not take action acceptable to the FRB against

the subsidiary within 60 days, the FRB would have back-up enforcement authority under the FDI Act.

Prior notice for large acquisitions. Section 163 provides that Covered Nonbank Companies would

normally be treated as BHCs with respect to acquisitions of banks and BHCs. This means that Covered

Nonbank Companies would need the prior approval of the FRB to acquire more than five percent of the

shares of a bank or BHC.

In addition, a Covered Nonbank Company (as well as a Covered BHC, as discussed below) would be

required to provide prior written notice to the FRB before acquiring control of any voting shares of any


company (other than an insured depository institution) that (1) is engaged in financial activities described

in Section 4(k) of the BHC Act and (2) has consolidated assets of at least $10 billion. There is an

exception to the prior notice requirement for acquisitions that would qualify for the exemptions in Section

4(c) of the BHC Act7 or shares acquired as part of the company’s underwriting, dealing and market-

making activities. In reviewing the notice of proposed acquisition, the FRB would be required to consider

the extent to which it would result in greater or more-concentrated risks to global or U.S. financial stability

or the U.S. economy if consummated, as well as whether the public benefits of the proposal outweigh its

adverse effects as provided under Section 4(j)(2) of the BHC Act. Under the BHC Act, the FRB may

disapprove those notices that do not satisfy the statutory criteria.

There is an ambiguity in the scope of the exemption to this prior notice provision in the case of the

acquisition of shares of a company engaged only in financial activities that are exempt under

Section 4(c)(8) of the BHC Act (such as a finance company). There are several possible interpretations.

The provision could be read to exempt such acquisitions from the new notice requirement. In that case,

the new notice requirement would apply only to acquisitions of shares of financial companies (such as

securities or insurance underwriting firms) that could only be authorized under Section 4(k) of the BHC

Act (described on page 21), and not to acquisitions under Section 4(c)(8). There is, however, an existing

requirement under the BHC Act that BHCs must provide 60 days’ prior notice to the FRB of acquisitions

under Section 4(c)(8), subject to certain significant exceptions. This existing notice requirement applies

only to BHCs, not to nonbank financial companies. Therefore, BHCs could be required to provide

advance notice not only of any acquisition pursuant to Section 4(k) (under the new requirement), but also

of any acquisition of a company engaged in Section 4(c)(8) activities that does not qualify for an

exception to the existing notice requirement. On the other hand, Covered Nonbank Companies would

only be required to provide notice of acquisitions of companies that could only be made under Section

4(k). However, because the apparent intent of RAFSA is to enable the FRB to review large proposed

expansions for potential risk to U.S. or global financial stability, the FRB may interpret the notice

requirement under Section 163 as applying to any acquisition by a Covered Nonbank Company or a

Covered BHC of any financial company, regardless of the type of financial activity it conducts.

Prohibition on management interlocks. Section 164 would subject Covered Nonbank Companies to

the management interlocks prohibitions applicable to depository institution holding companies as if they

were BHCs. The management interlock provisions generally prohibit a person from serving

simultaneously as a director, senior executive officer, trustee or branch manager of two non-affiliated 7 Section 4(c) of the BHC Act provides certain limited exemptions to the general prohibition on

ownership of interests in nonbanking organizations by BHCs. The most important of these exemptions is Section 4(c)(8), which generally permits a BHC to acquire shares of a company engaged in activities that had been determined by the FRB to be closely related to banking as of November 12, 1999, the date of enactment of the Gramm-Leach-Bliley Act (such as consumer finance or mortgage banking).


depository institutions, U.S. BHCs or U.S. SLHCs in the same geographic area or if the institutions are

above certain size thresholds. The FRB could not exempt interlocks between Covered Nonbank

Companies and BHCs with at least $50 billion in assets or other Covered Nonbank Companies except on

a temporary basis. This interlock provision also would apply to interlocks between subsidiaries of these

companies. Because the existing interlocks provisions apply only to U.S. BHCs, it is unclear whether the

FRB would apply these restrictions to non-U.S. Covered Nonbank Companies.

Intermediate holding company and affiliate transactions. Under Section 167 of RAFSA, the FRB

would be required to promulgate regulations to establish criteria for determining whether Covered

Nonbank Companies that engage in non-financial activities (activities that are not financial in nature and

are therefore not permitted for financial holding companies) must conduct activities that are financial in

nature or incidental to those activities in a separate, intermediate holding company. A Covered Nonbank

Company required to form an intermediate holding company would be required to do so within 90 days of

its designation as a Covered Nonbank Company. “Internal financial activities” would not be considered

financial in nature for this purpose and thus need not be transferred to the intermediate holding company.

These are defined as activities conducted for a Covered Nonbank Company or its affiliates, including

internal treasury, investment and employee-benefit functions. Moreover, a Covered Nonbank Company

could continue to conduct any internal financial activities in which it engaged during the year prior to the

enactment of RAFSA, so long as two-thirds of the assets or two-thirds of the revenues generated from the

activity are from, or attributable to, the Covered Nonbank Company. The FRB could review these internal

financial activities to determine whether engaging in such activities presents undue risk to the Covered

Nonbank Company or the financial stability of the United States.

Section 167 would also grant the FRB authority to issue regulations establishing restrictions or limitations

on transactions between the intermediate holding company and its affiliates as necessary to prevent

unsafe and unsound practices, but explicitly limits the potential reach of any “attribution rule” that may be

contained in the regulations. Specifically, the regulations could not restrict or limit any transaction in

connection with the bona fide acquisition or lease of assets, goods or services from a Covered Nonbank

Company by a person unaffiliated with the Covered Nonbank Company.

4. Enhanced Supervision and Prudential Standards for All Covered Nonbank Companies and Covered BHCs

Enhanced standards generally. In order to prevent or mitigate risks to U.S. financial stability that could

arise from the material financial distress or failure of large, interconnected financial institutions,

Sections 115 and 165 of RAFSA provide that the FRB would be required to establish enhanced

supervision and prudential standards and reporting and disclosure requirements, on its own or at the

Council’s recommendation, for Covered Nonbank Companies and Covered BHCs that are more stringent

than those applicable to other nonbank financial companies or BHCs, and that increase in stringency


based on the list of factors considered by the Council in designated Covered Nonbank Companies. The

FRB would be required to establish more stringent prudential standards for:

• risk-based capital;

• leverage;

• liquidity;

• resolution plan and credit exposure reporting; and

• concentration.

The FRB would have discretion to establish prudential standards, on its own or at the Council’s

recommendation, regarding:

• contingent capital;

• enhanced public disclosures; and

• overall risk management systems.

These requirements would apply to non-U.S. Covered Nonbank Companies and non-U.S. Covered BHCs

giving due regard to national treatment and competitive equity.

In developing these prudential standards, the FRB would be required, on its own or upon the

recommendation of the Council, to take into account differences among Covered Nonbank Companies

and Covered BHCs based on a number of criteria, including:

• the factors considered by the Council in designating a nonbank financial company as a Covered Nonbank Company;

• whether the company owns a depository institution;

• the non-financial activities and affiliations of the company; and

• other criteria the FRB determines to be appropriate, which could include those recommended by the Council.

To the extent possible, the Council and the FRB would ensure that minor changes to the factors

considered when designating a company as a Covered Nonbank Company would not result in sharp,

discontinuous changes in the prudential standards. This is designed to encourage the application of the

heightened prudential standards in a tailored, graduated fashion depending on the factors considered by

the Council in making the determination, such as asset size, leverage, off-balance sheet exposure and

the amount and nature of a company’s liabilities. Thus, the FRB would not be required to adopt a “one-

size-fits-all” approach in developing and applying the enhanced prudential standards to Covered Nonbank

Companies and Covered BHCs.


Contingent capital. Section 115(c) would require the Council to conduct a study of the feasibility,

benefits, costs and structure of a contingent capital requirement for Covered Nonbank Companies and

Covered BHCs. The study would include:

• an evaluation of the degree to which the requirement would enhance safety and soundness of these companies, promote U.S. financial stability and reduce risks to U.S. taxpayers;

• the characteristics and amount of convertible debt that should be required;

• an analysis of prudential standards that should be used to determine whether contingent capital would be converted in times of financial stress;

• the costs and economic effects of such a requirement; and

• an evaluation of the potential effects on international competitiveness.

The Council would also make recommendations for implementing regulations. After completion of the

study, the FRB could, under Section 165(c), on its own or upon the recommendation of the Council, issue

regulations to implement any contingent capital requirement and require any Covered Nonbank Company

or Covered BHC to maintain a minimum amount of long-term hybrid debt that would be convertible to

equity in times of financial stress.

Resolution plan and credit exposure reports. Pursuant to Section 165(d), the FRB would require that

all Covered Nonbank Companies and Covered BHCs regularly report to the FRB, the Council and the

FDIC on (1) a resolution plan in the event of material financial distress or failure and (2) credit exposures

between it and other “significant” nonbank financial companies and BHCs (which companies are

“significant” would be determined by the FRB by regulation and would not necessarily be limited to

Covered Nonbank Companies or Covered BHCs). Under Section 115(d), the Council may make

recommendations to the FRB regarding this reporting requirement.

The FRB and the FDIC would be required to review the resolution plan, and if they jointly determined it

was not credible or would not facilitate an orderly resolution of the company under the U.S. Bankruptcy

Code, the company would be required to resubmit the resolution plan within a timeframe specified by the

FRB and the FDIC. The revised plan must address the comments of the FRB and the FDIC, including

any proposed changes in business operations and corporate structure to facilitate implementation of the

plan. If the submitting company did not address deficiencies in its resolution plan noted by the FRB and

the FDIC, the FRB and FDIC could jointly impose more stringent capital, leverage or liquidity

requirements or restrictions on the growth, activities or operations of the company or its subsidiaries. In

consultation with the Council, the FRB and the FDIC may jointly require a company that has failed to

correct its resolution plan within the timeframe established by the FRB and the FDIC to divest assets or

operations to help facilitate an orderly resolution of the company under Chapter 11 of the U.S. Bankruptcy

Code. The FRB and the FDIC would have joint authority to issue rules implementing these requirements.


Concentration limits. Under Section 165(e), the FRB would be required to prescribe regulations limiting

the credit exposure to any unaffiliated company of a Covered Nonbank Company or Covered BHC to 25

percent of its capital stock and surplus or such lower amount as the FRB determines by regulation is

necessary to mitigate risks to U.S. financial stability. The concentration limit includes an attribution rule

(similar to that in Section 23A of the Federal Reserve Act), which provides that a transaction by a

Covered Nonbank Company or Covered BHC with any person is a transaction with a company to the

extent that the proceeds of the transaction are used for the benefit of, or transferred to, that company.

“Credit exposure” is defined to include:

• extensions of credit, including loans, deposits and lines of credit;

• all repurchase and reverse repurchase agreements;

• securities borrowing and lending transactions to the extent the transactions create credit exposure;

• guarantees, acceptances or letters of credit issued on behalf of the company;

• all purchases of or investments in securities issued by the company;

• counterparty credit exposure in connection with a derivative transaction; and

• any other similar transactions, as determined by the FRB by regulation.

Because, the term “counterparty credit exposure” in connection with derivative transactions is not defined

in RAFSA, the FRB presumably would define this term using its existing rulemaking authority. If a broad

definition is adopted, it could substantially increase the impact of the concentration limit.

The FRB has the power to exempt transactions from the definition of “credit exposure,” in whole or in part,

by regulation or order. Compliance with these limits would be postponed for a three-year transition period

after the enactment of RAFSA, which the FRB could extend by an additional two years. For companies

that are designated as Covered Nonbank Companies after the transition period for the concentration

limits has expired, there does not appear to be a further transition period to come into compliance with the

concentration limits. The Council could make recommendations to the FRB with respect to these

regulations.

Public disclosure. Under Sections 115(f) and 165(f) of RAFSA, the FRB, on its own or upon

recommendation from the Council, could require, by regulation, Covered Nonbank Companies and

Covered BHCs to make periodic public disclosures to support market evaluation of risk profile, capital

adequacy and risk management capabilities.

5. Additional Requirements for Covered Nonbank Companies, Covered BHCs and Certain Other BHCs and Nonbank Financial Companies

Acquisitions of large nonbank companies. As is the case with Covered Nonbank Companies, under

Section 163, BHCs with assets greater than $50 billion would be required to provide prior written notice to

the FRB before acquiring certain financial companies with assets in excess of $10 billion that are


engaged in financial activities. As noted above, there is uncertainty as to whether this notice requirement

would apply to financial activities that could be conducted under Section 4(c)(8) of the BHC Act.

Risk committee. Section 165(g) would require that all Covered Nonbank Companies that are publicly

traded create a risk committee within one year of their designation. All publicly traded BHCs that have

assets of at least $10 billion would also be required to establish such a committee; the FRB would have

discretion to impose the requirement on smaller publicly traded BHCs.

The risk committee would be responsible for the oversight of enterprise-wide risk management practices.

The committee would be required to include a number of independent directors as the FRB determines is

appropriate based on the particular company and must also include at least one risk-management expert.

The FRB would have one year after the transfer date of the federal supervision and regulation of

depository institutions and their holding companies under Section 311 (between 12 and 18 months after

the enactment of RAFSA, as described on page 42) to issue final risk committee rules. The rules would

be required to be in effect within 15 months after the transfer date.

Stress tests. Section 165(h) would require the FRB to conduct analyses of Covered Nonbank

Companies and Covered BHCs to evaluate whether the companies would have sufficient capital on a

total consolidated basis necessary to absorb losses as a result of adverse economic conditions. The

FRB would also be authorized to develop and apply other analytic techniques as are necessary to

identify, measure and monitor risks to the financial stability of the United States.

Early remediation. Section 166 would require the FRB, in consultation with the Council and the FDIC, to

issue regulations establishing requirements to provide for the early remediation of the financial distress of

Covered Nonbank Companies and Covered BHCs. RAFSA specifically provides that the provision does

not authorize the provision of financial assistance from the U.S. federal government. The purpose of the

early remediation requirement is to establish a series of specific remedial actions to be taken by a

Covered Nonbank Company or a Covered BHC that is experiencing increasing financial distress in order

to minimize the probability that the company will become insolvent and the potential harm of such

insolvency to the financial stability of the United States.

The regulations prescribed by the FRB would be required to:

• define measures of the financial condition of the company, including regulatory capital, liquidity measures and other forward-looking indicators; and

• establish requirements that increase in stringency as the financial condition of the company declines, including:

• requirements in the initial stages of financial decline, including limits on capital distributions, acquisitions and asset growth; and


• requirements at later stages of financial decline, including a capital restoration plan and capital-raising requirements, limits on transactions with affiliates, management changes and asset sales.

“Grave threat” and required divestitures. Under Section 121, if the FRB determined that a U.S.

Covered Nonbank Company or a BHC with over $50 billion in assets posed a “grave threat” to the

financial stability of the United States, the FRB, with the consent of the Council by a two-thirds vote,

would require the company (subject to notice and a hearing):

• to terminate one or more activities;

• to impose conditions on the manner in which it conducts activities; or

• to sell or transfer assets or off-balance-sheet items to unaffiliated entities.

The FRB would be authorized to prescribe regulations regarding the application of these risk mitigation

requirements to non-U.S. Covered Nonbank Companies and non-U.S. based BHCs giving due regard to

the principle of national treatment and competitive equity.

Additional standards applicable to activities or practices for financial stability purposes. Section

120 would permit the Council to issue recommendations to the primary financial regulatory agencies to

apply new or heightened standards and safeguards, including the enhanced supervision and prudential

standards for Covered Nonbank Companies and Covered BHCs described above, for a financial activity

or practice conducted by BHCs or nonbank financial companies under their respective jurisdictions. As

noted above, “primary financial regulatory agency” would include a state insurance authority, which

means that the Council could recommend that these new standards and safeguards be applied to

insurance companies subject to supervision by state insurance authorities. To make such a

recommendation, the Council would be required to determine that the conduct of the activity or practice

could create or increase the risk of significant liquidity, credit or other problems spreading among BHCs

and nonbank financial companies or the financial markets of the United States.

The Council would be required to consult with the primary financial regulatory agencies and provide

public notice and comment for any proposed recommendation. Any recommended standards would be

required to take into account costs to long-term economic growth and could either prescribe the conduct

of an activity or practice in specific ways (such as by limiting its scope or applying particular capital or risk-

management requirements to the conduct of the activity) or prohibit the activity or practice altogether.

The primary financial regulatory agency would be required to impose the recommended standards (or

similar standards acceptable to the Council) or explain in writing to the Council within 90 days after the

issuance of the Council’s recommendation the reasons it determined not to follow the Council’s

recommendation. Each primary financial regulatory agency may also impose, require reports regarding,

examine for compliance with, and enforce the new standards with respect to those entities for which it is

the primary financial regulatory agency.


The Council could recommend to the relevant primary financial regulatory agency that an activity or

practice no longer requires the standards or safeguards previously recommended by the Council, and the

primary financial regulatory agency would be required to determine whether the standards should remain

in effect. RAFSA provides that each primary financial regulatory agency that has imposed standards

based on the Council’s recommendation must promulgate regulations that establish a procedure that

allows entities under its jurisdiction to appeal the agency’s determination to maintain the standards

despite the Council’s rescission recommendation.

As part of the Council’s required reports to Congress on its recommendations, the Council could also, in

any case in which no primary financial regulator agency exists for a nonbank financial company that

conducts financial activities or practices that could create or increase the risk of significant liquidity, credit

or other problems spreading among BHCs and nonbank financial companies or the financial markets of

the United States, propose legislation that would prevent such activities from threatening U.S. financial

stability.

6. Increased Leverage and Risk-Based Capital Requirements

RAFSA could have a significant impact on current capital requirements for BHCs and SLHCs, as it would

require the federal banking agencies to establish minimum leverage and risk-based capital requirements

that apply on a consolidated basis for insured depository institutions, depository institution holding

companies (a term not defined in Title I of RAFSA)8 and Covered Nonbank Companies. In effect, RAFSA

would apply to BHCs, SLHCs and Covered Nonbank Companies the same leverage and risk-based

capital requirements that would apply to insured depository institutions.

RAFSA would provide that the minimum leverage and risk-based capital requirements may not be less

than the “generally applicable leverage capital requirements” and the “generally applicable risk-based

capital requirements.” These terms are defined as the minimum leverage and risk-based capital

requirements established by the appropriate federal banking agencies under the prompt corrective action

regulations implementing Section 38 of the FDI Act.

One effect of these new capital requirements would be to impose a floor of the Basel I capital

requirements, which apply to most banking organizations, on large banking organizations that are

required to calculate regulatory capital under Basel II.9 Because the Basel I standard would remain as an

8 The term “depository institution holding company” is defined in the FDI Act as a BHC or an SLHC. It

is not clear whether the term as used in RAFSA follows the FDI Act definition or would also apply to holding companies of other types of insured depository institutions, such as industrial loan companies.

9 “Basel I” refers to the first Basel Accord published by the Basel Committee on Banking Supervision setting minimum capital standards for banking organizations. “Basel II” refers to the second Basel Accord published by the committee. As implemented in the United States, currently only

(continued . . . )


indefinite capital floor, banking organizations subject to Basel II would be required to calculate capital

requirements under both Basel I and Basel II. Under Basel II, a percentage of the Basel I capital

standards act as a floor, but only during a three-year phase-in period.

In addition, because the capital requirements would be required to be the same for depository institutions

as for their holding companies and Covered Nonbank Companies, RAFSA would potentially exclude trust

preferred (including TARP preferred) securities from the tier 1 capital of a BHC. Currently, a BHC may

include qualifying trust preferred securities in its tier 1 capital, subject to a cap.10 RAFSA also may

disqualify subordinated debt associated with trust preferred securities from its favored treatment for small

BHCs under the Federal Reserve’s “Small Bank Holding Company Policy Statement.”11 During the

Senate’s floor debate, Senator Susan Collins, who proposed this amendment, stated that it was not her

intent that the amendment would affect the treatment of small BHCs under this policy statement.

RAFSA would appear to depart from the principle of national treatment under which non-U.S. banking

organizations with depository institution subsidiaries in the United States do not have to comply with U.S.

BHC capital standards if the non-U.S. bank is well-capitalized and well-managed under its home country

standards. Senator Collins also stated during floor debate that the effective date for BHCs owned by non-

U.S. banking organizations that currently meet their capital requirements based on home country

standards in accordance with FRB supervisory guidance would be five years after the enactment of

RAFSA.12 Senator Collins expressed a willingness to include clarifying language in the legislation to

implement these changes. However, Senator Collins’ comments do not address the potential application

of the requirements to a non-U.S. parent banking organization that directly or indirectly owns a U.S.

depository institution.

Finally, the Collins Amendment would require the federal banking agencies to develop, subject to

recommendations of the Council, capital requirements applicable to all insured depository institutions and

their holding companies that address the risks posed by their activities, not only to the institution itself but

also to “other public and private stakeholders.” These requirements must address, at a minimum, risks

associated with significant volumes of derivatives, securitized products, financial guarantees, securities

borrowing and lending, repurchase and reverse repurchase agreements; concentrations in certain kinds

of assets; and concentrations in market share for certain kinds of activities.

(. . . continued)

organizations with $250 billion or more of total consolidated assets or $10 billion or more of non-U.S. exposures must use the Basel II standard.

10 12 C.F.R. § 225, Appendix A. 11 12 C.F.R. § 225, Appendix C. BHCs with less than $500 million in consolidated assets are covered

by this policy statement. 12 See Federal Reserve Supervision and Regulation Letter, SR-01-1 (January 5, 2001).


B. PAYMENT, CLEARING, AND SETTLEMENT SUPERVISION ACT OF 2010

1. Designation and Supervision of Systemically Important Payment, Clearing and Settlement Activities and “Financial Market Utilities”

Title VIII provides for the designation by the Council and supervision by the FRB of systemically important

payment, clearing and settlement activities (“designated activities”) and “financial market utilities”

(“FMUs”) engaged in such activities (“Designated FMUs”). Covered payment, clearing and settlement

activities are activities that are carried out by “financial institutions” to facilitate the completion of “financial

transactions.” These terms are broadly defined:

• An FMU is any person that manages or operates a multilateral system for the purpose of transferring, clearing or settling payments, securities or other financial transactions among financial institutions or between financial institutions and such person. Given this broad definition, without specific examples, it remains to be seen what entities might be viewed by the Council as covered.13

• “Financial institutions” include depository institutions and credit unions; broker-dealers; investment companies and investment advisers; insurance companies; futures commission merchants and commodity trading advisers and pool operators; U.S. branches and agencies of non-U.S. banks; Edge Act and Agreement corporations; and any company engaged in activities that are financial in nature (or incidental thereto) under Section 4 of the BHC Act.

• “Financial transactions” include fund transfers; securities and financial derivatives contracts; commodity futures and forward contracts; repurchase agreements; swaps and swaps agreements; and non-U.S. exchange contracts.

2. Designation by the Council

Upon a vote of at least two-thirds of the members of the Council, including an affirmative vote by the

Treasury Secretary, the Council could designate any payment, clearing or settlement activity and any

FMU engaged in such activities as being (or likely to become) systemically important. This designation

would be based on a determination that the failure or disruption to the functioning of the FMU or the

conduct of the activity could threaten the stability of the financial system. (Rescission of an existing

designation would also require a two-thirds vote and Treasury assent.) In determining whether an activity

or FMU is, or is likely to become, systemically important, the Council would consider:

• the aggregate monetary value of transactions processed by the FMU or through the activity;

• the aggregate exposure of the FMU or financial institution to counterparties;

• the relationship, interdependencies or other interactions with other FMUs or activities;

13 The Treasury Department’s white paper of June 17, 2009, on financial regulatory reform, entitled “A

New Foundation: Rebuilding Financial Supervision and Regulation,” did not provide examples of entities likely to be designated FMUs, but noted, “When major financial institutions came under significant financial stress during 2008, policymakers were extremely concerned that weaknesses in settlement arrangements for certain financial transactions, notably tri-party repurchase agreements and OTS derivatives, would be a source of contagion.”


• the effect that a failure or disruption would have on critical markets, financial institutions and the financial system; and

• any other factor the Council deems appropriate.

Prior to making a designation, the Council would be required to consult with the FRB and the relevant

supervisory agency with primary jurisdiction over an affected FMU (such as the SEC, the CFTC or the

applicable federal banking agency). The Council would also be required to give advance notice to the

identified FMU and, in the case of a designated activity, to financial institutions engaged in that activity.

An identified FMU or affected financial institution could request a hearing before the Council to argue that

the proposed designation (or rescission of an existing designation) is not supported by substantial

evidence. The hearing would allow for the submission of written materials and, at the discretion of the

Council, oral testimony or oral argument.

The advance notice and hearing requirements could be waived in cases in which the Council determined

that an emergency designation was necessary to prevent or mitigate an immediate threat to the financial

system. There is no specific provision for judicial review of this determination, as there is for systemic

determinations under RAFSA Title I.

3. Risk-Management Standards

The FRB would be required to prescribe, by rule or order, risk-management standards applicable to the

operations of Designated FMUs and the conduct of designated activities by financial institutions. These

standards could address, among other things:

• capital, margin and collateral requirements;

• the risk of participant or counterparty default; and

• timely completion of clearing or settlement transactions.

The standards governing designated activities would, “where appropriate,” establish a threshold regarding

the level or significance of engagement in a designated activity at which a financial institution engaged in

that activity would become subject to the standards. RAFSA Section 811 provides that the Payment,

Clearing, and Settlement Supervision Act of 2010 does not divest other regulators of their authority,

except that FRB rules would govern in the event of a conflict.

4. Advance-Notice Requirements

Designated FMUs would be required, under rules promulgated by the FRB, to provide advance notice to

the FRB and the relevant supervisory agency regarding any proposed change to its rules, procedures, or

operations that could “materially affect” the nature or level of risks presented by the FMU, subject to an

exception for certain “emergency changes.” Any change to which the FRB or the supervisory agency

objected, including any “emergency change,” would have to be withdrawn or rescinded.


5. Examination and Enforcement

The relevant supervisory agency (or, in the absence thereof, the FRB) would enforce the risk-

management standards. The FRB could participate in an examination, recommend that a supervisory

agency take an enforcement action and, in certain cases, take such enforcement action directly if the

supervisory agency fails to do so. The FRB would also retain emergency enforcement authority in certain

cases in which it determined that the condition of a Designated FMU or an action engaged in by (or

contemplated by) a Designated FMU posed “an imminent risk of substantial harm to financial institutions,

critical markets, or the broader financial system.”

6. Payment System Access for, and Emergency Lending to, Designated FMUs

The FRB could authorize a Federal Reserve bank to establish and maintain an interest-bearing account

for, and to provide services to, a Designated FMU. Designated FMUs would also have the same Federal

Reserve discount window access and borrowing privileges as those provided to depository institutions.

II. RESOLUTION AUTHORITY

Title II of RAFSA would establish a new system for liquidation of systemically important nonbank “financial

companies,” including broker-dealers and BHCs. It is intended to establish the tools that the U.S.

government indicated were lacking at the time of the failure of Lehman Brothers. The proposed system is

based on the FDIC resolution model for depository institutions, but that model would be modified to some

degree both to address the differences in the nature of nonbank financial companies as compared to

banks, and to reduce disparities between the expectations of creditors as to how their claims would be

dealt with under the Bankruptcy Code, and the way in which those claims would be treated in an OLA

proceeding instead.

A “financial company” could be designated as a “covered financial company” by the Treasury Secretary,

and thus made subject to a new special orderly liquidation authority (“OLA”) administered by the FDIC as

receiver, upon a determination by the Treasury Secretary supported by supermajority recommendations

from the FRB and the FDIC (or, in the case of a broker-dealer, the SEC instead of the FDIC), and after

consultation with the President, that the company is in default or in danger of default and that such default

presents a systemic risk to U.S. financial stability.

Covered financial companies. A “financial company” as defined in Title II means a U.S.-organized

company that is (1) a BHC, (2) a Covered Nonbank Company, (3) any company that is “predominantly

engaged”14 in activities the FRB has determined are “financial in nature” under Section 4(k) of the BHC

14 For this purpose, a company would not be deemed to be “predominantly engaged” in activities that

are financial in nature if the consolidated revenues of the company and all its subsidiaries, including those from depository institutions, derived from such activities constitute less than 85% of the total

(continued . . . )


Act, or (4) any subsidiary of any of the foregoing, other than a subsidiary that is an “insured depository

institution” or an “insurance company,” which are left to resolution by the FDIC under the FDI Act, and by

the states under state rehabilitation and liquidation laws, respectively.

Systemic risk determination. The implementation of OLA with respect to a financial company would

begin with the making of a “systemic risk determination” by the Treasury Secretary. Before the Treasury

Secretary could make such a determination, the FDIC and the FRB must make a recommendation in

favor of the determination. This recommendation must be approved by a supermajority of two-thirds of the

members of each of the FRB and the board of the FDIC (or, in the case of a broker-dealer, the SEC

instead of the FDIC). The determination by the Treasury Secretary must then be made after consultation

with the President. In the case of broker-dealers, or financial companies where a broker or dealer is the

largest U.S. subsidiary, the SEC would be substituted for the FDIC in voting to approve the systematic

risk determination and the use of OLA. Subsection 203(c) contains extensive requirements for the

documentation of the systemic risk determination by the Treasury Secretary, including a report by the

Treasury Secretary to Congressional leadership within 24 hours after the appointment of a receiver and

detailed follow-up reports thereafter, as well as a review by the Government Accountability Office (the

“GAO”) of the determination.

The Treasury Secretary could determine that the FDIC should be appointed as receiver for a covered

financial company if:

• the company is “in default or in danger of default”;

• the failure of the financial company and its resolution under the law that would otherwise apply would have “serious adverse effects on financial stability in the United States”;

• no viable private sector alternative is available to prevent the default;

• the impact of utilizing OLA on creditors, counterparties and shareholders of the financial company and other market participants would be outweighed by the impact on financial stability in the United States;

• the proposed course of action would mitigate the adverse effects on the financial system;

• a federal agency has ordered the financial company to convert all of its regulatorily mandated convertible debt instruments to equity; and

• the company satisfies the definition of “financial company.”

A financial company would be considered to be in default or danger of default if (1) a bankruptcy case has

been, or promptly is likely to be, filed, (2) the financial company has incurred, or is likely to incur, losses

that will deplete all or substantially all of its capital and there is no reasonable prospect to avoid such

(. . . continued)

consolidated revenues of such company and all its subsidiaries, including those from depository institutions, under regulations established by the FDIC, in consultation with the Treasury Department.


depletion, (3) the assets of the financial company are, or are likely to be, less than its liabilities, or (4) the

financial company is unable to pay its obligations in the normal course of business.

Judicial review. If the financial company does not acquiesce or consent to the appointment of the FDIC

as receiver, the Treasury Secretary must petition the U.S. District Court for the District of Columbia under

Section 202 for an order authorizing such appointment. The court would be required to make its

determination in a closed proceeding (with criminal penalties for disclosure) but with notice to, and an

opportunity to participate by, the covered financial company. Section 202 further provides that the

determination by the Treasury Secretary as to the danger of default (but not as to systemic risk) and the

entity’s status as a financial company would be reviewed and determined by the court on the basis of an

“arbitrary and capricious” standard. The Treasury Secretary’s petition would be deemed to be

automatically granted if not acted upon by the district court within 24 hours of receipt. An appeal, on a

confidential basis, could be made by the financial company within 30 days to the U.S. Court of Appeals

for the D.C. Circuit, and thereafter to the U.S. Supreme Court. Expedited consideration would be

provided for in both appellate courts, and the decision of the district court would not be subject to a stay

during the appeals process.

Procedures for orderly liquidation by FDIC. Section 210 would provide the FDIC, when acting as

receiver of a covered financial company, with most of the same receivership powers the FDIC has under

the FDI Act. Included are provisions with respect to:

• the priority of administrative expenses;

• the repudiation of contracts;

• the right to transfer assets and liabilities of the institution without regard to contractual or other restrictions;

• the unenforceability of standstill arrangements;

• the invalidity of ipso facto clauses (i.e., clauses that modify creditors’ rights based upon the appointment of the FDIC as receiver);

• the valuation and priority of claims for recovery purposes;

• limitations on court actions;

• the liability of directors and officers of the covered financial company for gross negligence;

• the establishment and operation of bridge financial companies;

• the sharing of records;

• the expedited consideration of claims against officers, directors, employees and experts;

• the exemption of the FDIC from taxes and levies when acting as receiver;

• the prohibition on asset sales by the receiver to those that have engaged in fraud or caused substantial loss;

• non-U.S. investigations; and

• the prohibition on secrecy in settlement agreements.


These provisions are substantially modeled on existing provisions of the FDI Act. The FDIC would be

given authority to treat similar claims differently to maximize the value of assets or the present value

realized on their disposition, to minimize loss or to continue operations essential to the receivership or a

bridge financial company, but not to address adverse effects on U.S. financial stability.

With respect to the substantive treatment of creditor claims, in general, Section 210 largely replicates the

provisions of Section 21(e) of the FDI Act, granting the FDIC substantially similar powers and authorities

in its capacity as receiver of a covered financial company as it has in its capacity as receiver of a bank.

However, recognizing the broader range of businesses that may be engaged in by a holding company

and its nonbanking subsidiaries, as compared to a bank, and recognizing that creditors dealing with

nonbanking institutions will have done so in reliance upon their understanding of the provisions that would

apply to them under the Bankruptcy Code, RAFSA would include a number of provisions, including those

relating to preferences, fraudulent transfers, and rights of setoff, that are based on—though not identical

to—the corresponding provisions of the Bankruptcy Code.

Furthermore, while the provisions relating to qualified financial contracts, or “QFCs,” are generally the

same as those contained in the FDI Act, there are several significant differences. Among other changes,

the FDIC would be given three days, rather than one, to effectuate a transfer of QFCs to a bridge financial

institution or other acquiror, before a counterparty to such a transaction may exercise its termination

rights. In addition, a provision that would limit the ability of a counterparty to exercise remedies upon the

default of a covered financial company as guarantor is included in the statute. The FDI Act provision

invalidating “walkaway” clauses would, under RAFSA, apply to all covered financial companies. A

modified form of Section 1823(e) of the FDI Act, sometimes referred to as “statutory D’Oench Duhme,” is

included in Section 210 as well. If RAFSA is adopted, parties to both existing and future transactions and

arrangements with entities that are potentially covered financial companies will have to reevaluate their

significant contractual relationships with those parties to ensure that the newly applicable provisions

contained in RAFSA would not invalidate or substantially change their anticipated rights in respect of

those relationships.

In addition, RAFSA would modify the priority of claims to give wage and benefit claims of non-executive

employees priority over general creditors and to make any such claims of senior executives junior to

subordinated debt; provide for the expedited treatment of claims against officers, directors and others

involved with the company; and add an explicit requirement that the FDIC as receiver liquidate and wind

up the affairs of the covered financial company.

Under Section 204, the FDIC would be required to consult with the primary financial regulator of the

covered financial company and its covered subsidiaries and with appropriate outside experts. If the

covered financial company is a broker or dealer, the FDIC would be required to consult with the SEC to

determine whether to transfer customer accounts to a bridge company. The FDIC would also be required


to consult with the primary financial regulator of a non-covered subsidiary (such as an insurance

company) and coordinate with that regulator regarding the treatment of solvent subsidiaries and the

separate resolution of any insolvent subsidiaries under other governmental authority. The FDIC would be

authorized to make funds available to the receivership from the Orderly Liquidation Fund established

under Section 210(n) (discussed below) under a plan approved by the Treasury Secretary or from

borrowings from the Treasury to facilitate orderly liquidation under the standards covered elsewhere in

Title II, and the FDIC would have a priority claim against the receivership for repayment of funds made

available to the receivership. The FDIC would be required to report to Congress no later than 60 days

after its appointment as receiver on the financial condition of the covered financial company, reasons for

providing any funding, and actions and plans for winding down the company, and testify if requested to do

so.

Treatment of subsidiaries. Once the FDIC has been appointed as receiver for a covered financial

company, it would have the authority to appoint itself as receiver of any U.S.-organized subsidiary of the

financial company, other than an insured depository institution, covered broker or dealer or insurance

company, if that subsidiary is in default or danger of default, if the appointment would mitigate serious

adverse effects on the financial stability or economic conditions of the United States, and the appointment

would facilitate the orderly liquidation of the covered financial company.

As noted above, insured depository institutions would continue to be resolved under the existing

provisions of the FDI Act. Section 205, which provides for the orderly liquidation of brokers and dealers,

would require the FDIC as receiver to appoint the Securities Investor Protection Corporation (“SIPC”) to

act as trustee for liquidation of a broker or dealer covered by the Securities Investor Protection Act (a

“covered broker or dealer”).15 SIPC would have full authority to liquidate the broker-dealer under the

Securities Investor Protection Act of 1970, as amended (“SIPA”), except that the FDIC would retain the

power to make funds available in the liquidation of those entities, establish bridge financial companies,

transfer assets and liabilities, repudiate contracts and determine claims. Section 205 also provides that

qualified financial contracts of the broker or dealer would be dealt with in the manner described above.

Section 205 would also limit court actions to restrain or affect the exercise of the receiver’s powers, and

protect customer claims. RAFSA generally provides that customer assets and claims should be dealt with

in the same manner, and with the same priority, as they would in an ordinary SIPA proceeding; however,

the FDIC and the SEC, in consultation with SIPC, would be required to adopt regulations implementing

15 As noted above, the authority of the FDIC, as receiver for a covered financial company, to appoint

itself as receiver for that company’s subsidiaries would not extend to “covered broker-dealer” subsidiaries. Accordingly, where the broker-dealer is not the parent company, it would appear that a separate systemic risk determination would have to be made with respect to the broker-dealer subsidiary in order to give the FDIC the authority to act with respect to that entity.


Section 205, and the manner in which customer protections would be applied would be clearer once

those regulations were adopted.

With respect to insurance companies, Section 203(e) provides that liquidation or rehabilitation of an

insurance company that is a covered financial company, or of its insurance subsidiaries (which are

excluded from the definition of “covered subsidiaries”), would be conducted as provided under state

rehabilitation and liquidation laws. However, Section 203(e) further provides that the foregoing would not

apply to the non-insurance subsidiaries of an insurer. RAFSA would not restrict or “stay” any state law

proceeding with respect to an insurance company, leaving the conduct of the proceeding and its

commencement in the hands of the applicable state regulator. However, if within 60 days after the

effectiveness of a systemic risk determination by the Treasury Secretary the state regulator has not filed

an appropriate judicial action to place the insurance company into liquidation under state law, the FDIC

would have the authority to stand in place of the state regulator and to file the appropriate judicial action

in state court to place the company into liquidation.

Limited term of receivership. Section 202(d) would establish a time limit for the receivership of three

years from the date of appointment, extendible for two additional one-year periods, each upon a

certification by the chairperson of the FDIC that such extension is necessary to maximize present value or

minimize loss, and for such additional period as may be needed for the receivership to complete ongoing

litigation.

Certain obligations of the FDIC as receiver. RAFSA contains a number of provisions intended to

ensure that the exercise by the FDIC of its authority under the statute would not insulate failing

institutions, or their management, creditors and shareholders, from losses arising from the failure. Section

204 provides that the FDIC must exercise its authority so that creditors and shareholders would bear the

losses of the company, that management responsible for the failure would be removed, and that those

parties having responsibility for the condition of the company bear losses consistent with their

responsibility. Similarly, Section 206 would require that, in taking action under the OLA provisions, the

FDIC determine that its actions are necessary for financial stability and are not for the purpose of

preserving the covered financial company. The section would also require the FDIC to ensure that

shareholders receive no payment until all other claims and the Orderly Liquidation Fund established for

systemic resolutions under Section 210 have been fully paid, that unsecured creditors bear losses in

accordance with the claim priority provisions of Section 210, and that any management responsible for

the failed condition of the covered financial company be removed. Section 206 would expressly prohibit

the FDIC as receiver from taking an equity interest in a covered financial company or any covered

subsidiary.


Director liability. Section 207 provides, similar to the current provisions in the FDI Act, that directors

would not be not liable for acquiescing to the appointment of the FDIC as receiver of a covered financial

company.

Other bankruptcy proceedings. Section 208 provides that appointment of the FDIC as receiver or of

SIPC as trustee for a broker-dealer would result in the dismissal and prevention of any bankruptcy or

insolvency proceeding under the Bankruptcy Code or the Securities Investor Protection Act with respect

to the covered financial company. As noted above, this provision would not restrict the commencement of

a rehabilitation, liquidation or similar proceeding with respect to an insurance company subsidiary of a

covered financial company.

FDIC rulemaking authority. Section 209 would provide the FDIC, in consultation with the Council

established in Title I, with rulemaking authority in implementing the orderly resolution provisions and

addressing the potential for conflicts of interest between receiverships established under Title II and the

FDI Act. To the extent possible, the FDIC would be required to seek to harmonize these rules with

insolvency laws that would otherwise apply to the covered financial company.

Orderly Liquidation Fund. Section 210(n) would direct the Treasury Department to establish an Orderly

Liquidation Fund, which would be managed by the FDIC. In connection with the resolution of a covered

financial company under OLA, the FDIC would be authorized to borrow from the Treasury at the U.S.

government rate plus a surcharge exceeding the difference between the current rates for corporate

obligations of comparable maturity and U.S. government securities, and deposit funds in the Orderly

Liquidation Fund. The FDIC would be given authority to borrow from the Treasury up to 10 percent of the

consolidated assets (by book value) during the first 30 days after appointment as receiver or, if sooner,

until a determination is made of the fair value of the total consolidated assets of the receivership available

for repayment. Thereafter, the FDIC would be given authority to borrow up to 90 percent of the fair value

of the assets available for repayment of each financial company then subject to OLA.

The FDIC would be required to establish a risk-based assessment system and make ex-post

assessments to provide any funds necessary to repay any borrowings and to cover the costs of any

resolution conducted by it, as well as related expenses (such as the expenses of the audits called for by

RAFSA). The proceeds of these assessments would also be deposited in the Orderly Liquidation Fund.

Risk-based assessments would be made by the FDIC, first, on entities that received more in the

resolution that they would have received in liquidation to the extent of such excess (less amounts

necessary to initiate or continue receivership or bridge financial company operations), and second, if

necessary, on BHCs with total consolidated assets of $50 billion or more, Covered Nonbank Companies,

and other financial companies with total consolidated assets of $50 billion or more. Assessments would

take into account assessments otherwise imposed under the FDI Act, the Securities Investor Protection

Act and state insurance guarantee funds.


Section 210(s) would provide for the FDIC to recover from directors and senior executive officers

substantially responsible for the failed condition of a covered financial company compensation paid within

two years of failure, or in case of fraud, for an unlimited prior period.

Other provisions. Title II would also:

• require reviews by the Inspectors General of the primary federal financial regulatory agencies of the liquidation of covered financial companies, paid for by the receivership or by assessments;

• require that all financial companies put into receivership must be liquidated, that all funds expended in a liquidation must be recovered from the financial sector and that taxpayers must bear no loss;

• prohibit the use of funds for orderly liquidation except as provided, restrict governmental entities from circumventing the purposes of Title II and authorize the FDIC to take appropriate action to avoid conflicts of interest in the case of multiple receiverships;

• authorize the FRB or the FDIC to serve orders of prohibition against senior executives and directors of failed covered financial companies for violations of law or regulatory agreements, unsafe or unsound practices, or breaches of fiduciary duty;

• require monitoring of the activities of the district court, and a study of the effectiveness of the bankruptcy process under the U.S. Bankruptcy Code for financial companies, by the Administrative Office of the U.S. Courts and the GAO (these entities would also be required periodically to report their findings to the relevant House and Senate committees); and

• require the GAO to study and report to the relevant House and Senate committees regarding international coordination relating to the orderly liquidation of financial companies.

III. BANKING REFORMS

A. ENHANCING FINANCIAL INSTITUTION SAFETY AND SOUNDNESS ACT OF 2010

Title III of RAFSA would abolish the OTS, reassigning its responsibility for the supervision and regulation

of federal savings associations to the OCC, state savings associations to the FDIC and SLHCs to the

FRB. The FRB would continue to supervise state member banks and all BHCs.

Transfer date. Section 311 provides that the transfer of the OTS’s supervisory responsibility is to be

completed within one year after the enactment of RAFSA (the “transfer date”). The Treasury Secretary

may extend the transfer date for up to six additional months upon finding that an orderly implementation

process is not feasible within the one-year period. The Secretary’s finding would be required to detail the

steps to be taken to initiate the implementation process within the extended date.

1. Transfer of Supervisory and Other Responsibilities and Functions

Supervision of savings associations and SLHCs. The functions and authorities of the OTS for savings

associations and SLHCs would be transferred as follows:

• The supervision of federal savings associations would be transferred to the OCC.


• The supervision of state savings associations would be transferred to the FDIC.

• The supervision of SLHCs would be transferred to the FRB.

• The rulemaking authority of the OTS for savings associations would be transferred to, and exercised jointly by, the OCC and FDIC.

• The rulemaking and other authorities of the OTS for SLHCs would be transferred to the FRB.

• The rulemaking authority of the OTS under the Home Owners Loan Act with respect to transactions with affiliates and insiders and anti-tying prohibitions would be transferred to the FRB.

Appropriate federal banking agency. Section 312(c) would amend the definition of “appropriate federal

banking agency” in the FDI Act to reflect the transfers of supervisory authority for depository institutions

and their holding companies required under the statute. This change would provide the appropriate

federal banking agency with, among other regulatory authorities, the prompt corrective action powers

over insured depository institutions and the cease and desist, removal, civil money penalty and other

enforcement authorities provided under the FDI Act for insured depository institutions, BHCs, SLHCs,

nondepository institution subsidiaries of BHCs or SLHCs, and their institution-affiliated parties.

2. Elimination of OTS

Section 313 provides that within 90 days after the transfer date for supervisory responsibilities, the OTS

would be abolished, and all authorities vested in the OTS or its director on the day before the transfer

date with respect to functions transferred to the OCC would be vested in the OCC or the Comptroller of

the Currency, as appropriate.

Redesignation of references in federal law to federal banking agencies. Section 317 provides that

any reference in federal law to the OTS or its director with respect to a transferred function would be

deemed to be a reference to the OCC, FRB, FDIC or their agency heads, as appropriate.

3. Savings Provisions

Section 316 contains a series of savings provisions to:

• ensure that the transfer of supervisory authority required by Title III does not affect the continued validity of rights, duties or obligations of the United States, the OTS or other persons that existed on the day before the transfer date;

• ensure the continued validity of all orders, resolutions, determinations, agreements, regulations, interpretations, guidelines or other advisory materials relating to functions transferred from the OTS under Title III; and

• ensure the continuation of lawsuits or other actions or proceedings commenced by or against the OTS before the transfer date with provisions substituting for the OTS the agency to which the function involved in the action was transferred.


The FRB, FDIC or OCC, as appropriate, would be substituted for the OTS as the agency proposing or

promulgating any regulations that the OTS proposed or adopted but that are not effective on the transfer

date.

Identification of regulations to be enforced. Section 316 provides that, no later than the transfer date,

the OCC, FDIC and FRB would each be required to publish in the Federal Register a list of regulations

transferred under Title III from the OTS and FRB that would be enforced by the agencies. In developing

these lists, the OCC and FDIC would be required to consult with each other, and the FRB would be

required to consult with the OCC and the FDIC.

4. Collection of Supervision Fees

OCC supervision fees. Section 318 would authorize the OCC to collect an assessment, fee or other

charge from any entity for which it is the appropriate federal banking agency. Section 318 specifies

certain factors that the OCC may consider in making an assessment, fee or charge.

FDIC supervision fees. The FDIC would be authorized to assess the cost of any examination it

conducts of a depository institution or other entity it supervises or to carry out its responsibilities under the

FDI Act against the institution or entity examined or supervised.

FRB supervision fees. Section 318 would require the FRB, effective as of the transfer date, to collect

assessments, fees and charges to cover the expenses necessary to carry out its responsibilities with

respect to BHCs and SLHCs having total consolidated assets of $50 billion or more, as well as nonbank

financial companies supervised by the FRB under Title I of RAFSA.

5. Deposit Insurance Assessments

Deposit insurance assessments. Section 331 would require that the FDIC amend its regulations

regarding the assessment for federal deposit insurance to base such assessments on the average total

consolidated assets of insured depository institutions during the assessment period, less the average

tangible equity of the institution during the assessment period. This provision would significantly shift the

burden of FDIC assessments to larger banks—particularly those banks that rely the least on U.S.

deposits for funding.

For an insured depository institution that is a “custodial bank” (to be defined by the FDIC) or a banker’s

bank (as that term is used in 12 U.S.C. 24), the average total consolidated assets for the assessment

base would be further reduced by an amount the FDIC determines necessary to establish assessments

consistent with the FDIC’s definitions for these banks. The FDIC would be required to define “custodial

bank” based on factors including the percentage of total revenues generated by custodial businesses and

the level of assets under custody.


Section 331 would also eliminate Section 7(b)(2)(D) of the FDI Act, which currently provides that no

insured depository institution may be barred from the lowest-risk category in the FDIC’s deposit insurance

assessment system solely because of size.

Amendment to definition of material loss to the Deposit Insurance Fund. Section 38(k) of the FDI

Act requires the inspector general of the appropriate federal banking agency to conduct a review

whenever the Deposit Insurance Fund incurs a “material loss” with respect to an insured depository

institution. Section 987 would increase the threshold from the current $25 million to $100 million if the

loss occurs between September 30, 2009, and December 31, 2010, to $75 million if the loss occurs

between January 1, 2011, and December 31, 2011, and $50 million if the loss occurs on or after January

1, 2012. RAFSA would also establish a process for review by the inspector general of losses below these

thresholds to determine if an in-depth review of the failure is required and for the conduct of such a

review.

Realignment of the board of directors of the FDIC. Section 332 would add the director of the Bureau

of Consumer Financial Protection established in Title X to the board of directors of the FDIC and remove

the director of the OTS.

6. Termination of Federal Thrift Charter

Section 341 provides that, upon the date of the enactment of RAFSA, neither the OTS nor the OCC

would be authorized to issue a new charter for a federal savings association. When the OCC determines

that no federal savings associations continue to exist, Section 5 of the Home Owners’ Loan Act governing

federal savings associations would be repealed. The charter provisions of Section 5 of the Home

Owners’ Loan Act would be amended to eliminate the authority to issue charters and would authorize the

OCC to prescribe regulations providing for the examination, operation and regulation of federal savings

associations, giving primary consideration to the best practices of thrift institutions in the United States.

7. De Novo Branching

Section 342 provides that a savings association that becomes or converts to a bank may continue to

operate any branch or agency that the savings association operated immediately before it became a

bank. This provision would override any provision of federal law that would prevent such branching.

B. BANK AND SAVINGS AND LOAN HOLDING COMPANIES AND DEPOSITORY INSTITUTION REGULATORY IMPROVEMENTS ACT OF 2010

1. Moratorium and Study of Exemption for Certain Depository Institutions

Moratorium on applications. Section 603 would establish a three-year moratorium, beginning with the

enactment of RAFSA, prohibiting the FDIC from granting applications for federal deposit insurance for

certain depository institutions that are exempt from the definition of “bank” in the BHC Act, if the

depository institution would be controlled, directly or indirectly, by a commercial firm. The moratorium


would apply to applications received by the FDIC after November 10, 2009. The moratorium would not

apply to applications for deposit insurance for any such institution controlled by a firm that does not

qualify as a “commercial firm.”

• A “commercial firm” is defined as any entity that derives 15 percent or more of its consolidated annual gross revenues, including revenues from all of its affiliates, from activities that are not financial in nature or incidental thereto under Section 4(k) of the BHC Act.

• This moratorium would apply to so-called credit card banks, industrial banks and trust companies, each of which is not treated as a “bank” under the BHC Act under certain circumstances, and, therefore, may be owned by a company that is not a BHC.

In addition, each appropriate federal banking agency would be required, during the three-year

moratorium, to disapprove any notice for a change in control if it would result in a commercial firm

controlling, directly or indirectly, one of these exempt institutions. There are exceptions to this portion of

the moratorium where the change in control involves an institution in danger of default or results from a

bona fide merger or acquisition of a commercial firm that controls the exempt institution by another

commercial firm. In both cases, the appropriate federal banking agency would be required to determine

whether the exception was applicable.

Study of appropriateness of exemptions. Section 603 also provides that the Comptroller General

would be required to conduct a study to determine whether the exemptions for these institutions, as well

as for savings associations and certain other depository institutions, from the definition of “bank” in the

BHC Act are necessary to strengthen the safety and soundness of depository institutions or the stability of

the financial system. The study would be required to be submitted within 18 months after the enactment

of RAFSA to the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on

Financial Services (the “Congressional Banking Committees”). The study must identify the type and

number of these institutions (other than savings associations), their size and location, the extent to which

they are held by or affiliated with commercial firms, the adequacy of the federal supervisory framework for

these institutions, and the consequences of removing their exemptions, including the consequences to

the stability of the financial system and economy. The study must also determine the adequacy of the

framework for federal regulation of savings associations and the consequences of removing their current

exemption from the definition of “bank” in the BHC Act, including on the availability and allocation of credit

and the stability of the financial system.

2. Examination of Holding Companies and Subsidiaries

Removal of restrictions on reporting and examination authority. Section 604 would remove the

restrictions imposed under the Gramm-Leach-Bliley Act on the authority of the FRB to require reports

from, examine, adopt rules for (including with respect to capital and other prudential measures), impose

restraints on or take enforcement and other actions against functionally regulated subsidiaries of BHCs.

Functionally regulated subsidiaries include brokers and dealers regulated under the Exchange Act,


registered investment advisers and investment companies, state-regulated insurance companies and

entities regulated by the CFTC. Section 604 would require the FRB, as the appropriate federal banking

agency for BHCs, to provide notice to and consult with other federal and state regulators of holding

company subsidiaries, including functionally regulated subsidiaries, before requesting reports or other

information or commencing examinations, in order to avoid duplication. The FRB would also be directed

to use, to the fullest extent possible, reports of the holding company or any subsidiary to other federal or

state regulatory authorities, externally audited financial statements, information otherwise available from

federal or state regulatory authorities, and information otherwise required to be publicly reported. There

is no requirement for coordination with the regulator of the functionally regulated subsidiary in

enforcement actions or rulemaking.

Section 604 would also amend the Home Owners’ Loan Act to provide the FRB with the same reporting

and examination authority over SLHCs and their subsidiaries, including functionally regulated

subsidiaries, as contained in the BHC Act for BHCs. It would also direct the FRB to coordinate its

supervisory activities and to limit its information and reporting requests in the same manner as specified

for BHCs in order to avoid duplication in these activities.

Consideration of financial stability in applications. Sections 604(d) and (f) would require the

appropriate federal banking agency to consider “the risk to the stability of the U.S. banking or financial

system” in any application under the BHC Act to acquire shares of a bank or under the Bank Merger Act

to merge with or acquire the assets of a bank. This requirement would also apply to any notice or

application to engage in, or acquire shares of a nondepository institution engaged in, a financial activity

under Section 4 of the BHC Act.

New required application for large acquisitions. Section 604 would also add a new application

requirement to Section 4 of the BHC Act before a financial holding company may acquire a nonbank

company with $25 billion or more in total consolidated assets. Currently, financial holding companies are

not required to apply or provide prior notice to the FRB to acquire shares or assets of any nondepository

institution engaged only in permissible financial activities.

Examinations of nondepository institution subsidiaries. Section 605 would add a new Section 6 to

the BHC Act that would require the “lead Federal banking agency” to conduct examinations of the

nondepository institution subsidiaries of all BHCs and SLHCs (other than functionally regulated

subsidiaries) that are engaged in activities permissible for the depository institution subsidiaries of the

holding company (such as mortgage banking or consumer finance). The purpose of the examination

would be to determine whether the activities present safety and soundness issues for any affiliated

depository institution, are conducted in accordance with law, and are subject to appropriate risk

management systems, including systems for protecting affiliated depository institutions.

• The lead federal banking agency would be:


• the OCC, if the total consolidated assets of the federal depository institution subsidiaries of the holding company exceed those of its state-chartered depository institution subsidiaries; or

• the FDIC, if the total consolidated assets of the state-chartered depository institution subsidiaries exceed those of its federal depository institution subsidiaries.

• The FRB would not be a lead federal banking agency. Accordingly, the nondepository institution subsidiaries of BHCs or SLHCs, for which the FRB is the appropriate federal banking agency, would also be examined by the OCC or FDIC.

• The OCC and the FDIC, in carrying out this responsibility, are required to coordinate their activities with the FRB to avoid duplication, to share relevant information, and to ensure that the holding company and its subsidiaries are not subject to conflicting supervisory demands.

The lead federal banking agency may recommend that the FRB take enforcement action based on the

information obtained from its examination. If, within 60 days, the FRB fails to take the action or to provide

the OCC or FDIC with an acceptable plan for enforcement action, the lead agency may itself take the

enforcement action against the subsidiary.

BHC “excessive compensation.” As described below on page 82, Section 956 would require the FRB

to issue rules prohibiting any compensation plan of a BHC that provides an executive officer, employee,

director or principal shareholder with “excessive compensation, fees, or benefits” or that could lead to a

material loss to the BHC.

3. Heightened Standards for Expansion Proposals

Section 606 would require that a BHC that is a financial holding company and therefore may engage in

the expanded financial activities authorized by the Gramm-Leach-Bliley Act for financial holding

companies be and remain well-capitalized and well-managed. At present, these requirements do not

apply to the BHC, but only to the BHC’s subsidiary depository institutions. Section 607 would also amend

the BHC Act to require a BHC seeking approval to acquire shares of a bank located outside of the holding

company’s home state to be well-capitalized and well-managed. Similarly, the Bank Merger Act would be

amended to require that the surviving bank in an interstate merger transaction be well-capitalized and

well-managed.

4. Amendments to Sections 23A and 23B of the Federal Reserve Act

Additional restrictions on transactions with affiliates. Section 608 would amend Section 23A of the

Federal Reserve Act, which governs banks’ loans to, purchases of assets from, and other transactions

with, affiliates, in several significant respects:

• Any investment fund advised by the bank or an affiliate of the bank would be defined as an affiliate. Currently, to qualify as an affiliate, the fund must be both sponsored and advised on a contractual basis or the bank or an affiliate of the bank must advise the fund and the bank and its affiliates must hold five percent of more of the funds voting shares or equity capital, or, in the case of an investment company, the member bank or affiliate advising the company must fall within the definition of investment adviser in Section 2(a)(20) of the Investment


Company Act of 1940 (and accordingly must be registered under the Investment Advisers Act of 1940 (the “Advisers Act”)).

• A purchase of assets subject to a repurchase agreement would be defined as an extension of credit, which would subject the purchases to the collateral requirements of Section 23A. Currently, these transactions are treated as covered transactions under Section 23A but are not subject to its collateral requirements.

• The acceptance of “other debt obligations” of an affiliate as collateral for a loan to a third party would be treated as a covered transaction. Currently, only securities of an affiliate that are accepted as collateral for a loan to a third party are treated in this manner.

• A transaction with an affiliate involving the borrowing or lending of securities would be defined as a covered transaction to the extent the transaction causes the bank (or a subsidiary of the bank) to have a credit exposure to the affiliate.

• A derivative transaction (as defined in Section 610 of RAFSA, as described below) with an affiliate would be a covered transaction to the extent that it causes the bank (or a subsidiary) to have a credit exposure to the affiliate. Currently, only credit derivatives are treated as covered transactions subject to Section 23A.

• A credit extension or guarantee would be required to remain secured in accordance with the collateral requirements of Section 23A so long as it is outstanding. Currently, the collateral requirements only apply at the inception of the transaction, and thereafter an affiliate is generally not required to provide additional collateral to meet the requirements of Section 23A.

• The collateral requirements of Section 23A would apply to the bank’s credit exposure on derivative transactions with an affiliate and with respect to the credit exposure on borrowing or lending transactions with an affiliate.

• The prohibition on the acceptance of low-quality assets or securities issued by an affiliate as collateral for an extension or credit to, or guarantee on behalf of, an affiliate would be applied to the credit exposure on derivative transactions as well as securities lending or borrowing transactions with an affiliate.

• Debt obligations of an affiliate would not be permitted to be used as collateral for an extension of credit or credit exposure on a derivative or securities lending or borrowing transaction with an affiliate. Currently, this limitation applies only in the case of securities of an affiliate.

• The term “credit exposure” as used in these amendments is not defined in RAFSA. The FRB would, therefore, be authorized to define this term using its existing rulemaking authority. This definition will determine the severity of the impact of these changes to Section 23A on banks’ ability to conduct derivative and securities borrowing and lending transactions with their affiliates.

Netting agreements under Section 23A. Section 608 would authorize the FRB to take into account, in

determining the amount of a covered transaction between a bank and an affiliate under Section 23A, a

netting agreement. The FRB would also be authorized to take into account netting agreements for

purposes of the exemption from Section 23A for certain covered transactions (including credit exposure

on derivative or securities lending or borrowing transactions) that are fully secured by U.S. government

securities or a segregated, earmarked deposit account at the member bank. An interpretation of this

provision dealing with a specific bank or affiliate must be issued jointly by the FRB and the appropriate

federal banking agency for the bank or affiliate.


Exemptive authorities under Section 23A. Section 608 would also replace the FRB’s authority to grant

exemptions from Section 23A by order with a procedure under which, in the case of national banks, the

OCC could grant the exception. The exception could be granted only if (1) the OCC and the FRB jointly

found the exemption to be in the public interest and consistent with the purposes of Section 23A, and (2)

the chairperson of the FDIC, within 60 days of being notified of the proposed exemption, did not object in

writing to the exemption based on a determination that the exemption presented an unacceptable risk to

the Deposit Insurance Fund. A similar procedure would be established for an exemption by order from

Section 23A in the case of state banks, with the FDIC authorized to grant the exemption for state non-

member banks and the FRB authorized to grant the exemption for state member banks. In addition, the

Home Owners’ Loan Act would be amended to add similar provisions permitting the OCC (in the case of

federal associations) or the FDIC (in the case of state savings associations) to grant exemptions from

Section 23A as applied to savings associations.

The FRB could continue to adopt exemptions from Section 23A by regulation, but would be required to

provide the chairperson of the FDIC with 60 days’ notice of any such proposed exemption. The FRB

could not adopt the exemption if, within the 60-day period, the FDIC chairperson objected in writing to the

exemption on the basis that it presented an unacceptable risk to the Deposit Insurance Fund. Section

609 would add a similar notice procedure for exemptions to Section 23B of the Federal Reserve Act,

which requires that covered and other transactions with affiliates be on market.

Financial subsidiaries. Section 609 would eliminate the provision in Section 23A that permits a bank to

engage in covered transactions with a financial subsidiary of the bank in an amount greater than 10

percent (but less than 20 percent) of the bank’s capital and surplus.

Effective date. All of the amendments described above to Sections 23A and 23B would be effective one

year after the transfer date of the federal supervision and regulation of depository institutions and their

holding companies under Section 311.

5. Amendments to National Bank Lending Limit

Derivative and other transactions covered under lending limit. Section 610 would amend the

national bank lending limit to include any credit exposure to a person arising from a derivative transaction,

repurchase agreement, reverse repurchase agreement, securities lending transaction or securities

borrowing transaction between a national bank and the person. “Derivative transaction” would be defined

to include any transaction that is a contract, agreement, swap, warrant, note or option that is based, in

whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any

event relating to, one or more commodities, securities, currencies, interest or other rates, indices or other

assets. The amendments under Section 610 would be effective one year after the transfer date.


Application of national bank lending limit to insured state banks. Section 611 applies the national

bank lending limit to insured state banks in the same manner and to the same extent as if they apply to

national banks. This amendment takes effect one year after the transfer date.

6. Charter Conversions and Branching

Charter conversions by troubled banks. Section 612 would prohibit a national bank from converting to

a state bank or a state savings association during any period in which it is subject to a cease-and-desist

order or other formal enforcement order issued by, or memorandum of understanding entered into with,

the OCC with respect to a “significant supervisory matter.” The OCC would also be prohibited from

approving the conversion of a state bank or state savings association to a national bank in the same

circumstances. These restrictions would also apply to the conversion of state banks and state savings

associations to national banks or federal savings associations and to the conversion of federal savings

associations to state banks or state savings associations.

De novo branching into states. Section 613 would authorize national banks and state banks to

establish branches in any state if that state would permit the establishment of the branch by a state bank

chartered in that state.

7. Regulation of Certain Lending and Purchase Transactions

Expansion of lending restrictions applicable to insiders. Section 614 would treat as an extension of

credit for purposes of Section 22(h) of the Federal Reserve Act (which governs loans to insiders and their

related interests) any credit exposure to a person arising from a derivative transaction, repurchase

agreement, reverse repurchase agreement, securities lending transaction or securities borrowing

transaction between the bank and the person. The definition of derivative transaction under Section 610

would apply in this context. This section would take effect one year after the transfer date.

Limits on purchases of assets from or sales to insiders. Section 615 would prohibit an insured

depository institution from purchasing an asset from, or selling an asset to, an executive officer, director

or principal shareholder of the institution, or any related interest of that person (as these terms are

defined in FRB Regulation O), unless the transaction is on market terms. If the transaction represents

more than 10 percent of the capital stock and surplus of the insured depository institution, the transaction

must be approved in advance by a majority of the members of the board of directors who do not have an

interest in the transaction. The FRB would be directed to issue regulations necessary to define the terms

and carry out the purposes of this section, and would be required to consult with the OCC and the FDIC

regarding these rules. These new restrictions would apply on the transfer date.

The existing restriction in Section 22(d) of the Federal Reserve Act on purchases and sales of securities

or other property by member banks to or from its directors and certain related interests of the directors

would be repealed.


8. Capital Rules and Source of Strength

Capital rules for BHCs. Section 616 would amend the BHC Act specifically to authorize the FRB to

issue regulations relating to the capital requirements of BHCs. The FRB does not currently have explicit

authority under the BHC Act to establish capital adequacy rules. Section 616 would also provide the FRB

with the same authority with respect to SLHCs under the Home Owners’ Loan Act.

Source of strength. Importantly, Section 616 would amend the FDI Act to require FRB, as the

appropriate federal banking agency for a BHC or SLHC, to require the holding company to serve as a

source of financial strength for any subsidiary depository institution. This source-of-strength requirement

would also apply to companies that control insured depository institutions and that are not BHCs or

SLHCs. The appropriate federal banking agency for such a depository institution may require reports

from companies that own the insured depository institution to assess their ability to serve as a source of

strength and to enforce compliance with the source-of-strength requirements. The term “source of

financial strength” is defined as the ability of a company to provide financial assistance to its insured

depository institution subsidiaries in the event of financial distress at such subsidiaries. Currently, there is

no explicit authority in the BHC Act for the source of strength provision in the FRB’s Regulation Y. The

source of strength amendments in Section 616 would take effect on the transfer date.

9. Revised Regulatory Frameworks

Investment bank holding companies. Section 617 would eliminate the investment bank holding

company framework adopted under the Exchange Act, effective on the transfer date.

Securities holding companies. Section 618 would establish a framework for “securities holding

companies” that are required by a non-U.S. regulator or provision of non-U.S. law to be subject to

comprehensive consolidated supervision to register with and be supervised by the FRB. To qualify as a

securities holding company, a company must control one or more brokers or dealers registered with the

SEC and could not otherwise be subject to consolidated supervision by the FRB or another appropriate

federal banking agency.

Section 618 also describes the process under which a securities holding company could register with the

FRB to become a “supervised securities holding company.” The section provides for record-keeping and

reporting requirements for these companies and their affiliates (other than subsidiary banks), and details

the scope of examinations to be conducted by the FRB. The FRB would be directed, by regulation or

order, to prescribe capital adequacy and risk management standards for supervised securities holding

companies consistent with the safety and soundness of the companies and any risks they pose to

financial stability. In applying these standards, the FRB could differentiate among securities holding

companies on an individual basis or by category depending on the specified factors. The FRB could not

apply these capital and risk management requirements to subsidiary banks of the supervised securities

holding company.


The FRB would be given cease-and-desist and other enforcement authority over supervised securities

holding companies and their subsidiaries to the same extent it has such authority under the FDI Act for

BHCs. Finally, a supervised securities holding company would be subject to the BHC Act as if it were a

BHC, except for the provisions of Section 4 of that Act limiting the nonbanking activities of BHCs. This

would provide the FRB with the same report, examination, and rulemaking authority it has over BHCs and

their subsidiaries.

10. The Volcker Rule

Proprietary trading and sponsorship of, or investment in, hedge funds or private equity funds. Section 619 implements the recommendation of former FRB Chairman Paul A. Volcker to prohibit

proprietary trading and certain hedge fund and private equity fund activities by banking organizations.

The so-called Volcker rule would require the appropriate federal banking agencies, through joint

rulemaking and reflecting recommendations and modifications by the Council (based on a required study

by the Council of the rule), to prohibit proprietary trading and the sponsorship of or investment in hedge

funds or private equity funds by insured depository institutions, companies that directly or indirectly

control such institutions, companies that are treated as BHCs under the BHC Act (non-U.S. banks with

branches or agencies in the United States), and any subsidiary of such institutions or companies

(collectively, “covered companies”).

• “Proprietary trading” means the purchase or sale, or other acquisition or disposition, of stocks, bonds, options, commodities, derivatives or other financial instruments for the “trading book” (or such other portfolio as the appropriate federal banking agencies determine) of the relevant covered company. It does not include, subject to restrictions determined by the appropriate federal banking agencies, such activities conducted on behalf of a customer, as part of a market-making activity, or otherwise in connection with or to facilitate customer relationships, including “risk-mitigating” hedging activities related to such activities.

• A “hedge fund” or a “private equity fund” is a company or other entity exempt from registration as an investment company pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act or any similar fund as jointly determined by the appropriate federal banking agencies.

• An entity “sponsors” a hedge fund or private equity fund if it serves as the general partner, managing partner or trustee, selects or controls a majority of the directors, trustees or management of the fund, or shares with the fund for marketing, promotion or other purposes the same name or a variation on the same name.

• The prohibition on proprietary trading would not apply to an investment that is otherwise authorized by federal law in U.S. government and agency obligations, obligations of Ginnie Mae, Fannie Mae or Freddie Mac, or the obligations of a state or any political subdivision of a state.

• The prohibition does not apply to investments or activities conducted “solely” outside of the United States by non-U.S. banks as authorized under the BHC Act, to investments in small business investment companies (as defined in the Small Business Investment Act) or to those designed primarily to promote public welfare as provided in the National Bank Act.

Transactions with hedge and private equity funds. Section 619 would prohibit covered transactions

(as defined in Section 23A of the Federal Reserve Act) with a hedge fund or private equity fund by any


covered company that serves, directly or indirectly, as the investment manager or adviser to the hedge

fund or private equity fund. Section 619 would also subject transactions between a hedge fund or private

equity fund and such a company to the market terms and other requirements of Section 23B of the

Federal Reserve Act.

The coverage of these transaction limitations is unclear in the case of affiliates of the investment manager

or adviser to the fund. Under one interpretation, the prohibition would apply only to a company that

serves, directly or indirectly, as the investment manager or adviser. However, because of the use of the

term "indirectly" in the prohibition, it could be applied to a company that controls the investment manager

or adviser. If so, it is also possible the prohibition would be further applied to any other subsidiary of the

controlling company even if the other subsidiary was not directly or indirectly serving as the investment

manager or adviser. Under this latter interpretation, if an investment manager or adviser is a subsidiary of

a covered company, the prohibition would apply to the covered company and all of its subsidiaries. This

ambiguity could be clarified by rulemaking.

Additional capital/concentration requirements. The FRB would be required to adopt additional capital

requirements and additional quantitative limits for Covered Nonbank Companies that engage in

proprietary trading or sponsor or invest in hedge funds or private equity funds. These rules would be

subject to the same exceptions discussed in the bullet points above regarding U.S. government and

agency obligations, state obligations, small business investment companies and public welfare

investments, and the recommendations and modifications of the Council discussed below.

Study, recommendations and rules required. Section 619 would require the Council, within six months

after the enactment of RAFSA, to complete a study regarding whether the definitions and prohibitions in

the Volcker rule would promote and enhance the safety and soundness of depository institutions and their

affiliates, protect taxpayers, enhance financial stability by minimizing the risk that depository institutions

and their affiliates will engage in unsafe and unsound activities, limit the inappropriate transfer of federal

subsidies to unregulated entities, reduce inappropriate conflicts of interest, raise the cost of credit or other

financial services, limit activities that have caused undue risk or loss to depository institutions and their

affiliates and financial companies supervised by the FRB, and appropriately accommodate the business

of insurance within an insurance company regulated in accordance with state insurance company

investment laws.

The Council would also be required to make recommendations regarding the definitions in, and the

implementation of, the provisions of the Volcker rule, including any modification that would more

effectively implement the purposes of these provisions. Within nine months of completion of the Council’s

study and submission of recommendations, the appropriate federal banking agencies would be required

jointly to issue the regulations implementing the Volcker rule, which must reflect the Council’s

recommendations or modifications with respect to the definitions and implementation of the Volcker rule.


Significantly, the Council could also recommend that instead of absolute prohibitions on proprietary

trading and sponsoring and investing in hedge funds and private equity funds, these prohibitions would

apply above certain threshold limits and that additional capital requirements would apply to activities

conducted below those thresholds. The agencies are not required to adopt this recommendation, but if

they do so, it would parallel the treatment of nonbank financial companies discussed above.

Divestiture requirement. The regulations required by Section 619 to implement the Volcker rule must

prohibit any covered company from retaining any investment or relationship prohibited by the regulations

after two years from the date on which the final regulations are issued. The appropriate federal banking

agency may grant up to three one-year extensions to this two-year period if the extension would not be

detrimental to the public interest.

GAO study on proprietary trading. Section 989 of RAFSA would authorize the GAO to conduct a study

regarding the risks and conflicts associated with proprietary trading (broadly defined16) by and within

insured depository institutions and their affiliates, BHCs and financial holding companies and their

subsidiaries, and any other person the Comptroller General may determine (“covered entities”). This

study would include an evaluation of (1) whether proprietary trading presents a material systemic risk to

the stability of the U.S. financial system, (2) whether proprietary trading presents material risks to the

safety and soundness of these entities, (3) whether proprietary trading presents material conflicts of

interest between these entities and their clients who use the firm to execute trades or who rely on the firm

to manage assets, (4) whether adequate disclosure regarding the risks and conflicts of proprietary trading

is provided to customers, clients and investors of these entities and (5) whether the banking, securities

and commodities regulators of institutions that engage in proprietary trading have in place adequate

systems and controls to monitor and contain any risks and conflicts of interest related to proprietary

trading. In conducting the study, the Comptroller General must consider with respect to proprietary

trading the advisability of a complete ban or additional capital requirements, limitations on the scope of

the activities that could be conducted by covered entities, enhanced restrictions on transactions between

affiliates, enhanced accounting and public disclosure, and any other options the Comptroller General

deems appropriate.

To conduct the study, the Comptroller General would be granted access to (1) any information, including

any records, data, files, electronic communications or property of a covered entity that engages in

proprietary trading, and (2) the covered entity’s officers, employees, directors, independent public

accountants, financial advisors, staff and other agents and representatives. The Comptroller General

would generally be required to keep this information confidential but may release it at a level of generality

16 For purposes of the study, “proprietary trading” means investing as principal in securities,

commodities, derivatives, hedge funds, private equity firms or such other financial products or entities as the Comptroller General determines.


that does not disclose identifying details or investment or trading positions or strategies. The Comptroller

General may provide this information, however, to another federal government agency or official for

official use, to a committee of Congress upon request, or to a court. The GAO would be required to

submit a report regarding its findings from the study to Congress within 15 months after the enactment of

RAFSA.

11. Concentration Limit on Expansion by Large Financial Firms

Section 620 would add a new Section 13 to the BHC Act that would prohibit a financial company from

engaging in a transaction involving a merger with or an acquisition of the shares, or substantially all of the

assets, of another company, if as a result of the transaction the total consolidated liabilities of the financial

company would exceed 10 percent of the aggregate consolidated liabilities of all financial companies

(calculated as of the end of the preceding calendar year).

• “Liabilities” is generally defined using the risk-based capital rules for BHCs as risk-weighted assets (adjusted to reflect exposures deducted from regulatory capital) less regulatory capital.

• Liabilities for non-U.S. based companies would be determined based on their U.S. operations.

• The FRB would be authorized to adopt rules defining “liabilities” in the context of insurance companies and other nonbank financial companies it supervises.

• “Financial companies” is defined as insured depository institutions, companies that control them (including BHCs and SLHCs), nonbank financial companies supervised by the FRB and non-U.S. banks or companies treated as BHCs.

The prohibition on excessive concentration of liabilities would be subject to recommendations by the

Council, as discussed below, and to exceptions, with FRB approval, for:

• acquisitions of banks in default or danger of default;

• transactions involving FDIC assistance; and

• de minimis increases in liabilities.

Section 620 would require the Council, within six months after the enactment of RAFSA, to complete a

study of the extent to which this concentration limit would affect financial stability, moral hazard in the

financial system, the efficiency and effectiveness of U.S. financial firms and markets, and the cost and

availability of credit and other financial services in the United States. The Council would be required to

make recommendations regarding modifications to the concentration limit that would more effectively

implement Section 620.

Within nine months of the study’s completion, the FRB would be required to issue final rules reflecting the

Council’s recommendations even if they modify the application of the statutory prohibitions or any

guidance previously issued by the FRB.


12. GAO Study of Prompt Corrective Action

Section 202(g) would require a study by the Comptroller General of the implementation of the prompt

corrective action provisions by the federal banking agencies and recommendations to make them a more

effective tool. The Comptroller General would be required to submit the report to the Council, which must

report to the Congressional Banking Committees on responses by these agencies to the report and its

recommendations.

C. FEDERAL RESERVE SYSTEM REFORMS AND EMERGENCY FINANCIAL STABILIZATION

Federal Reserve emergency lending. Section 1151 would amend Section 13(3) of the Federal Reserve

Act, which governs the FRB’s ability to provide emergency credit to individuals, partnerships or

corporations in unusual or exigent circumstances. As amended, Section 13(3) would eliminate the FRB’s

authority to provide emergency credit to any person other than through “any program or facility with

broad-based eligibility” and would require the prior approval of the Treasury Secretary for the FRB to

provide such credit. A program or facility would not be “broad-based” if it were structured to remove

assets from the balance sheet of a single, specific company or if it were established to assist a single,

specific company to avoid bankruptcy, resolution under Title II of RAFSA or any other federal or state

insolvency proceeding.

The FRB would be required as soon as practicable to issue regulations to implement these changes, in

consultation with the Treasury Secretary. The regulations would establish policies and procedures

designed to ensure that the purpose of any emergency lending program or facility would be to provide

liquidity to the financial system and not to aid a failing financial company, that the collateral provided to

support the emergency loans would be sufficient to protect taxpayers from losses, and that the program

or facility would be terminated in an orderly and timely fashion.

The policies and procedures established by the regulation would require a Federal Reserve bank,

consistent with sound risk management policies, to assign a “lendable value” to all collateral securing an

advance in order to determine whether the advance is satisfactorily secured. Any realized net loss

sustained by a Federal Reserve bank to a company for which a systemic risk determination has been

made under the resolution authority of Title II would have priority in resolution under Title II or a

bankruptcy proceeding.

The FRB would also be required to establish procedures to prohibit borrowing by insolvent borrowers.

These must include a certification from the borrower’s CEO (or other authorized officer) that the borrower

is solvent at the time of the borrowing. The certification would be required to be updated if information in

it materially changes. A borrower would be deemed to be insolvent if it is in bankruptcy, resolution under

Title II, or any other federal or state insolvency proceeding.


Reports to Congress. Within seven days of providing emergency credit, the FRB would be required to

report to the Congressional Banking Committees. The report would provide the justification for the

financial assistance and other specified information, including the date and amount of the assistance and

the form provided, the material terms of the assistance (including the collateral pledged, its value,

interest, fees and revenues received), expected costs to taxpayers and any restrictions placed on the

recipient. The FRB would be required to report every 30 days thereafter on the value of the collateral, the

interest, fees and other revenues received and the expected or final costs to the taxpayer.

At the request of the chairman of the FRB, the information submitted to Congress relating to the identity

of the participants in the program or facility, the amounts borrowed by each participant, and identifying

details concerning the assets or collateral held in connection with the facility or program would be kept

confidential. This information would be submitted to the chairpersons and ranking members of the

Congressional Banking Committees.

GAO review of FRB credit facilities. Section 1152 would authorize the GAO to conduct reviews of any

credit facility program authorized by the FRB under Section 13 of the Federal Reserve Act, including on-

site examinations of the FRB, any Federal Reserve bank or credit facility, special purpose vehicle or other

entity established by the FRB or a Federal Reserve bank. The GAO’s review would be restricted to

assessing (1) the operational integrity, accounting, financial reporting and internal controls of the facility,

(2) the effectiveness of collateral policies, (3) whether the facility favors one or more specific participants

over others eligible to participate, and (4) the policies governing third-party contractors for the facility.

The GAO would submit a report to Congress with respect to any such review within 90 days of its

completion. Among other elements, the report would describe the matters reviewed and any

recommendations for administrative or legislative action.

The GAO would be prohibited from disclosing to Congress or to any person the names or identifying

details of participants in any credit facility reviewed, amounts borrowed, or assets or collateral held by the

facility. This non-disclosure requirement would expire upon the public release of the information by the

FRB or a Federal Reserve bank and would not apply to the Maiden Lane special purpose vehicles

previously established by the Federal Reserve Bank of New York. To the extent reviews are redacted to

comply with these disclosure limitations, the GAO would be required to release the full text of the review

on the earlier of one year after the facility is terminated by the FRB and two years after the credit facility

ceases to make extensions of credit.

GAO audit of Federal Reserve System credit programs. Section 1159 would require the GAO to

conduct an audit of all loans and financial assistance provided by the FRB to deal with the financial crisis

from December 1, 2007, through the date of enactment of RAFSA under certain programs or facilities.

The specified programs, facilities and Maiden Lane special purpose vehicles are those established using

the FRB’s emergency lending authority under Section 13(3) of the Federal Reserve Act, as well as the


Term Auction Facility, the FRB’s currency swaps with non-U.S. central banks and the FRB’s direct

purchases under the agency mortgage-backed securities program. The audit report would be required to

be completed within 12 months after enactment of RAFSA and would be provided to the Speaker of the

House, the majority and minority leaders of the House and Senate, the chairpersons and ranking

members of the Congressional Banking Committees and any member of Congress who requests the

report.

The GAO audit would assess the operational integrity, accounting, reporting and financial controls of the

facility; the effectiveness of collateral policies to mitigate risk; whether the facility favors specific

participants over other eligible institutions; the policies governing the use, selection and payment of third-

party contractors for the facility; and any conflicts of interest in the establishment or operation of the

facility.

GAO audit of Federal Reserve bank governance. The GAO would also, within one year after

enactment of RAFSA, be required to complete an audit of the governance of the Federal Reserve banks.

The audit would examine (1) whether the system for the appointment of Class B and C directors of the

Federal Reserve banks effectively carries out the public interest representation requirements of the

Federal Reserve Act; (2) whether there are actual or potential conflicts of interest when the Federal

Reserve bank directors are elected by the member banks; and (3) the establishment and operation of the

facilities listed above and each Federal Reserve bank’s involvement in them. The audit would also

identify changes to the Federal Reserve bank director selection procedures or other aspects of Federal

Reserve bank governance that would improve the representation of the public, eliminate actual or

potential conflicts of interest in bank supervision, increase the availability of information useful in

monetary policy, or increase the effectiveness or efficiency of the Federal Reserve banks. The report

would be required to be submitted to the members of Congress listed above.

With respect to the programs and facilities subject to the GAO audit described above, Section 1159 would

also require the FRB to publish on its website, no later than December 1, 2010:

• the identity of each institution provided assistance, including non-U.S. central banks; and

• the type and date of the assistance provided; its value; the specific terms of repayment expected, including the term, interest charges, collateral, any limits on executive compensation or dividends and other material terms; and the specific rationale of the program or facility.

Public access to FRB information. Section 1153 would require the FRB to place on its website a link

(entitled “Audit”) to a web page that must contain (1) the information made available to the public

regarding the Comptroller General’s reports relating to the FRB or the Federal Reserve banks or credit

facilities established by them, (2) the audited financial statements of the FRB and Federal Reserve banks,

(3) reports to the Congressional Banking Committees on emergency credit facilities established under

section 13(3) of the Federal Reserve Act, and (4) other information the FRB believes is necessary or


helpful for the public to understand the accounting, financial reporting and internal controls of the FRB

and Federal Reserve banks. The material must remain on the website for a reasonable period of time (at

least six months from its public release).

Emergency financial stabilization program. Section 1155 would require, upon a written determination

by the FDIC and the FRB, that the FDIC create a widely available emergency financial stabilization

program to guarantee the obligations of solvent insured depository institutions or solvent depository

institution holding companies (as defined in the FDI Act)17 (including any affiliates thereof) during times of

severe economic stress. These guarantees may not include the provision of equity in any form.

The FDIC would be required to establish the program upon a written determination by the FDIC and the

FRB pursuant to Section 1154 that a liquidity event exists that warrants use of the guarantee program. A

liquidity event is defined as:

• an exceptional and broad reduction in the general ability of financial market participants to sell financial assets without an unusual and significant discount or to borrow using financial assets as collateral without an unusual and significant increase in margin; or

• an unusual and significant reduction in the ability of financial market participants to obtain unsecured credit.

Section 1154 would provide that such a determination by the FDIC and the FRB may be initiated at the

request of the Treasury Secretary. The determination by the FDIC and the FRB would be made upon a

vote of two-thirds of the board members of each agency. The written determination would be required to

contain an evaluation of the evidence that a liquidity event exists and that the failure to take action would

have serious adverse effects on financial stability or economic conditions in the United States. The

determination would also be required to contain an evaluation of evidence that the actions authorized

under the FDIC guarantee program are needed to mitigate these potential adverse effects.

The Secretary would be required to maintain written documentation of the determination, and the

Comptroller General would be directed to review and report to Congress on the determination, including

the basis for the determination and the likely effect of the actions taken. The Secretary would be required

to provide notice of the determination by the FDIC and the FRB to the Congressional Banking

Committees, including a description of the basis for the determination. The notification would be due

upon the earlier to occur of 30 days from the date the determination is made and the date the amount to

be guaranteed is communicated to Congress by the President as discussed below.

17 For this purpose, a depository institution holding company is a BHC or an SLHC. It would not include

a company that only owned an insured bank that is exempt from the definition of “bank” in the BHC Act, such as an industrial bank.


Section 1155 would require the FDIC to adopt regulations, in consultation with the Treasury Secretary,

governing the policies and procedures for the issuance of guarantees under the emergency financial

stabilization program. The terms and conditions of any guarantee program established by the FDIC and

its creation must be approved by the Treasury Secretary. The Treasury Secretary, in consultation with

the President, would be required to determine the maximum amount of debt that the FDIC could

guarantee under any stabilization program.

Section 1155 would establish a procedure under which the President would provide a written report to

Congress describing the FDIC’s proposed program to issue guarantees, specifying the maximum amount

to be guaranteed and requesting approval of the program. The FDIC could not issue guarantees under

the program unless there was a joint resolution of Congress approving the program. A similar procedure

would be established in the event that the maximum guarantee amount under a program were proposed

to be raised. RAFSA would provide a mechanism to ensure consideration of the President’s report on the

guarantee program by Congress under expedited procedures.

The FDIC would be required to charge fees and other assessments to participants in the program to

offset the projected losses and the administrative expenses. Any excess funds remaining after the

termination of the program would be paid to the Treasury. The FDIC would be authorized to borrow funds

from the Treasury Department, but not from the Deposit Insurance Fund, to fund the program. If the fees

and other assessments levied by the FDIC were insufficient to cover the cost of the program, the FDIC

would be required to impose a special assessment on participants in the program to address the

deficiency.

FDIC emergency assistance authority. Section 1156 would eliminate the FDIC’s ability under its

systemic risk authority to provide assistance to solvent depository institutions or their solvent holding

companies (or affiliates) through the establishment of a widely available debt guarantee program other

than under the emergency stabilization program discussed above. The FDIC’s existing systemic authority

in other cases is subject to the requirement that the insured depository institution subsidiary must be in

receivership. This would eliminate the FDIC’s ability to use the systemic exemption to provide open bank

assistance. Any action taken by the FDIC under the systemic authority would be required to be for the

purpose of winding down a depository institution for which the FDIC had been appointed receiver.

The FDIC would be granted the authority to appoint itself as receiver for any depository institution that

defaults on a guarantee provided to it under the emergency stabilization program or under the emergency

systemic assistance provisions of the FDI Act. In the event a depository institution holding company or

other company that is not an insured depository defaults on such an obligation, the FDIC could require

consideration whether a determination should be made to resolve the company under the resolution

authority in Title II of RAFSA. If the FDIC were not appointed receiver under Title II within 30 days after


default, the FDIC could require the company to file a petition for bankruptcy or could file a petition for

involuntary bankruptcy on behalf of the company.

Federal Reserve System governance. Section 1157 would require that the president of the Federal

Reserve Bank of New York be appointed by the President with the advice and consent of the Senate for a

term of five years.

Section 1157 also provides that no company, or subsidiary of a company, supervised by the FRB may

vote for members of the board of directors of a Federal Reserve bank, and no former or current officer,

director or employee of such a company may serve as a member of the board of directors of a Federal

Reserve bank. Because the directors of the Federal Reserve banks are elected by the member banks of

the Federal Reserve System, it is unclear how the directors of the Federal Reserve banks will be

determined in the future. In addition, this provision would prevent current and former officers, directors

and employees of member banks and BHCs from serving as Class A directors of a Federal Reserve

bank, even though Class A directors are required to represent the shareholding member banks and

typically have been senior member bank or BHC officials.

Section 1158 would amend the Federal Reserve Act to provide for a second vice chairman of the Board

of Governors of the FRB to be appointed, who would be designated as the “vice chairman for

supervision.” The vice chairman for supervision would be responsible for developing policy

recommendations regarding the supervision and regulation of depository institution holding companies

and other financial firms supervised by the FRB and would be required to oversee the supervision and

regulation of these firms.

The vice chairman for supervision would be required to report to the Congressional Banking Committees

semiannually regarding the conduct of the FRB’s supervisory responsibilities for depository institution

holding companies and other financial firms supervised by the FRB.

The FRB would be prohibited from delegating to a Federal Reserve bank its functions for the

establishment of policies for the supervision and regulation of depository institution holding companies

and other financial firms supervised by the FRB.

The Federal Reserve Act would also be amended to add as one of the functions of the FRB the

identification, measurement, monitoring and mitigation of risks to the financial stability of the United

States.

D. NATIONAL CREDIT UNION SHARE INSURANCE FUND

Section 988 would require the inspector general of the National Credit Union Board (the “NCUB”) to

submit a written report whenever the Share Insurance Fund of the National Credit Union Association (the

“NCUA”) incurs a “material loss” with respect to an insured credit union. Such report, which would be


structured as a review of the supervision of the credit union by the NCUA, must describe the reasons for

the material loss and recommendations for preventing such losses in the future. A “material loss” would

mean a loss exceeding the sum of (1) $25 million and (2) 10 percent of the total assets of the credit union

on the date on which the NCUB initiated assistance or was appointed liquidating agent. In addition, the

inspector general of the NCUB would be required to submit a semiannual report to Congress identifying

losses incurred by the Share Insurance Fund during the preceding six-month period and providing

information regarding the Share Insurance Fund’s non-material losses.

IV. DERIVATIVES REFORMS

Title VII, the “Wall Street Transparency and Accountability Act,” is based on the legislative proposal to

regulate the over-the-counter (“OTC”) derivatives markets introduced by Senate Agriculture Committee

Chairwoman Blanche Lincoln and approved by the Senate Agriculture Committee by a vote of 14 to 8 on

April 21, 2010. Title VII would give the CFTC and the SEC extensive new authority, and impose

significant requirements on the agencies, to regulate the OTC derivative markets, products and market

participants.

Under Title VII, the CFTC would be given authority over swaps, swap dealers and major swap

participants, and the SEC would be given authority over security-based swaps, security-based swap

dealers and major security-based swap participants (respectively, “swaps,” “swap dealers” and “major

swap participants”). Under the new regulatory regime, swap dealers and major swap participants would

be required to execute their transactions on a centralized exchange or regulated facility and to clear the

transactions through a regulated clearing house. Swap dealers and major swap participants would also

be subject to capital and margin requirements, as well as business conduct rules. Title VII would further

require the CFTC and the SEC to promulgate numerous rulemakings to implement the legislation, both

jointly and separately. The CFTC and the SEC would be able to challenge each other’s rules conflict in

the U.S. Court of Appeals for the District of Columbia.

In addition, Title VII would give regulatory authority to several prudential regulators to monitor bank swap

dealers and major swap participants:

• The OCC would be the prudential regulator for swap dealers and major swap participants that are, or are affiliated with, a national bank, a federally chartered branch or agency of a non-U.S. bank, or a federal saving association.

• The FDIC would be the prudential regulator for any swap dealers or major swap participants that are, or are affiliated with, an insured state bank, a non-U.S. bank with an insured branch, or a state savings association.

• The FRB would be the prudential regulator for any swap dealers or major swap participants that are, or are affiliated with, a non-insured state bank, a non-U.S. bank without an insured branch, a branch or agency of a non-U.S. bank with respect to any provision of the Federal Reserve Act that is made applicable under the International Banking Act of 1978, or an


agency or commercial lending company other than a federal agency. The FRB would also have jurisdiction over any supervisory or regulatory proceedings that arise under Section 7(c)(1) of the International Banking Act of 1978.

• The Farm Credit Administration would be the prudential regulator for any swap dealers or major swap participants that are, or are affiliated with, a market participant that is chartered under the Farm Credit Act of 1971.

The applicability of the definition of “prudential regulator” to certain types of entities, notably U.S.

branches or agencies of non-U.S. banks, is not entirely clear and presumably would need to be clarified

by the regulators. In addition, certain swap dealers and major swap participants would be subject to

regulation by the banking regulators as well as the SEC or CFTC.

Accordingly, certain swap dealers and major swap participants would be subject to regulation by the

banking regulators as well as the SEC or CFTC.

As is the case in the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173), the OTC

derivatives legislation passed by the House of Representatives in December 2009, Title VII would leave

many significant issues to be addressed by the CFTC and the SEC, including defined terms that will

determine which market participants will be subject to the new regulatory regime.18 However, Title VII

would impose significant restrictions on the activities of financial institutions that are active in OTC

derivative markets that were not included in the House bill.

Definition of “swap.” Under Title VII, the CFTC and the SEC would have the authority to define and

regulate swaps and security-based swaps. A swap would be defined as any agreement, contract or

transaction based on an underlying financial product or the occurrence or non-occurrence of an event

relating to a financial product, including interest rate swaps, foreign exchange swaps, credit default swaps

and commodity swaps. A security-based swap is defined as a swap based on a narrow-based security

index, a single security or loan, or the occurrence or non-occurrence of an event relating to a single issuer

of a security or the issuers of securities in a narrow-based security index. Mixed swaps, to be defined

jointly by the CFTC and the SEC, will be regulated as security-based swaps.

Both equity swaps and equity index swaps are defined as “swaps,” over which the CFTC, and not the

SEC, would have exclusive jurisdiction. This appears to be inconsistent with the definition of security-

based swaps, although Title VII does not clarify the difference between equity swaps and security-based

swaps. As a result, any market participant that makes a market or holds a substantial position in equity

swaps or equity index swaps would potentially be comprehensively regulated by the CFTC, not the SEC.

18 For additional information on the derivatives legislation in the House bill, please see our previous

memorandum, dated December 14, 2009, entitled “U.S. House of Representatives Passes Comprehensive OTC Derivatives Legislation.”


The definition of a swap does not include physically settled forward contracts on non-financial

commodities, provided that the parties intend to settle the transaction by physical delivery. However, like

many provisions of Title VII, it is unclear how “intend” will be interpreted. For example, if the parties

intend to settle by physical delivery at the outset, but their needs or circumstances change, it is unclear

whether this would negate the forward contract characterization of the transaction.

Title VII includes foreign exchange forwards and swaps in the definition of “swap,” if they are cleared by

any derivatives clearing organization or listed on any exchange or swap execution facility. If a foreign

exchange forward or swap is not cleared or listed, the Treasury Secretary may exclude the foreign

exchange forward or swap from the regulations imposed by Title VII. However, exempted foreign

exchange forwards and swaps would be required to be reported to a swap repository and would be

subject to business conduct standards.

Swap dealers and major swap participants. Under Title VII, a swap dealer would be defined as “any

person who (1) holds itself out as a dealer in swaps; (2) makes a market in swaps; (3) regularly engages

in the purchase or sale of swaps in the ordinary course of business; or (4) engages in any activity causing

the person to be commonly known in the trade as a dealer or market maker in swaps.” A person may be

designated as a swap dealer for “a single type or single class or category of swap” but not for other types,

classes, or categories of swaps.

Title VII defines a major swap participant (“MSP”) as a non-swap dealer that maintains a substantial

position in swaps for any of the major swap categories as determined by the CFTC (excluding positions

held for hedging or mitigating commercial risk); has substantial counterparty exposure that could have

serious adverse effects on the financial stability of the U.S. banking system or financial markets; or is a

financial entity that is highly leveraged relative to the amount of capital it holds and maintains a

substantial position in outstanding swaps in any major swap category. The regulators would be required

to define “substantial net position” in such a way that is “prudent for the effective monitoring,

management, and oversight of entities that are systemically important or can significantly impact the

financial system of the United States.”

As with swap dealers, a person may be designated as an MSP for one or more categories of swaps

without being classified as an MSP for all classes of swaps. Therefore, it would be possible for a large

commercial producer to be classified as an MSP (or swap dealer) for a particular swap, and subject to the

new regulatory regime, if it meets the MSP criteria for that particular swap, as determined by the

regulators.

The regulators would have significant discretion to define swap dealer and MSP, and given the ambiguity

of the terms in RAFSA that will be defined by the CFTC and the SEC, they will have significant authority

to determine if an end-user will be an MSP, and accordingly subject to the new regulatory regime. For

example, the carve-out for hedging in the MSP definition does not specifically refer to operating and


balance sheet hedging, and it is unclear if those activities would be considered hedging activities by the

regulators. It is clear that entities that have a significant swap book and are not commercial hedgers,

such as hedge funds, would likely be deemed MSPs and subject to the regulatory regime. In addition, the

chairperson of the CFTC, Gary Gensler, has indicated that he believes some large commercial producers,

such as major oil producers, would likely be deemed MSPs.

Financial institutions. Title VII contains a provision, known as the “Lincoln push-out provision,” that

would prohibit a swap dealer or MSP, among other entities, from receiving federal assistance, including

access to FDIC insurance and the Federal Reserve discount window, for any activities in connection with

swaps, including any loans or guarantees made by swap dealers or MSPs, and any loss- or profit-sharing

with the swap dealers or MSPs. In addition, financial institutions that receive federal assistance would be

prohibited from investing in any swap facility, including clearing house, derivatives clearing organization,

exchange or swap trading facility. There is no similar provision in the House bill, and it remains to be

seen how the two bills will be reconciled in this respect.

Commercial end-users. Title VII defines “commercial end-user” as any person other than a financial

entity who, as its primary business activity, owns, uses, produces, processes, manufactures, distributes,

merchandises or markets goods, services or commodities (including all energy commodities) either

individually or in a fiduciary capacity. As discussed below, commercial end-users would be exempted

from the clearing, trading and margin requirements when hedging their “commercial risk” (also to be

defined by the regulators). However, despite extensive lobbying by the commercial end-user community,

there is no broad exemption for end-user transactions in Title VII, such as those engaged in balance

sheet hedging or hedging of financial risks. Therefore, a commercial end-user may enter into a

transaction that becomes “speculative” as the physical inventory of assets underlying transactions shifts

in response to market demands, as a result of which the commercial end-user would no longer be

hedging its commercial risk and would be subject to the clearing, trading and related margin

requirements.

Clearing and trading requirements. Title VII would require swaps to be cleared through a regulated

clearinghouse if a clearinghouse will accept the swap for clearing and the CFTC and SEC require that

swap to be cleared. In addition, the CFTC would have the authority, under expedited rulemaking, to

identify swaps that should be cleared, even if no clearinghouse or derivatives clearing organization

requested to clear that particular swap. However, the CFTC could not require a derivatives clearing

organization to clear a swap if the clearing of that swap would adversely affect the business operations or

the financial integrity of the derivatives clearing organization or clearing house, or pose a systemic risk to

the derivatives clearing organization or clearing house.

A commercial end-user using swaps to hedge its own commercial risk would not be subject to the clearing

requirement. (A commercial end-user may request that a swap transaction that is eligible for the clearing


exemption be cleared.) While a non-financial affiliate of a commercial end-user may hedge the

commercial risk of the commercial end-user, the affiliate could only do so if there were no other financial

entity, such as a swap dealer/MSP, an entity predominantly engaged in activities that are financial in

nature, or an entity that is required to be registered with the CFTC, within the larger corporate structure of

the affiliate, even when the restricted affiliate does not interact with the commercial end-user.

Many commercial end-users currently use a single internal trading entity that trades on behalf of its

affiliates and in effect serves as a conduit for trading with the market on behalf of these affiliates. This

activity would be significantly restricted by Title VII. As a result of this provision, these commercial end-

users may be forced to enter into swap transactions with third parties, even though they lack the capital or

expertise to enter into these transactions.

All swaps that are not cleared, including those of commercial end-users, would be required to be reported

to a trade repository or to the CFTC or SEC, and the repository or the CFTC or SEC would be required

publicly to release aggregate data on all non-cleared swaps. All swaps that were entered into before the

enactment of the clearing requirement would not be required to be cleared, but would also be reported to

a repository or the CFTC or SEC.

All swaps that would be required to be cleared would also be required to be executed on a regulated

exchange or a swap execution facility (“SEF”) unless no exchange or SEF is willing to list the swap. A

SEF is defined as a facility that allows multiple participants to execute or trade swaps by accepting bids

and offers made by other participants that are open to multiple participants in the system, but that is not

an exchange. Commercial end-users exempt from the clearing requirement would also be exempt from

the execution requirement. If the swap cannot be executed because no exchange or SEF will list it, the

counterparties would nevertheless be required to comply with any recordkeeping and transaction

reporting requirements imposed by the CFTC.

SEFs would be required publicly to report all executed swap transactions as close to real-time as

technologically possible following the execution of a swap transaction. However, the CFTC would be

required to specify criteria to define a large notional swap transaction (a block trade) and to specify the

appropriate time delay for reporting block trades. This requirement was added to Title VII to address the

concerns of market participants that the real-time reporting requirements for block trades would

significantly impact the liquidity for these transactions, as dealers may be reluctant to take on larger risks

knowing that their requirement of immediate disclosure could encourage trading ahead of the dealers’

transactions to hedge or liquidate the position.

Capital and margin requirements. The CFTC and SEC, in consultation with the prudential regulators,

would be required to impose capital and initial and variation margin requirements for swap dealers and

MSPs, which must be substantially higher for swaps that are not cleared. In setting the capital

requirements, the CFTC and the prudential regulators would be required to review all of the activities of


the swap dealers and MSPs, including activities that are not required to be regulated. As a result,

regulators could impose capital requirements on a U.S. swap dealer or MSP based on swap transactions

entered into by a non-U.S. affiliate of the domestic entity. In addition, regulators could impose capital

requirements on an entity that is generally treated as a commercial end-user by the regulators, even if the

entity is an MSP for a particular type of swap. The regulators could create a capital requirement that is

based on all of the transactions entered into by that entity, even those it enters into as a commercial end-

user.

Regulators may permit the use of non-cash collateral if doing so is consistent with preserving the financial

integrity of markets trading swaps and preserving the stability of the U.S. financial system. The use of

non-cash collateral would be especially important for market participants that are not exempt from the

margin requirements. During the derivatives reform debate, many market participants had argued that

the imposition of margin requirements would be financially burdensome, as they currently use non-cash

collateral, such as physical assets and letters of credit, to secure transactions with their swap

counterparties.

As with the clearing requirements, commercial end-users would be exempt from the margin and capital

requirements. However, at the request of a party to a swap that is exempt from the margin requirements,

margin would be required to be provided by both parties to the swap.

For swaps that are not cleared, the swap dealer or MSP would be required to notify its counterparty at the

beginning of a transaction that the counterparty has the right to require segregation of initial (but not

variation) margin.

Recordkeeping and reporting requirements. All swap dealers and MSPs would be required to

maintain daily trading records of swaps and all related records (including related cash or forward

transactions); recorded communications including electronic mail, instant messages and recordings of

telephone calls; daily trading records for each customer or counterparty; and a complete audit trail for

conducting comprehensive and accurate trade reconstructions.

Business conduct standards. Title VII would impose business conduct requirements on swap dealers

and MSPs, including requirements that they disclose specific information to their counterparties that are

not swap dealers or MSPs, including risks, fees and other remuneration and conflicts of interest,

associated with the swap transactions. In addition, swap dealers and MSPs would be required to

communicate with their non-swap dealer, non-MSP counterparties, on the basis of fair dealing and in

good faith, and to ensure that any governmental eligible contract participant has a qualified independent

representative.

Conflicts of interest. The CFTC and the SEC would be required to promulgate rules mitigating conflicts

of interest with respect to swap dealers and MSPs that own equity in organizations that clear and execute


swaps. The CFTC would also be required to study whether it should adopt rules to limit the ownership of

clearinghouses, derivatives clearing organizations, SEFs and exchanges by banks with more than $50

billion in assets, nonbank financial companies supervised by the Federal Reserve, swap dealers or

MSPs.

Under Title VII, swap dealers, MSPs, futures commission merchants and introducing brokers would be

required to implement conflict-of-interest systems separating any research or analysis personnel from

trading or clearing personnel. Specifically, these entities would be required to separate employees acting

in a role of providing clearing activities or making determinations as to accepting clearing customers

functions from the review, pressure and oversight of persons involved in pricing, trading or clearing

activities.

In addition, under Title VII a swap dealer would be subject to a fiduciary duty to any counterparty that is a

governmental entity, state, state agency, city, county, municipality or other political subdivision or a

federal agency, as well to pension plans, endowments and retirement plans. While “fiduciary duty” is not

defined in Title VII, acting as a fiduciary is inconsistent with the traditional role of a swap dealer in a

transaction.

Position limits. Title VII would direct the CFTC to impose aggregate position limits for contracts traded

on exchanges, SEFs, non-U.S. boards of trades and swaps that are not centrally executed and perform a

significant price-discovery function with respect to a registered contract. This provision would significantly

expand the authority of the CFTC to limit the size of an entity’s overall portfolio, by eliminating the ability

to take positions in the OTC market as a market participant reaches the position limits in the futures

market.

In addition, the SEC would be given authority to impose position limits on security-based swaps, including

aggregate position limits on security-based swaps and any underlying security or loan that the security-

based swap references. The SEC could also direct exchanges to adopt position limits, including

aggregate position limits, for security-based swaps and any security the security-based swap references.

Extraterritorial issues. Given the significant authority provided to the CFTC in Title VII, it is likely that

the CFTC would look to exert jurisdiction over non-U.S. entities trading with U.S. market participants. For

example, if a non-U.S. parent entity guarantees the transactions of a U.S. subsidiary that is a swap dealer

or MSP, the CFTC would likely look through the subsidiary to the parent guarantor to determine the

capital requirements for the subsidiary. If the parent guarantor is not prudentially regulated in its non-U.S.

jurisdiction, the CFTC could impose capital requirements on the non-U.S. parent. Alternatively, if a non-

U.S. counterparty enters into a transaction with a U.S. market participant, the CFTC would impose

recordkeeping and reporting requirements on the non-U.S. entity, even for transactions that are not with

U.S. counterparties.


In addition, if the CFTC or SEC determines that the regulation of the swaps markets in a non-U.S. country

undermines the stability of the U.S. financial system, either the CFTC or the SEC, in consultation with the

Treasury Secretary, may prohibit an entity from that country from participating in any U.S. swap activities.

Abusive swaps. The CFTC and the SEC would have the authority jointly or individually to issue a report

as to any swaps they find “detrimental” to the stability of the financial market and would have further

authority to ban such abusive swaps.

Market manipulation. RAFSA would amend the Commodity Exchange Act to create a “reckless

conduct” standard for market manipulation in the futures and derivatives market. Under the current

market manipulation standard, the CFTC must prove a “specific intent” to manipulate the market, and the

reckless conduct standard mirrors the market manipulation standards used by the SEC, the Federal

Energy Regulatory Commission (“FERC”) and the Federal Trade Commission (“FTC”).

This amendment, based on the Derivatives Market Manipulation Prevention Act introduced by Senator

Maria Cantwell in 2009, would also prohibit market manipulation and the reporting and use of false

information with regard to swap transactions. Under the amendment, the CFTC would also have the

authority to impose civil penalties and fines and to issue cease and desist orders for swap transactions

that violate the anti-manipulation provisions of the Commodity Exchange Act. Finally, the amendment

would create a private right of action for the manipulation or attempted manipulation of any swap

transaction.

Preservation of FERC jurisdiction. RAFSA includes a provision clarifying that it would not supersede or

limit the jurisdiction of the FERC under the Federal Power Act or the Natural Gas Act, and that RAFSA

would not restrict the FERC’s regulatory authority. In addition, RAFSA specifies that it would not

supersede or limit the authority of a state regulatory agency to regulate the rates and charges for the

transmission or sale of electric energy within the state. The CFTC would be authorized to exempt an

agreement, contract or transaction that is entered into under a tariff or rate schedule approved by the

FERC, the relevant state regulatory authority, or under section 201(f) of the Federal Power Act.

Regulatory process. The CFTC and the SEC would have 180 days after the enactment of RAFSA to

promulgate the required rulemakings in Title VII. While it is unlikely that the agencies would complete all

of the required rulemakings in this period, the CFTC and SEC would ultimately have significant authority

to determine the scope of the new regulatory regime.


V. AMENDMENTS TO THE SECURITIES LAWS AND OTHER REFORMS

A. SECURITIES ACT AND EXCHANGE ACT REFORMS

1. Securities Reforms

Amendments to Regulation D. Rule 506 under the Securities Act provides an exemption from

registration for certain private offerings and sales of securities, and Section 18(b) of the Securities Act

includes, among the “covered securities” that are exempt from state regulation of securities offerings,

securities offered in offerings under Rule 506. Section 926 would require the SEC, within one year after

the enactment of RAFSA, to promulgate rules disqualifying certain “bad actors” from eligibility to use the

Rule 506 exemption (which would also result in a consequent loss of the state securities law preemption).

The new rules would include disqualification provisions substantially similar to those in Rule 262 under

the Securities Act and would disqualify any offering or sale of securities by a person:

• who is subject to a final order by a state securities, banking or insurance authority, a federal banking agency or the National Credit Union Administration that:

• bars the person from (1) association with any entity regulated by such authority, (2) engaging in the business of securities, insurance or banking, or (3) engaging in savings association or credit union activities, or

• constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative or deceptive conduct within the 10-year period ending on the date of the filing of the Form D relating to the offer or sale; or

• who has been convicted of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of any false filing with the SEC.

Adjustment of accredited investor standard. Pursuant to SEC Rules 215 and 501(a), “accredited

investors” include natural persons with income in each of the two most recent years in excess of

$200,000, or $300,000 for a couple, or with a net worth of $1 million either individually or jointly with the

person’s spouse. RAFSA Section 412 would require the SEC to exclude from the net worth threshold the

value of the person’s primary residence. The SEC would be required to review the accredited investor

definition set forth in Rule 215 as it applies to natural persons, and to make any adjustments or

modifications necessary for the protection of investors, in the public interest and in light of the economy

within four years after enactment of RAFSA, and at least every four years thereafter. (It is unclear

whether the RAFSA provision’s failure also to refer to the definition in Rule 501(d) is intentional.) Any

modifications on the basis of this periodic review would be made by the SEC by rulemaking following

notice and an opportunity for comment.

Disclosure for retail investors prior to purchase. Section 918 of RAFSA would amend Section 15 of

the Exchange Act to provide the SEC with express rulemaking authority to require broker-dealers to

provide retail investors with documents or information before the purchase of an investment product or

service by the retail investor. In developing such rules, the SEC would have to consider the promotion of


investor protection, efficiency, competition and capital formation. Any information that the SEC may

require must be in a summary format, and contain clear and concise information about investment

objectives, strategies, costs and risks, as well as compensation and other financial incentives received by

brokers and other intermediaries.

Mandatory arbitration clauses. Section 921 of RAFSA would amend both the Exchange Act and the

Advisers Act to grant the SEC the authority to reaffirm, prohibit or impose conditions or limitations on the

use of mandatory pre-dispute arbitration clauses in agreements between any broker-dealer, municipal

securities dealer or investment adviser, and their customers or clients, with respect to disputes that arise

under the securities laws or rules of any self-regulatory organization (“SRO”).

Broader industry bars for persons who violate the securities laws. Section 925 would amend the

Exchange Act and the Advisers Act to grant the SEC authority to bar individuals who violate the

Exchange Act or the Advisers Act from being associated with the full range of registered securities

entities—broker-dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent

or nationally recognized statistical rating organization (“NRSRO”)—rather than one specific registered

securities entity.

2. Amendments to SRO Rules

SRO rulemaking procedures. Section 915 of RAFSA would amend Section 19(b) of the Exchange Act

with the intent of forcing prompt consideration and implementation of proposed SRO rule changes. Under

this provision, when an SRO proposes a rule change, the SEC would have 45 days (extendible by the

SEC by up to an additional 45 days) either to approve the proposed rule or to institute proceedings to

determine whether the rule should be disapproved. If the SEC does not approve the proposed rule, it

must provide the SRO with notice and a hearing within 180 days. The SEC must then issue an order

approving or disapproving the proposed rule within 180 days of the original date of publication of the

notice (which may be extended by up to an additional 60 days). If the SEC failed to act within the

required periods, the proposed SRO rule would be deemed to have been approved by the SEC and

would go into effect. In addition, certain SRO amendments, including any amendments with respect to

fees and market data fees charged to non-members of the SRO, would become effective upon filing with

the SEC.

Prohibition on contracts requiring compliance waivers extended to SRO rules. Section 29(a) of the

Exchange Act voids any provision in a contract that requires any person to waive compliance with any

provision of the Exchange Act, any Exchange Act rule or any rule of an exchange. Section 927 would

replace the reference to exchange rules with a reference to SRO rules.


3. Securities Lending

Lending and borrowing securities. Section 984 would require the SEC, within two years after the

enactment of RAFSA, to promulgate rules designed to increase the transparency of information available

with respect to lending or borrowing securities. Section 984 would also amend Section 10 of the

Exchange Act to make it unlawful for any person, directly or indirectly, to participate in a transaction

involving the lending or borrowing of securities in contravention of any new SEC rules regarding

transparency of securities lending or any other securities-lending rules that the SEC may deem

appropriate in the public interest or for the protection of investors.

4. Studies on Accredited Investor Status, Private Fund SRO and Short Selling

Sections 413, 414 and 415 would mandate the following studies:

• A study by the GAO on appropriate criteria for accredited investor status and eligibility to invest in private funds, to be submitted to the Congressional Banking Committees within three years after the enactment of RAFSA.

• A study by the GAO on the feasibility of forming an SRO to oversee private funds, to be submitted to the Congressional Banking Committees within one year after the enactment of RAFSA.

• A study by the SEC on the state of short selling on national securities exchanges and in over-the-counter markets, the impact of recent SEC rule changes, and the incidence of failure to deliver shares sold short and delivery of shares on the fourth day following the transaction, to be submitted to the Congressional Banking Committees within two years after the enactment of RAFSA.

5. Disclosure Relating to Conflict Materials from the Democratic Republic of Congo

Section 1302 would add a new Exchange Act Section 13(o) requiring the SEC to promulgate rules, no

later than 180 days after the enactment of RAFSA, to require certain new disclosure regarding columbite-

tantalite, cassiterite, gold, wolframite and derivatives thereof (“Congo Conflict Minerals”). This provision

reflects a conclusion that the exploitation and trade in these materials is contributing to an emergency

humanitarian situation in the Democratic Republic of Congo. The new disclosure requirement would

apply to every issuer that is required to file annual reports with the SEC, and for which any Congo Conflict

Mineral is necessary to the functionality or production of a product manufactured by the issuer.

Issuers would be required to disclose to the SEC annually (but not necessarily in their annual reports)

whether any Congo Conflict Minerals used during the year to which the report relates originated or may

have originated in the Democratic Republic of Congo or any country with which it shares an

internationally recognized border (an “adjoining country”). The report would also have to describe the

measures that the issuer took to ensure that its activities with respect to Congo Conflict Minerals did not

directly or indirectly finance or benefit “armed groups” in the Democratic Republic of Congo or any

adjoining country. The issuer would also be required to post the report on its website.


The SEC would be required to revise or temporarily waive these disclosure requirements if the President

determines that a waiver or revision is in the public interest. The new rule would terminate automatically

five years after the enactment of RAFSA, unless the Secretary of State certifies that armed parties to the

ongoing armed conflict in the Democratic Republic of Congo or any adjoining country continue to be

directly involved and benefiting from commercial activity involving Congo Conflict Minerals, in which case

the sunset date would be extended for one year. This extension process could continue indefinitely, until

the Secretary of State does not make the certification. Section 1303 would require the GAO to report to

Congress, no later than two years after the enactment of RAFSA, assessing the effectiveness, problems

and adverse impacts of the new disclosure rule, and presenting recommendations for improvements and

mitigation of any perceived problems.

B. INVESTMENT ADVISER REGULATION

1. Registration Requirements for Investment Advisers

Title IV of RAFSA, called the “Private Fund Investment Advisers Registration Act of 2010,” would make

several substantive changes to the current applicability of the registration requirements of the Advisers

Act, including:

• eliminating the “private adviser” exemption from registration currently provided in Section 203(b)(3);

• making the intra-state adviser exemption from registration in Section 203(b)(1) unavailable to an intra-state adviser that advises any private funds;

• codifying, with additional restrictions, prior SEC staff positions regarding non-U.S. advisers with limited operations in the United States;

• establishing an exemption for advisers who solely advise small business investment companies and certain affiliates;

• creating new exemptions from registration for advisers to “venture capital funds” and “private equity funds”;

• creating an exemption for certain family offices; and

• raising the minimum asset level for mandatory federal registration from $25 million to $100 million.

Title IV would also impose additional data-collection requirements regarding systemic risk; add new

reporting, examination and disclosure requirements; grant specific rulemaking authority to the SEC; and

codify the SEC’s authority to regulate custody of client assets by advisers.

Registration of advisers to private funds. In order to address a perception that “private funds”19 and

advisers to private funds that currently qualify for the “private adviser” exemption from registration under

19 A privately offered fund is typically structured to qualify for one of two exceptions from the definition of

“investment company” provided by the Investment Company Act, so that the provisions requiring registration of investment companies are inapplicable to it. Specifically, Section 3(c)(1) of the

(continued . . . )


the Advisers Act20 operate in a regulatory gap under the federal securities laws, a number of proposals to

require registration of such advisers were made in 2009.21 RAFSA Title IV would implement one of those

proposals.

Title IV would add a new Section 202(a)(29) to the Advisers Act to define a “private fund” as any issuer

that would be an investment company within the meaning of the Investment Company Act but for the

availability of an exception under Section 3(c)(1) or 3(c)(7) thereof. The definition thus encompasses

funds colloquially known as hedge funds, as well as private equity funds, venture capital funds and other

private investment vehicles. However, as discussed below, the SEC would be directed by Title IV to

adopt definitions of the terms “private equity fund” and “venture capital fund” for the purpose, in effect, of

exempting advisers to those vehicles from registration under the Advisers Act.

Section 403(2) of RAFSA would amend Section 203(b)(3) of the Advisers Act to eliminate the “private

adviser” exemption. Thus, an adviser with only one or a handful of clients would become subject to

registration even if it did not hold itself out to the public as an adviser.

Once subject to registration with the SEC, investment advisers to private funds would be subject to

provisions of the Advisers Act generally applicable to registered investment advisers, including

requirements to adopt compliance policies and procedures and maintain certain books and records; make

and maintain publicly available filings with the SEC (including Form ADV, which requires disclosure of

information about the adviser’s portfolio management operations, conflicts and fees) and become subject

to periodic SEC examination; and become subject to substantive rules covering, among other aspects of

their business, advisory agreements, fees, customer documentation, and disclosure and custody. In

addition, as described below, advisers to private funds would be subject to new information and reporting

requirements.

(. . . continued)

Investment Company Act excepts funds that have no more than 100 beneficial owners, and Section 3(c)(7) excepts funds that permit only “qualified purchasers” to acquire their securities. A condition to both exceptions is that there be no public offering of a fund’s securities.

20 An investment adviser to private funds may claim an exemption from registration under Section 203(b)(3) of the Advisers Act if it (1) has had fewer than 15 clients during the course of the preceding 12 months, (2) does not hold itself out generally to the public as an investment adviser and (3) does not act as an adviser to any registered investment company or business development company. It is well established that a private fund generally counts as a single client for this purpose. The SEC adopted a rule in 2004 requiring advisers to some private funds to count each investor in a fund as a “client” for purposes of the private adviser exemption, but it was vacated on judicial review in Goldstein v. SEC, 451 F.3d 873 (D.C. Cir. 2006). This amendment would achieve essentially the same objective as the SEC’s earlier attempt to amend Rule 203(b)(3)-1 to count each investor in a private fund as a client.

21 For a description of many of these proposals and additional background on this issue, please see our previous memorandum, dated August 12, 2009, entitled “Proposed Legislation Would Require Registration of Investment Advisers to Private Investment Funds.”


Narrowing of exemption for intrastate advisers. Section 403(2) of RAFSA Title IV would also make

the exemption from registration in Section 203(b)(1) of the Advisers Act, which applies to an investment

adviser that operates entirely within one state, unavailable if any of the adviser’s clients are “private

funds.”22

Exemptions for “foreign private advisers.” Section 403(2) of RAFSA Title IV would also add an

exemption from registration for any adviser that is a “foreign private adviser.”23 This in effect codifies prior

SEC staff guidance24 and Rule 203(b)(3)-1(b)(5), while retaining the traditional limit of 14 clients that has

otherwise been jettisoned and imposing a new ceiling on assets under management of $25 million. The

imposition of the dollar cap appears likely to trigger the registration requirement for many non-U.S.

advisers that manage substantial U.S. assets.

Exemption for advisers to small business investment companies. Section 403(5) of Title IV would

add an exemption from registration for any adviser that solely advises certain small business investment

companies (other than any entity that “has elected to be regulated or is regulated as a business

development company pursuant to Section 54 of the Investment Company Act”).

Exemptions for advisers to venture capital funds and private equity funds. Sections 407 and 408 of

Title IV would provide exemptions from registration for advisers to “venture capital funds” and to “private

equity funds,” respectively. These terms are not defined in Title IV but are instead left for the SEC to

define by rulemaking not later than six months after the enactment of RAFSA. Advisers to “private equity

funds,” although exempt from registration, would be required to maintain such records and provide such

reports as the SEC may determine in the future to be necessary and appropriate in the public interest and

for the protection of investors. These exemptions would have the effect of limiting the new private fund

registration requirement to advisers of “hedge funds.”

22 Section 203(b)(1) of the Advisers Act is currently available to an investment adviser (1) all of whose

clients are resident within the state in which the adviser maintains its principal office or place of business and (2) that does not advise with respect to listed securities or securities otherwise traded on any national securities exchange. The jurisdictional basis for the proposed amendment is not discussed and may be open to challenge.

23 The phrase “foreign private adviser” would be defined in new Section 202(a)(30) of the Advisers Act as any adviser that (1) has no place of business in the United States; (2) has, in total, fewer than 15 clients domiciled in or residents of the United States; (3) has, in the aggregate, assets under management attributable to clients in the United States and investors in the United States in private funds advised by the investment adviser of less than $25 million (or such higher amount as the SEC may set by rule); and (4) neither holds itself out generally to the public in the United States as an investment adviser nor acts as an adviser to any registered investment company or any company that has elected to be a business development company under the Investment Company Act. The 15-client test does not measure the number of clients over a rolling 12-month period as does current Section 203(b)(3).

24 See, for example, the Murray Johnstone Ltd. no-action letter of April 17, 1987.


Exception for family offices. Title IV would amend the definition of “investment adviser” set forth in

Section 202(a)(11) of the Advisers Act to insert an exception for any “family office,” to be defined by the

SEC in future rulemaking, but without a similar time limit for doing so as there is for venture capital or

private equity. However, the SEC would be directed to define the term in accordance with the previous

policy of the SEC for granting exemptive relief for family offices, giving recognition to the range of

organizational, management and employment structures and arrangements employed by family offices.

Increase in assets-under-management threshold for registration. Title IV also would raise the assets

under management threshold for mandatory federal registration from $25 million to $100 million (except

that the level of U.S. assets for “foreign private advisers” would be $25 million as discussed above).25

2. Information and Reporting Requirements for Investment Advisers

New informational and reporting requirements. Title IV would impose new substantive informational,

reporting and disclosure requirements on registered advisers with respect to the private funds they

advise. Specifically, Title IV would amend Section 204 of the Advisers Act to authorize the SEC to

require any registered investment adviser to maintain such records of, and submit to the SEC or the

Council, such reports regarding private funds advised by the investment adviser as are necessary or

appropriate in the public interest and for the assessment of systemic risk by the Council.

Title IV specifies certain records and reports of a private fund that, without limitation, would be required to

be maintained by a private fund and be subject to SEC inspection, and also would provide the SEC with

rulemaking authority to require private fund advisers to file additional reports with the SEC.

The required records and reports would include descriptions of:

• the amount of assets under management, the types of assets held, trading and investment positions, and trading practices;

• the use of leverage;

• counterparty credit risk exposure;

• valuation policies and practices;

• any side letters or other arrangements whereby certain investors in the fund obtain more favorable rights than other investors; and

25 Pursuant to Section 203A of the Advisers Act, only investment advisers that have at least $25 million

in assets under management or that advise a registered investment company may register with the SEC, and most state regulatory requirements are preempted with respect to SEC-registered advisers. The SEC has authority under Section 203A(a) to increase this threshold by rule and exercised this authority by promulgating Rule 203A-1(a), which raises the threshold for mandatory federal registration to $30 million in assets under management, as reported on an adviser’s Form ADV. This rule in effect makes federal registration optional for investment advisers having at least $25 million but less than $30 million in assets under management. Title IV would raise the threshold to $100 million and leave the SEC’s rulemaking authority in this regard unchanged.


• other information that the SEC, in consultation with the Council, determines to be necessary and appropriate.

Title IV would direct the SEC to conduct periodic and special examinations of records of a private fund

maintained by a registered investment adviser as the SEC may prescribe from time to time. An adviser

would also be required to make available to the SEC or its representatives any copies or extracts from

such records as may be prepared without undue effort, expense or delay, as reasonably requested by the

SEC or its representatives.

Information sharing and confidentiality. Title IV includes an information-sharing requirement, pursuant

to which the SEC would be required to make available to the Council copies of all documents and

information filed with or provided to the SEC by an investment adviser with respect to a private fund, as

the Council may consider necessary for the purpose of assessing the systemic risk posed by a private

fund.

The Council would be required to keep such information confidential. In addition, the SEC would not be

compelled to disclose any private fund-related report or information required to be filed with the SEC,

subject to a certain exceptions, including that the SEC would not have authority to refuse to comply with a

request from any federal agency or any SRO requesting the report or information for purposes within the

scope of its jurisdiction, or with an order of a U.S. court in an action brought by the United States or by the

SEC. Any federal agency or SRO receiving information would be subject to a confidentiality requirement.

In addition, Title IV provides that the information provided to the SEC, the Council and any other federal

department or agency or SRO would be eligible for an exemption from public disclosure under FOIA.

Title IV provides additional protection for certain proprietary information, which would be subject to the

same limitations on public disclosure as any facts ascertained during an examination, as provided by

Section 210(b) of the Advisers Act.

Congressional reporting. Title IV would require the SEC to report annually to Congress on how the

SEC has used data with respect to private funds to monitor markets for the protection of investors and the

integrity of the markets.

3. Additional Amendments and Rulemakings Applicable to Investment Advisers

Broader SEC rulemaking authority. Title IV would amend Section 211(a) of the Advisers Act to

broaden the rulemaking authority of the SEC, by permitting the SEC to make rules and regulations

defining technical, trade and other terms used in the amendments set forth in Title IV. Under the authority

provided by this provision, the SEC would have the power to promulgate rules and regulations ascribing

different meanings to terms in any way the SEC deems necessary to effect the purposes of RAFSA. Prior

forms of legislative proposals in this regard would have explicitly stated that this capability may be


exercised with regard to the term “client.”26 Title IV, however, would limit the SEC’s authority to an extent

by including a provision stating that the SEC “shall not define the term ‘client’ for the purposes of [the

antifraud provisions of] Section 206(1) and 206(2) to include an investor in a private fund managed by an

investment adviser, if such private fund has entered into an advisory contract with such adviser.”

Title IV would also lay the groundwork for cooperation between the SEC and the CFTC with regard to

their monitoring of investment advisers and commodity trading advisers, by introducing a new Section

211(e) of the Advisers Act, which would provide that the SEC and CFTC must, after consultation with the

Council, within 12 months after the enactment of RAFSA, jointly promulgate rules to establish the form

and content of reports required to be filed with the SEC or the CFTC by investment advisers that are

registered under the Advisers Act as well as the Commodity Exchange Act.27

Custody rules. Title IV includes a provision that would create a new Section 223 of the Advisers Act,

regarding custody of client assets, that would require a registered investment adviser to take such steps

to safeguard client assets over which the adviser has custody, including verification of the assets by an

independent public accountant, as the SEC may by rule prescribe. The SEC has historically regulated

custody by advisers under the antifraud provisions of Section 206(4) of the Advisers Act, including

recently adopted amendments.28

Clarification of application of Section 205 of the Advisers Act to state-registered advisers. Section

205(a) of the Advisers Act imposes restrictions on the ability of investment advisers (other than advisers

exempt from registration under Section 203(b) of the Advisers Act) to enter into or perform contracts

(1) that base the compensation of the investment adviser on a share of the capital gains or appreciation

of the client’s funds, (2) that do not provide the client with the right to consent to an assignment of the

contract or (3) where the investment adviser is a partnership, that do not require the adviser to notify the

client of a change in the membership of the partnership. Section 928 of RAFSA Title IX would replace the

exception for advisers “exempt from registration under Section 203(b) of the Advisers Act” with an

affirmative statement that the requirements apply to any adviser “registered or required to be registered

with the SEC.” The amendment also would eliminate an interstate commerce jurisdictional requirement.

26 The definition of “client” of an investment adviser is currently provided in Rule 203(b)(3)-1 under the

Advisers Act. 27 Section 203(b)(6) of the Advisers Act provides an exemption from registration for an adviser that is

registered with the CFTC as a commodity trading adviser and whose business does not consist primarily of acting as an investment adviser, provided that it does not act as investment adviser to an investment company or a business development company. Prior legislative proposals on this general subject would have amended Section 203(b)(6) of the Advisers Act to eliminate this exemption from registration for any commodity trading adviser that is an adviser to a “private fund,” but Title IV does not include this amendment.

28 For information about these amendments, please see our previous memorandum, dated January 15, 2010, entitled “Registered Adviser Custody Rules.”


The stated intent behind these amendments is to clarify that these restrictions do not apply to state-

registered investment advisers.

Effective date. Except as otherwise specifically provided, the amendments set forth in Title IV would

become effective one year after the enactment of RAFSA. However, any investment adviser may, at the

adviser’s discretion, register with the SEC voluntarily prior to the effective date, subject to any applicable

SEC rules.

C. CORPORATE GOVERNANCE

1. Executive Compensation

Subtitle E of RAFSA Title IX sets forth several measures related to executive compensation. Some of the

provisions are similar to those from an earlier bill introduced by Senator Charles Schumer, called “The

Shareholder Bill of Rights Act,” that also addressed corporate governance matters. A provision in

previous versions of the bill requiring a non-binding shareholder vote on so-called “golden parachute”

compensation (payments to any principal executive officers in connection with a change in control) is not

included in RAFSA.

Non-binding shareholder vote on executive compensation (“say on pay”). RAFSA would add a new

Section 14A to the Exchange Act, which would provide that any proxy, consent or authorization for an

annual or other meeting of shareholders for which the SEC’s proxy solicitation rules require compensation

disclosure must include a separate resolution subject to non-binding shareholder vote to approve the

compensation of the named executives.

• This requirement would be applicable to any such meeting occurring six months after the enactment of RAFSA.

• The required shareholder vote would be non-binding on the issuer and its board.

• Existence of the non-binding vote would not limit shareholders’ ability to make other executive compensation-related proposals under Rule 14a-8 under the Exchange Act.

• As discussed below under “Shareholder Voting—Broker voting of securities,” Section 957 of RAFSA would prevent brokers from utilizing their discretion to vote on a “say-on-pay” proposal without having received instructions from the beneficial owner.

Compensation committee independence and compensation consultants. Section 952 of RAFSA

would add a new Section 10C to the Exchange Act, which would direct the SEC to issue rules requiring

national securities exchanges to prohibit the listing of any security of an issuer whose board does not

have an independent compensation committee.

• The SEC rules would require that, in assessing independence, consideration must be given to (1) the source of director compensation, including any consulting, advisory or other


compensatory fee paid to the director by the issuer and (2) whether the director is affiliated with the issuer, a subsidiary of the issuer or an affiliate of a subsidiary of the issuer.29

• The SEC rules could permit exemptions from the independence requirements based on the size of the issuer and other factors deemed relevant, and could permit the exemption of a category of issuers as deemed appropriate, taking into account especially the potential impact on smaller issuers.

New Section 10C would also require the SEC and stock exchanges to impose additional procedural and

disclosure requirements with respect to the use of compensation consultants:

• The compensation committee would have authority to engage consultants, counsel and advisors. Such consultants, counsel and advisors would not be required to be independent, but in selecting them, the compensation committee would be required to take into consideration factors that affect their independence, including the relationships between the consultant, counsel or advisor and the issuer, and the relationships between the employer of such consultant, counsel or advisor and the issuer. The compensation committee would have direct responsibility for the appointment, compensation and oversight of the work of the compensation consultant.

• The issuer’s proxy or consent solicitation materials for any meeting occurring one year after the enactment of RAFSA would be required to disclose whether the compensation committee had retained, or obtained the advice of, a compensation consultant, whether the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and the manner in which the conflict is being addressed. In December 2009, the SEC adopted new disclosure requirements relating to the use of compensation consultants by the compensation committee and management, including disclosure as to other work done by the consultant for the issuer; it is unclear what additional disclosure would be required under new Section 10C.30

The rules required under this section must be issued within one year after the enactment of RAFSA.

Executive compensation disclosures. Section 953 would amend Exchange Act Section 14 by adding

a new section that would direct the SEC to issue rules requiring issuers to provide in any proxy statement

or consent solicitation material for an annual meeting of shareholders of the issuer a clear description of

any compensation required to be disclosed under the SEC’s executive compensation regulations set forth

in Section 402 of Regulation S-K, including information that shows the relationship between executive

29 The two independence factors identified in Section 952 are similar to the factors identified in Section

10A(m) of the Exchange Act as to the independence of audit committee members, although the audit committee statute provides flatly that such relationships are a bar to the independence of an audit committee member. While the language of Section 952 seems to provide greater flexibility, it remains possible that the rules will ultimately define independence in a manner that is more restrictive than the New York Stock Exchange (“NYSE”) and Nasdaq independence requirement currently applicable to compensation committee members of U.S. listed companies. In particular, the reference to “affiliate” status raises the question of whether significant share ownership, which would not necessarily be a bar to independence under the current stock exchange rules, could present an independence issue under the rules implementing Section 952.

30 For a description of these requirements, please see our previous memorandum, dated December 18, 2009, entitled “Compensation and Corporate Governance Disclosure.”


compensation and the issuer’s financial performance, which may include a graphic or pictorial

representation of such information.

Section 953 would also direct the SEC to amend Section 402 of Regulation S-K to require disclosure of

(1) the median of the annual total compensation of all employees of the issuer, except the issuer’s CEO

(or the equivalent); (2) the annual total compensation of the issuer’s CEO (or the equivalent); and (3) the

ratio of those two amounts. For purposes of this provision, “total compensation” would be determined in

accordance with Regulation S-K as in effect on the day before the enactment of RAFSA.

Compensation claw-back. Section 954 would amend the Exchange Act by adding a new Section 10D

that would direct the SEC to issue rules directing the national securities exchanges to prohibit the listing

of issuers that do not develop and implement “claw-back” policies that:

• in the event the issuer is required to prepare an accounting restatement due to its material non-compliance with financial reporting requirements under the securities laws, provide that the issuer will recover from any of its current or former executives who received incentive-based compensation (including stock options) during the three-year period preceding the date on which the issuer is required to prepare a restatement based on the erroneous financial reporting any amount that exceeds what would have been paid to the executive officer giving effect to the restatement; and

• provide for disclosure of the issuer’s policy on incentive-based compensation based on financial information required to be reported under the federal securities laws.

Disclosure of employee and director hedging. Section 955 would amend Exchange Act Section 14 by

adding a new section that would direct the SEC to issue rules requiring each issuer to disclose in any

proxy statement or consent solicitation material for an annual meeting of the shareholders of the issuer

whether any employee or director (or designee of such employee or director) is permitted to purchase

financial instruments (including prepaid variable forward contracts, equity swaps, collars or exchange

funds) that are designed to hedge or offset any decrease in the market value of equity securities granted

by the issuer as compensation or otherwise held by the employee or director, directly or indirectly.

Section 955 would not require the SEC rules to provide for disclosure of actual hedging transactions, but

rather refers only to disclosure of the issuer’s policies in this regard (which, in many cases, may already

be disclosed in the compensation discussion and analysis under Item 402(b)(2)(xiii) of Regulation S-K).

For directors and executive officers, specific hedging transactions may already be required to be

disclosed under Exchange Act Section 16(a).

BHC “excessive compensation.” Section 956 would amend Section 5 of the BHC Act to require the

FRB, in consultation with the OCC and the FDIC, to issue rules that establish standards prohibiting, as an

unsafe and unsound practice, any compensation plan of a BHC that provides an executive officer,

employee, director or principal shareholder of the BHC with “excessive compensation, fees, or benefits,”

or that could lead to material financial loss to the BHC.


“Excessive compensation” is not specifically defined in RAFSA and presumably would be defined in rules

issued by the FRB. However, the FRB would be directed to take into consideration the compensation

standards described in Section 39(c) of the FDI Act (12 U.S.C. 1831p–1(c)) and the views and

recommendations of the OCC and the FDIC.

2. Shareholder Voting

Subtitles E and G of RAFSA Title IX would impose additional rules and disclosure requirements under the

federal proxy rules, including mandating certain practices which have heretofore been a matter of state

law and within the discretion of the issuer.

Election of directors. Section 971 would mandate voting standards applicable to the election of

directors of issuers registered under the Exchange Act.

• In uncontested elections,31 each director who receives a majority of the votes cast would be deemed to be elected.

• In contested elections, if the number of nominees exceeds the number of directors to be elected, directors would be elected by a plurality of shares represented at the meeting and entitled to vote.

• If a director receives less than a majority of votes cast in an uncontested election, the director would be required to tender a resignation to the board of directors. The board could either (1) accept the resignation and determine a date on which it would take effect, or (2) upon unanimous consent of the board, reject the resignation and within 30 days, make a public statement discussing its reasons and analysis for reaching its conclusion.

These requirements would be contained in a new Exchange Act Section 14B, and would be implemented

through SEC rules. These rules would be required to be promulgated within one year after the enactment

of RAFSA, and would direct national securities exchanges and associations to prohibit listings by issuers

not in compliance with the new requirements (although issuers would have an opportunity to cure defects

prior to any prohibition from listing). The SEC would have the power to exempt issuers from these

requirements based on, among other things, the company’s size, market capitalization or number of

shareholders.

The director election standard is currently a matter of state corporate law and is usually set out in a bylaw,

which can generally be adopted either by the shareholders or by the board. While majority election of

directors in uncontested elections, which RAFSA would mandate, is now prevalent among the largest

31 “Uncontested” and “contested” elections are not clearly defined. Often, corporate bylaws define a

contested election as one in which the number of nominees exceeds the number of directors to be elected, and it is possible that is the meaning intended by RAFSA’s drafters. However, another common way of defining a contested election in corporate bylaws is the receipt of a notice of intent to nominate directors under an advance notice bylaw, which notice has not been withdrawn prior to some date prior to the mailing of the proxy statement. Future SEC rulemaking may clarify these terms.


companies, plurality election of directors remains the more common method of election of directors at

smaller companies. Section 971 would eliminate the use of the so-called Pfizer principle, which is used

by a number of companies, under which the directors are elected by plurality voting as a matter of

corporate law but are required under a corporate governance principle to submit resignations if they do

not receive a majority of the votes cast (which often provides that the resignation will be accepted absent

a “compelling” or “significant” reason to reject it).

RAFSA does not require shareholder approval of staggered director terms, although that concept had

been considered in prior proposed legislation.

Proxy access. Section 972 would amend Section 14(a) of the Exchange Act to give the SEC authority to

issue rules requiring that a solicitation of a proxy, consent or authorization by an issuer include a nominee

submitted by a shareholder. The SEC would expressly be permitted to issue rules permitting the use by

shareholders of an issuer’s proxy solicitation materials for the purpose of nominating directors. This rule

would not mandate proxy access, but is intended to address the argument that has been raised by a

number of parties that the SEC does not have the authority to mandate proxy access.

Disclosures regarding whether the same person serves as board chairperson and CEO. Section

973 would require the SEC to issue rules requiring an issuer’s annual proxy statements to disclose the

reasons why the issuer chose to combine or separate the positions of chairperson of the board and CEO.

The SEC would be required to issue this rule within 180 days after the enactment of RAFSA. The SEC

has already adopted amendments to the proxy rules that require issuers to disclose their reasons for

adopting the form of board leadership structure, including whether to separate chairperson and CEO

positions. It is not clear that Section 973 calls for expansion of the SEC’s current rule.

Broker voting of securities. Section 957 would amend Section 6(b) of the Exchange Act, which

establishes certain conditions that must be met by an exchange in order to be registered as a “national

securities exchange” with the SEC, to set forth certain broker voting requirements. An exchange would

be required to prohibit any member that is not the beneficial owner of a security under Exchange Act

Section 12 and that has not received voting instructions from the beneficial owner from granting a proxy

to vote the security with respect to (1) the election of a member of the board of directors (consistent with

current NYSE rules, as amended in 2009), (2) executive compensation matters or (3) any other

“significant matter.” This provision expressly limits its reach to only the types of shareholder votes listed

above and reserves for the national securities exchanges the ability to allow a member that is not the

beneficial owner of a security to grant a proxy to vote the security with respect to other shareholder votes.

The primary change represented by Section 957 would be to prevent brokers from voting uninstructed

shares on management proposals relating to executive compensation, such as the non-binding vote on

executive compensation, or “say on pay.” Currently, a “say-on-pay” vote is considered a routine matter

on which brokers can vote if they have not received instructions within a certain period of time.


D. SECURITIZATION REFORMS

Subtitle D of RAFSA Title IX attempts to address the perceived problem that asset-based loan originators

have not adequately performed due diligence and other loan-assessment functions, leading to bad loans

being originated and packaged together as a whole to unsuspecting buyers.

RAFSA would adopt “skin in the game” requirements for asset originators and securitizers, and establish

additional requirements designed to encourage heightened underwriting, risk assessment, risk

management and disclosure practices.

1. “Skin in the Game” Regulations

The principal provision by which the goal would be accomplished is by adding a new Section 15G to the

Exchange Act.

New Section 15G would direct the “Federal banking agencies” (the OCC, the FRB and the FDIC) and the

SEC jointly to prescribe regulations, within 270 days after the enactment of RAFSA, that would require

any “securitizer” to retain an economic interest in a “portion” of the credit risk for any asset that the

securitizer, through the issuance of an asset-backed security (“ABS”), transfers, sells or conveys to a third

party. As described further below, RAFSA provides that its implementing regulations must provide for

“risk sharing” by allocating risk-retention requirements between securitizers and “originators” of assets

sold to securitizers.

• Definition of “securitizer.” This term includes not only ABS issuers, but also any person “who organizes and initiates [an ABS transaction] by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer.”

• Definition of “ABS.” The term “asset-backed securities” is not defined by reference to the definition in SEC Regulation AB (17 C.F.R. § 229.1101(c)). Instead, Section 941 of RAFSA would create a new Exchange Act Section 3(a)(77), which would define ABS to mean a “fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset.” The definition then gives five examples of ABS: (1) collateralized mortgage obligations; (2) collateralized debt obligations (“CDOs”); (3) collateralized bond obligations; (4) CDOs of ABS; and (5) CDOs on CDOs (often referred to as CDO-squared). The definition also includes any other security that the SEC, by rule, determines to be ABS. The definition explicitly carves out, however, any “security issued by a finance subsidiary held by the parent company or a company controlled by the parent company, if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company.”

• Definition of “originator.” An originator is any person who either sells an asset to a securitizer or who, through the extension of credit or otherwise, creates a financial asset that collateralizes an ABS.

Minimum standards. Although RAFSA would delegate the content of “skin in the game” requirements to

future rulemaking by the federal banking agencies and the SEC, new Section 15G would establish

minimum standards that any such rules must reflect (subject to a general exemptive authority given to the

rulemaking entities). Those standards include:


• A securitizer would be required to retain at least five percent of the credit risk for any asset transferred, sold or conveyed through the issuance of an ABS by the securitizer, other than “qualified residential mortgage” assets.32 This five percent risk-retention requirement would be subject to certain exceptions, discussed below. The regulations would specifically be required to apply to any insured depository institution acting as a securitizer.

• The regulations would be required to specify the permissible forms of risk retention and the minimum duration of risk retention. The regulations would also be required to prohibit a securitizer from directly or indirectly hedging or otherwise transferring risk it is otherwise required to retain with respect to an asset.

• The regulations would be required to provide for “risk sharing” by allocating risk-retention requirements between securitizers and originators of assets sold to securitizers. In making these determinations, the rulemaking agencies would be required to reduce the risk-retention percentage applicable to securitizers by the percentage of risk retention required of originators and would be required to consider (1) whether the assets sold to securitizers have terms, conditions and characteristics that reflect reduced credit risk, (2) whether secondary market activity creates incentives for imprudent origination and (3) the potential impact of risk-retention requirements on access to credit by consumers and business on reasonable terms (which may not include the transfer of credit risk to a third party).

• For each established asset class, the regulations would be required to establish underwriting standards that specify the terms, conditions and characteristics of a loan within the asset class that indicate reduced credit risk. The regulations may require less than five percent risk retention in any case where the originator meets these underwriting standards.

• The regulations may allow for a total or partial exemption of any securitization, as may be appropriate in the public interest and for the protection of investors.

• The rules would be required to establish asset classes, such as home mortgages, commercial mortgages, commercial loans, auto loans and any other classes that the rulemaking agencies deem appropriate. RAFSA appears to contemplate the possibility that the regulations could treat various securitizers and asset classes differently. RAFSA would specifically require special considerations with respect to risk retention regarding commercial mortgages. The regulations would be required to prescribe the permissible types, forms and amounts of risk retention for commercial mortgages, such as (1) a requirement to retain a specified amount or percentage of the total credit risk of the asset, (2) retention of the first-loss position by a third-party purchaser that specifically negotiates for the purchase of such position and provides due diligence on all individual assets in the pool before the issuance of ABS, (3) a determination by the federal banking agencies or the SEC as to the adequacy of underwriting standards and controls and (4) provision of adequate representations and warranties and related enforcement mechanisms.

32 The term “qualified residential mortgage” would be defined by regulations to be issued by the federal

banking agencies and the SEC, in this case together with the Department of Housing and Urban Development and the Federal Housing Finance Agency. RAFSA would require that the definition take into consideration certain underwriting and product features (several of which are specified in RAFSA) that historical loan performance data indicate a lower default risk. The qualified residential mortgage definition would also be required to exclude ABS collateralized by tranches of other ABS, and the SEC would be directed to require ABS issuers relying on the qualified residential mortgage exception to certify effectiveness of its internal supervisory controls for ensuring all assets that collateralize the ABS are qualified residential mortgages. RAFSA provides that the rules may not require any risk retention where all of the assets collateralizing an ABS are qualified residential mortgages.


Although new Section 15G of the Exchange Act would establish minimum standards, it would also allow

the rulemaking agencies jointly to adopt or issue exemptions, exceptions or adjustments to the rules

issued under this section, including exemptions for classes of institutions or assets relating to the risk-

retention requirement and the prohibition on hedging, provided that any such exemption, exception or

adjustment must help ensure high-quality underwriting standards and encourage appropriate risk-

management practices by securitizers and originators, improve the access of consumers and businesses

to credit on reasonable terms, or otherwise be in the public interest and for the protection of investors.

The provision would also specifically exempt any Farm Credit System Institution chartered and subject to

the provisions of the Farm Credit Act of 1971.

The risk-retention rules would be required to be effective one year after publication in the Federal

Register for ABS backed by residential mortgages, and two years after such publication for all other ABS

asset classes.

Enforcement of these rules would be by the appropriate federal banking agency (for any securitizer that is

an insured depository institution) or by the SEC (for any securitizer that is not an insured depository

institution). The rule is silent as to responsibility for enforcement against originators.

2. ABS Reporting and Disclosure Obligations

RAFSA would also amend Securities Act Section 7 and Exchange Act Section 15(d) to add new ABS

disclosure and reporting obligations.

ABS reporting. RAFSA would amend Exchange Act Section 15(d) to remove the exemption from

Exchange Act filing requirements for ABS held by fewer than 300 persons (and would provide the SEC

with rulemaking authority to provide for different suspension or termination rules for ABS, which may be

different for different ABS classes).

ABS disclosure. RAFSA would amend Securities Act Section 7 to require the SEC to adopt regulations

requiring each ABS issuer to disclose, for each tranche or class of security, information regarding the

assets backing that security. The regulations must at minimum require ABS issuers to disclose asset-

level or loan-level data necessary for investors independently to perform due diligence, including (1) data

having unique identifiers relating to loan brokers or originators, (2) the nature and extent of compensation

of the broker or asset originator and (3) the amount of risk retained by the originator and the securitizer.

The SEC would also be directed to set standards for the format of the disclosures, which must, to the

extent feasible, facilitate comparison of such data across securities in similar types of asset classes.

3. Regulation of ABS Offerings

RAFSA would amend the Securities Act and require rulemaking with respect to ABS offerings as follows:

• Representations and warranties. Section 943 would direct the SEC to prescribe regulations on the use of representations and warranties in the ABS market to require each


NRSRO to include in any report accompanying a credit rating a description of the representations, warranties and enforcement mechanisms available to investors and how they differ from the representations, warranties and enforcement mechanisms in issuances of similar securities.

• Disclosure of “underwriting deficiencies.” Section 943 would also require the SEC to prescribe rules to require any securitizer to “disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by ‘the securitizer,’ so that investors may identify asset originators with clear underwriting deficiencies.” (RAFSA uses “securitizer” as quoted, but the text of the official Senate Banking committee section-by-section summary of the bill as reported appears to indicate that “originator” was intended to be used.)

• Elimination of Securities Act exempted transaction. Section 944 would eliminate an existing exemption from registration under Section 4(5) of the Securities Act for some mortgage-backed securities (transactions involving offers or sales of one or more promissory notes directly secured by a first lien on a single parcel of real estate upon which is located a dwelling or other residential or commercial structure, subject to certain conditions).

• Due diligence analysis and disclosure. Section 945 would amend Securities Act Section 7 to direct the SEC to issue rules requiring ABS issuers to perform a due diligence analysis of the underlying assets and to disclose the nature of that analysis.

E. CREDIT RATING AGENCIES

Title IX, Subtitle C of RAFSA provides for heightened oversight and regulation of credit rating agencies

and would remove a number of statutory references to credit ratings. Significantly, Subtitle C would

require all initial credit ratings requested by issuers of structured finance products to be assigned through

a central Credit Rating Agency Board, a new self-regulatory organization to be established by the SEC.

In addition, this subtitle would impose a number of restrictions and requirements on rating agencies

pertaining to corporate governance, internal controls, ratings transparency, conflicts of interest and

liability under the securities laws. Although most of the provisions apply only to NRSROs, some of the

liability provisions would apply broadly to all credit rating agencies, whether or not they are registered with

the SEC. Additionally, a number of restrictions and requirements apply to issuers of structured finance

products, and certain disclosure requirements would apply to issuers and underwriters of asset-backed

securities that obtain third-party due diligence reports.

1. Supervision of Credit Rating Agencies

Section 932 would create within the SEC an Office of Credit Ratings to administer the SEC’s rules with

respect to the practices of NRSROs, promote accuracy in credit ratings issued by NRSROs and ensure

that such ratings are not unduly influenced by conflicts of interest. A principal function of the Office of

Credit Ratings would be to conduct an annual examination of each NRSRO. The examination would

include a review of the NRSRO’s compliance with its own policies, procedures and rating methodologies;

the management of conflicts of interest; the implementation of ethics policies; corporate governance and

internal controls; the activities of the designated compliance officer; the processing of complaints; and the

policies governing the post-employment activities of former NRSRO staff. The findings of all such


examinations, together with any responses by the NRSROs, would be published by the SEC in an annual

report.

2. Assigned Ratings of Structured Finance Products

Section 939D would amend Section 15E of the Exchange Act to significantly change the way initial

ratings for structured finance products are obtained by issuers. Issuers would be prohibited from

requesting initial credit ratings for structured finance products directly from NRSROs; rather, initial ratings

would be assigned by an NRSRO designated by a centralized Credit Rating Agency Board (the “CRA

Board”) from among a group of pre-qualified NRSROs. The stated goal of this assignment system is “to

reduce the conflicts of interest that exist under the issuer-pays model” of obtaining credit ratings.

Structured finance products affected. The structured finance products covered by this section are

initially defined to include any asset-backed security and any structured product based on an asset-

backed security, but this definition may be refined and expanded by SEC rules. RAFSA requires the SEC

to consider a number of factors in formulating these rules, including the types of relevant issuers and

investors; the different categories of structured finance products according to the types of capital flow and

legal structure used, underlying products, and terms used in debt securities; the different values of debt

securities; and the different numbers of units of debt securities issued together.

Creation of the CRA Board. Within 180 days after the enactment of RAFSA, the SEC would be required

to establish the CRA Board as a self-regulatory organization, select the initial members of the CRA Board

and establish a schedule to ensure that the CRA Board begins assigning initial ratings within one year

thereafter. This schedule established by the SEC would also be required to prescribe when the CRA

Board would conduct a study of the securitization process and provide recommendations to the SEC;

when the SEC would (and the CRA Board may) issue applicable rules and regulations; and when the

CRA Board would begin accepting applications to select “qualified NRSROs” as described below.

The CRA Board initially would be composed of an odd number of industry professionals appointed for a

four-year term. The majority of board members would be representatives from the investor industry who

do not represent issuers. Additionally, the issuer and credit rating agency industries would each have at

least one representative on the CRA Board, and at least one representative would be independent.

Although the SEC would be permitted to increase the size of the CRA Board, adjust the length of terms

that follow the initial four-year terms, and establish fair procedures for the nomination and election of

future members, it would be required to adhere to these basic composition guidelines.

As described below, the principal duties of the CRA Board would be to select qualified NRSROs, assign

to qualified NRSROs the task of providing initial ratings for structured finance products, conduct

evaluations of qualified NRSROs, issue applicable rules, and perform any other duties the SEC may

prescribe. To fund its expenses, the CRA Board would have the authority to levy fees from qualified

NRSRO applicants and periodically from qualified NRSROs.


Selection of qualified NRSROs. The CRA Board would review and approve applications by NRSROs to

become “qualified NRSROs” with respect to each category of structured finance products. An application

by an NRSRO to become a qualified NRSRO would include information about the NRSRO’s institutional

and technical capacity to issue ratings, information on whether the NRSRO has been exempted by the

SEC from any requirements under any other provision of Section 15E of the Exchange Act (if so, the CRA

Board may reject the application), and any other information the CRA Board may require.

Assignment of initial ratings. Once an NRSRO is designated by the CRA Board as a qualified NRSRO

with respect to a category of structured finance products, it would become eligible to receive ratings

assignments for those products. Specifically, an issuer seeking an initial credit rating for a structured

finance product would be required to submit a request to the CRA Board, which would then assign a

qualified NRSRO to provide that rating. To reduce conflicts of interest, RAFSA would require the CRA

Board to evaluate a number of selection methods, including a lottery or rotating assignment system. In

evaluating a selection method, the CRA Board would be required to consider the information submitted by

qualified NRSROs regarding their institutional and technical capacity to issue credit ratings, performance

evaluations conducted by the CRA Board (described below), and formal feedback from institutional

investors. Additionally, the CRA Board would be required to implement a mechanism to increase or

reduce assignments based on past performance. The CRA Board would expressly be prohibited from

considering an issuer’s preference in making these assignments. RAFSA would require the CRA Board

to issue rules describing how it may subsequently modify this assignment process.

A qualified NRSRO could refuse to accept a selection by the CRA Board to issue a particular credit rating

by notifying the CRA Board (which would then make another selection) and submitting a written

explanation of the refusal. These explanations would be required to be published in the annual reports of

NRSRO examinations conducted by the Office of Credit Ratings described above.

If it accepts a selection, a qualified NRSRO would be permitted to charge the issuer a “reasonable fee, as

determined by the [SEC].” The applicable provision goes on to state that “fees may be determined by the

[NRSRO],” unless the CRA Board determines it is necessary to issue rules on fees.

Any initial credit rating issued pursuant to the assignment process would be required to include a written

disclaimer that the rating has “not been evaluated, approved, or certified by the Government of the United

States or by a Federal agency.” Additionally, the CRA Board would be authorized (but not required) to

issue regulations requiring an issuer that has received an initial credit rating under the assignment

process to request a revised initial credit rating according to the process described above each time it

experiences a “material change in circumstances,” to be defined by the CRA Board.

Ratings other than initial credit ratings. The assignment process described above would apply only to

requests by issuers to receive “initial credit ratings” on structured finance products. RAFSA provides that

nothing in the above provisions would prohibit issuers from requesting and receiving “additional credit


ratings” with respect to a debt security, if the initial credit rating is provided as discussed above. In

addition, these provisions would not prohibit an NRSRO (not merely a qualified NRSRO) from

“independently” providing a credit rating for a debt security, as long as the NRSRO does not contract with

or receive payment from the issuer to provide the initial credit rating.

RAFSA would require any public communication from the issuer regarding a debt security credit rating

clearly to specify whether the rating was provided by a qualified NRSRO selected under the assignment

process or whether it was provided by another NRSRO not so selected.

Performance evaluations of qualified NRSROs. As noted above, RAFSA would require the CRA

Board to assess the performance of each qualified NRSRO, including through an annual evaluation. This

evaluation would include considerations of the annual examination conducted by the Office of Credit

Ratings (described above) and the surveillance of credit ratings by the qualified NRSRO. The CRA Board

would consider the performance of rated instruments, the comparative accuracy of the qualified NRSRO’s

ratings, the effectiveness of the qualified NRSRO’s methodologies, and any other factors deemed

relevant. The results of these evaluations would factor into the CRA Board’s selection process with

respect to future ratings assignments, and they would also be provided to Congress.

Evaluation of the CRA Board. Within five years after the CRA Board begins assigning initial ratings to

qualified NRSROs, the SEC would be required to report to Congress with recommendations concerning

the continuation of the CRA Board, any modification to the procedures of the CRA Board, and any

modification to the relevant statutory provisions.

Conflicts provisions. RAFSA would prohibit any member or employee of the CRA Board from accepting

any loan of money or securities, or anything above nominal value, from any NRSRO, issuer or investor.

Certain exceptions would exist for loans made in the context of a disclosed, routine banking or brokerage

agreement, or loans clearly motivated by a personal or family relationship. Identical prohibitions would

apply to loans and gifts from issuers or investors to credit analysts of qualified NRSROs. Currently,

Exchange Act Rule 17g-5 prohibits an NRSRO from issuing or maintaining a rating if the credit analyst (or

a person responsible for approving the rating) has received gifts worth more than $25 from the obligor,

issuer, underwriter or sponsor of the rated securities; a limited exception exists for items provided in the

context of normal business activities, such as meetings.

Additionally, RAFSA would prohibit any member or employee of the CRA Board from engaging in

employment negotiations with an NRSRO, issuer or investor, unless the member or employee discloses

the negotiations immediately upon commencement and is recused from all proceedings concerning the

relevant entity until termination of negotiations or of his or her employment with the CRA Board.


3. Liability Provisions

Subtitle C would subject credit rating agencies to significantly greater liability under the securities laws in

both private and public actions.

Section 15E(m) of the Exchange Act currently provides that NRSROs are not subject to private rights of

action for reports or disclosures made pursuant to the SEC’s NRSRO regulations. Section 933(a) would

remove this protection and subject NRSROs and other credit rating agencies to private securities fraud

actions under Section 21D of the Exchange Act. With respect to such actions, credit rating agencies

would not be permitted to rely on the safe harbor for forward-looking statements under Section 21E of the

Exchange Act. In addition, Section 933(b) would amend Section 21D of the Exchange Act to lower the

pleading standard in private securities fraud actions against credit rating agencies for money damages.

To survive a motion to dismiss in such an action, a plaintiff would be required to plead with particularity

facts giving rise to a strong inference that the credit rating agency knowingly or recklessly failed to

conduct a reasonable investigation or obtain reasonable verification of the factual elements it relied upon

to evaluate credit risk.

Section 933(a) provides that the enforcement and penalty provisions of the Exchange Act would apply to

statements made by a credit rating agency as they would apply to those made by a registered public

accounting firm or a securities analyst. The SEC would be required to issue implementing rules as

necessary.

The proposed imposition of securities law liability on NRSROs with respect to their credit ratings may

encounter challenges based on First Amendment concerns, as it has been argued that certain ratings

reports constitute statements about matters of public concern and should therefore be afforded

heightened protection under the First Amendment.33

The SEC would be authorized to fine NRSROs or their associated persons as an additional sanction for

certain enumerated violations. Section 932 would add to the list of enumerated violations under Section

15E of the Exchange Act the failure of an NRSRO or associated person reasonably to supervise another

person who violates the securities laws.

Additionally, the SEC could suspend or revoke the registration of an NRSRO with respect to a particular

class or subclass of securities if, after notice and opportunity for hearing, the SEC found that the NRSRO

did not have the financial and managerial resources necessary consistently to produce ratings with

integrity.

33 See, for example, In re Enron Corp. Securities, Derivative & ERISA Litigation, 511 F.Supp.2d 742,

825 (S.D. Tex. 2005) (holding in part that nationally published reports about “a Top Fortune 500 company’s creditworthiness” were “matters of public concern” and thus afforded heightened First Amendment protection).


4. Corporate Governance Requirements for NRSROs

Each NRSRO would be required to have a board of directors, with independent directors comprising at

least half of the board and at least one of whom is a user of NRSRO ratings. The board of directors of

the parent entity of an NRSRO may fulfill this governance requirement in certain circumstances, and

exemptions are available for certain small NRSROs. Among other things, the board would oversee the

policies and procedures for determining credit ratings, addressing conflicts of interest, implementing

internal controls and compensating employees.

Each NRSRO would be required to establish, maintain, enforce and document an internal control

structure governing the implementation of and adherence to credit rating policies, procedures and

methodologies. The CEO of each NRSRO would be required to attest to the effectiveness of these

internal controls in an annual report to the SEC.

Subtitle C also would expand the responsibilities of the NRSRO’s designated compliance officer, who

generally would not be permitted to participate in the determination of credit ratings, the development of

ratings methodologies or models, the performance of any sales or marketing functions, or the

establishment of compensation levels (other than for such officer’s own staff). An exemption from these

prohibitions would be available for certain small NRSROs. The compliance officer would be required to

submit to the NRSRO (which would then file with the SEC) an annual report on the NRSRO’s compliance

with the securities laws and its own internal policies and procedures.

The SEC would be required to promulgate rules to prevent the sales and marketing considerations of an

NRSRO from influencing its ratings determinations, with certain exemptions for small NRSROs. A

violation of these rules would subject an NRSRO, after notice and opportunity for a hearing, to

suspension or revocation of its registration.

5. Disclosure Rules

Subtitle C of Title IX includes disclosure requirements aimed at increasing the transparency of credit

ratings and methodologies. Most of the disclosure requirements apply to NRSROs, but certain

requirements apply to issuers and underwriters of asset-backed securities.

Issuer and underwriter disclosures. Issuers and underwriters of asset-backed securities would be

required to publicly disclose the findings and conclusions of any third-party due diligence report that they

obtain. Any third-party due diligence provider retained by an issuer, underwriter or NRSRO would also be

required to submit to the NRSRO a written certification (in an SEC-prescribed format) ensuring that it has

conducted a thorough review of data, documentation and other relevant information necessary for the

NRSRO to provide an accurate rating. This certification would be publicly disclosed by the NRSRO.

NRSRO disclosures. Each NRSRO would be required to publicly disclose information on ratings

histories for each type of rated obligor, security and money market instrument in a format that is


comparable among NRSROs. Additionally, each NRSRO would be required to establish written policies

and procedures that clearly define and disclose the meaning of any credit rating symbols it uses, and

such symbols must be applied consistently (however, each NRSRO may use its own set of symbols).

Additionally, each NRSRO would be required by SEC rule to prescribe a form to accompany each credit

rating. The form would disclose a considerable amount of qualitative and quantitative information about

the data and assumptions underlying the determination of the rating. This would include, for example,

information relating to the assumptions underlying rating procedures and methodologies, the potential

limitations of the rating (including risks not covered by the rating), the reliability of the underlying data,

conflicts of interest, the extent to which third-party due diligence services were utilized and any relevant

findings, and quantitative information including default, volatility and sensitivity metrics.

6. Methodologies and Rating Practices

Section 932 would require the SEC to promulgate rules requiring each NRSRO to ensure that its credit

ratings are determined using procedures and methodologies (including qualitative and quantitative data

and models) in accordance with the NRSRO’s policies and approved by the NRSRO’s board or senior

credit officer. SEC rules mandated by Section 936 would require NRSRO credit rating analysts to meet

certain standards of training, experience and competence, and to be tested for knowledge of the credit

rating process.

Section 935 would require each NRSRO, in determining a rating, to consider information from sources

other than the issuer that the NRSRO finds credible and potentially significant to a rating decision. Under

Section 934, if an NRSRO receives information it finds credible from a third party that alleges that an

issuer of rated securities has committed a material violation of law, the NRSRO would be required to

notify the appropriate law enforcement or regulatory authorities.

Any change to rating or surveillance procedures or methodologies would need to be applied consistently,

and the NRSRO would need to publicly disclose the reason for the change. Additionally, Section 932

would require the NRSRO to notify users of credit ratings of:

• the procedure or methodology used with respect to each rating;

• any material change made to that procedure or methodology (and the likelihood of a resulting change in current credit ratings); and

• any significant errors found in that procedure or methodology.

7. Removal of References to Credit Ratings in Federal Laws

Section 939 would remove a number of statutory references to credit ratings, effective two years after the

enactment of RAFSA. In many cases, regulatory agencies would be required to develop standards of

creditworthiness to replace existing NRSRO rating criteria. The specific statutes affected are as follows.


FDI Act. Currently, with certain exceptions, Section 28(d) of the FDI Act prohibits savings associations

from acquiring or retaining corporate debt securities that are not rated investment grade by at least one

NRSRO.

RAFSA would remove this rating requirement and instead apply the prohibition to securities that do not

“meet the standards of credit-worthiness as established by the [FDIC].” In addition, for purposes of the

risk-based assessment system, “credit rating entities” would be replaced with “credit analysts” in the non-

exclusive list of information sources that the FDIC may consult in determining risk of losses at depository

institutions pursuant to Section 7(b)(1)(E)(i) of the FDI Act.

National Bank Act. Currently, with certain exceptions, 12 U.S.C. § 24a permits a national bank that is

one of the 50 largest insured banks to own a financial subsidiary if, among other requirements, the bank

has at least one issue of eligible debt that is highly rated by an NRSRO. A national bank that is one of

the second 50 largest insured banks may qualify if it meets other comparable criteria that may be

established by the Treasury Secretary and the FRB. Additionally, if a national bank fails to meet these

requirements after acquiring a financial subsidiary, it may not acquire additional equity capital of such a

subsidiary until the bank returns to compliance. These rules are also made applicable to state member

banks.

RAFSA would eliminate the NRSRO ratings criteria, as well as the distinction between the first and

second 50 largest insured banks. As a result, a national bank or state member bank that is one of the

largest 100 insured banks would be required to have at least one issue of outstanding debt that meets

standards of creditworthiness jointly established by the Treasury Secretary and the FRB before acquiring

a financial subsidiary (or before acquiring any additional capital of a financial subsidiary).

Exchange Act. Currently, to qualify as a “mortgage related security” or a “small business related

security” under the definitions of those terms in the Exchange Act, a security must (among other

requirements) meet certain minimum NRSRO ratings criteria.

RAFSA would remove these ratings criteria and instead require such securities to meet standards of

creditworthiness as established by the SEC.

Investment Company Act. Currently, Section 6(a)(5) of the Investment Company Act provides an

exemption for a state-regulated company that is not engaged in the business of issuing redeemable

securities, if, among other things, the company does not purchase any security issued by an investment

company or by certain other exempt entities, other than (1) any debt security rated investment grade by at

least one NRSRO, or (2) any security issued by a registered open-end investment company that invests

at least 65 percent of its assets in such securities (or securities of comparable quality).

RAFSA would replace the NRSRO rating criteria with a reference to standards of creditworthiness to be

established by the SEC.


Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Currently, 12 U.S.C.

§ 4519 permits the director of the Federal Housing Finance Agency to contract with any NRSRO to

conduct a review of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

RAFSA would delete the NRSRO reference, thereby permitting the director to contract with any entity for

such a review.

World Bank statutory provisions. Currently, 22 U.S.C. § 286hh requires the Treasury Secretary to

instruct the U.S. Executive Director of the International Bank for Reconstruction and Development

(“IBRD”) to support “the facilitation of voluntary market-based programs for the reduction of sovereign

debt and the promotion of sustainable economic development” which, among other things, would involve

the IBRD in lending for purposes of debt reduction and conversion only if the IBRD’s credit rating would

not suffer.

RAFSA would replace the reference to the IBRD’s “credit rating” with a general reference to its

“creditworthiness.”

8. Additional Studies Relating to NRSROs

Section 939 would also require studies by the SEC on conflicts of interest and any effect on NRSRO

ratings, and by the GAO on alternative means of compensating NRSROs to foster independence and the

creation of an independent professional analyst organization for analysts employed by NRSROs.

In addition, Section 939 would require the SEC to study the feasibility and desirability of standardizing

credit ratings terminology, including potentially across asset classes, such that named ratings would

reference a standard range of default probabilities and expected losses. The study would also consider

standardizing the market stress conditions under which ratings are evaluated and requiring a quantitative

correspondence between ratings and a range of default probabilities and loss expectations under

standardized economic stress conditions.

F. MUNICIPAL SECURITIES REGULATION

Registration and regulation of municipal advisors. Section 975 would require “municipal advisors” to

register, and thus become subject to regulation, under Section 15B of the Exchange Act and would

impose liability on municipal advisors for fraudulent, deceptive or manipulative acts or practices. Section

975 would define “municipal advisor” as a person that provides advice to or on behalf of a municipal entity

with respect to municipal derivatives or investment strategies or the issuance of municipal securities,

participates in the issuance of municipal securities, or undertakes a solicitation of a municipal entity, but

would exclude a broker-dealer or municipal securities dealer serving as an underwriter, any investment

adviser registered under the Advisers Act and associated persons providing investment advice, attorneys

providing legal services, and engineers providing engineering advice.


Section 975 would also:

• Change the composition of the 15-member Municipal Securities Rulemaking Board (the “MSRB”), to include eight “public representative” individuals who are not associated with broker-dealers, municipal securities dealers or municipal advisors, and seven individuals who are associated with broker-dealers, municipal securities dealers or municipal advisors.

• Effectively require the MSRB to revise and supplement its rules generally in order to address the addition of “municipal advisor” as a new category of person subject to regulation and disciplinary authority.

• Require the MSRB to revise and supplement its rules generally in order to address the addition of “municipal advisor” as a new category of person subject to regulation and disciplinary authority.

• Expand the MSRB’s rulemaking authority, which now covers transactions in municipal securities, also to include advice provided to or on behalf of a municipal entity or “obligated person” (persons committed to support payment of all or part of an issue of municipal securities) by broker-dealers, municipal securities dealers and municipal advisors.

• Require the MSRB to establish the terms and conditions under which any broker-dealer or municipal securities dealer may sell, or prohibit any of them from selling, any part of a new issue of municipal securities to a related account of a broker-dealer or to a municipal securities dealer during the underwriting period.

• Provide that the MSRB, in conjunction with or on behalf of any federal financial regulator or SRO, may establish information systems and assess reasonable fees and charges for the submission of information to such systems.

• Allow the MSRB to assist the SEC or any registered securities association in enforcement actions and examinations conducted pursuant to the MSRB’s rules.

• Expand the recordkeeping requirements of Section 17 of the Exchange Act to cover business transacted by national securities exchanges and broker-dealers with municipal advisors.

Section 975 would become effective October 1, 2010.

Studies of disclosure, markets and regulation. Sections 976, 977 and 978 would require the following

studies:

• Disclosure by issuers of municipal securities. A study by the GAO of the disclosure required to be made by issuers of municipal securities, including (1) a comparison of the disclosure municipal issuers are required to provide with the disclosure corporate issuers must provide, (2) an evaluation of the costs and benefits to issuers and investors from requiring additional financial disclosures by municipal issuers and (3) recommendations regarding disclosure requirements for municipal issuers, including the advisability of the repeal of Section 15B(d) of the Exchange Act, known as the Tower Amendment, which currently precludes the SEC and the MSRB from requiring disclosure in municipal offerings. This report must be submitted to Congress within one year after the enactment of RAFSA.

• Municipal securities markets. A study by the GAO of the municipal securities markets, analyzing (1) mechanisms for trading, quality of trade executions, market transparency, trade reporting, price discovery, settlement clearing and credit enhancements, (2) the needs of markets and investors and the impact of recent innovations, (3) recommendations for the improvement of transparency, efficiency, fairness and liquidity and (4) potential uses of derivatives in municipal markets. The GAO would submit the report to Congress within 180


days after the enactment of RAFSA, and the SEC would be required to submit a response within 180 days thereafter stating the actions the SEC had taken in response to the report.

• Role of GASB. A study by the SEC of the role and importance of the Government Accounting Standards Board in municipal securities markets, including with respect to the board’s funding. The SEC would submit this report to Congress within 270 days after the enactment of RAFSA.

Creation of Office of Municipal Securities. Section 979 would create an Office of Municipal Securities

within the SEC to administer SEC rules in connection with municipal securities and to coordinate with the

MSRB for rulemaking and enforcement actions. The director of the Office of Municipal Securities would

report to the chairman of the SEC.

G. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD

RAFSA would make a number of changes to expand the role and function of the Public Company

Accounting Oversight Board (the “PCAOB”). Section 981 would authorize the PCAOB to share

information relating to a public accounting firm with any non-U.S. auditor oversight authority (defined as

any governmental body or other entity empowered by a non-U.S. government to inspect or enforce laws

relating to public accounting firms) with jurisdiction over that firm if (1) the PCAOB determined that such

disclosure was appropriate and necessary to accomplish the purposes of the Sarbanes-Oxley Act of 2002

or to protect investors and (2) the non-U.S. auditor oversight authority provided assurances that the

information would be kept confidential, including certain supporting evidence demonstrating the ability to

maintain confidentiality.

Section 982 would grant authority to the PCAOB to inspect and examine auditors of brokers and dealers

(in addition to auditors of issuers, as is currently the case). It would also require auditors of brokers and

dealers to register with the PCAOB. Each broker or dealer would be required to pay an annual

accounting support fee to the PCAOB calculated based on the broker’s or dealer’s net capital in

proportion to the total net capital of all brokers and dealers. Finally, the PCAOB would be permitted to

refer investigations to an SRO with jurisdiction over the relevant broker or dealer. Section 982 would be

effective 180 days after the enactment of RAFSA.

H. SEC MANAGEMENT, ADMINISTRATION AND FUNDING REFORMS

1. Management and Administration

Subtitle F of RAFSA Title IX sets forth a number of provisions that are designed to improve the

management and administration of the SEC and that would provide information to Congress about those

matters.

Annual certification of supervisory controls. Section 961 would require the SEC to deliver an annual

report to the Congressional Banking Committees on the conduct by the SEC of examinations of


registered entities, enforcement investigations and reviews of corporate financial securities filings. In

addition, the report would be required to contain:

• an assessment, as of the end of the fiscal year, of the effectiveness of the SEC’s internal supervisory controls, and the procedures applicable to SEC staff who perform such examinations, investigations and reviews;

• a certification signed by the directors of the Division of Enforcement, the Division of Corporation Finance and the Office of Compliance Inspections and Examinations that the SEC has adequate internal supervisory controls to carry out such examinations, investigations and reviews; and

• a review by the Comptroller General of the adequacy and effectiveness of the internal supervisory control structure and procedures for such examinations, investigations and reviews.

Triennial report on personnel management. Section 962 would require the GAO to deliver a report to

the Congressional Banking Committees every three years that evaluates the quality of personnel

management by the SEC. Among other things, the report would evaluate:

• the effectiveness of supervisors and the criteria for promotion to supervisory positions;

• the fairness of the application of those promotion criteria;

• the competence of the professional staff and initiatives to increase staff competence;

• efficiency of internal communication and efforts to promote such communication;

• turnover and staffing levels; and

• actions taken regarding employees who fail to perform their duties.

The GAO report also would make recommendations. The SEC would be required to submit a report to

the Congressional Banking Committees describing actions taken in response to the GAO report within 90

days.

Annual financial controls audit. Section 963 would require annual reports to Congress by (1) the SEC,

attested to by the chairman and chief financial officer of the SEC, that describes the responsibility of SEC

management for establishing and maintaining an adequate internal control structure and procedures for

financial reporting and that assesses such controls and procedures and (2) the GAO, attested to by the

Comptroller General, assessing the effectiveness of the internal control structure and the SEC’s

assessment thereof. This provision is likely in part a response to the conversion of the SEC to a self-

funded agency, as discussed below. Controls are generally viewed as particularly important for agencies

funded outside the appropriations process, because such agencies may no longer rely on appropriations

increases during revenue shortfalls.

Periodic report on oversight of national securities associations. Section 964 would require the GAO

to submit a report to the Congressional Banking Committees, within two years after the enactment of

RAFSA and every three years thereafter, evaluating the SEC’s oversight of registered national securities


associations. Among other things, this report would address SEC oversight with respect to the

governance of such associations, including identification and management of conflicts of interest, the

examinations carried out by such associations and the expertise of the association’s examiners,

executive compensation practices of such associations, arbitration services provided by such

associations, association review of their members’ advertising, cooperation with state securities

administrators with regard to investor protection matters and the effectiveness of such associations in

performing their duties and dealing fairly with investors and members.

Compliance examiners. Section 965 would amend Section 4 of the Exchange Act to require each of the

SEC’s Division of Trading and Markets and Division of Investment Management to maintain a separate

staff of examiners to perform compliance inspections and examinations of the entities regulated by the

division. These examiners would report directly to the director of the division. This provision appears to

have the effect of reorganizing the SEC’s Office of Compliance Inspections and Examinations.

Confidential “suggestion box” hotline for SEC employees. Section 966 would add a new Section 4C

to the Exchange Act that would require the SEC’s inspector general to establish a confidential telephone

or other electronic hotline to receive employee suggestions for improvements in the efficiency,

effectiveness and productivity of the SEC and to receive allegations of waste, fraud, misconduct or

mismanagement. The inspector general would be required to submit an annual report to Congress

regarding the suggestions and allegations received.

2. SEC Self-Funding

Subtitle J of RAFSA Title IX, Section 991, would amend Section 4 of the Exchange Act to provide for the

SEC to become a self-funded agency. Currently, the SEC collects fees and deposits those collected fees

in the Treasury, where its deposits are treated as offsetting collections and not general funds of the

Treasury, but the SEC cannot deposit its fees in a depository institution and its monies are annually

appropriated and apportioned. Fees collected by the SEC generally have exceeded the SEC’s

appropriated budget and have been apportioned to other budget priorities.

Under the new process, established by RAFSA, the SEC would submit an annual budget to Congress,

but the budget would not be a request for appropriations. The Treasury would deposit the budgeted

amount into an account for use by the SEC. The SEC would be required to repay the Treasury in full

from fees and assessments collected. If the SEC did not collect sufficient fees to make the repayment, it

would make the repayment in a subsequent year. If, at the end of a year, the SEC has repaid the

Treasury Department and has a positive balance in excess of 25 percent of its budget request for the

following year, the excess would be credited as general revenue of the Treasury. The SEC would be

required to set fees and assessments at levels designed to fund the SEC’s budgeted amount and a

reserve. In order to manage this process more effectively, RAFSA would provide the SEC with greater

flexibility in setting and adjusting fee and assessment levels.


I. COUNCIL OF INSPECTORS GENERAL

Section 989E of RAFSA would establish a Council of Inspectors General on Financial Oversight (the “IG

Council”) composed of the inspectors general of the Treasury Department (whose inspector general

would serve as chairperson), the FRB, the CFTC, the Department of Housing and Urban Development,

the FDIC, the Federal Housing Finance Agency, the National Credit Union Administration, the SEC and

the Troubled Asset Relief Program. The purpose of the IG Council would be to facilitate the sharing of

information and to discuss the ongoing work of each member, with a focus on concerns that may apply to

the broader financial sector and ways to improve financial oversight. The IG Council would meet at least

quarterly and submit annual reports to Congress including both specific information and

recommendations about each member’s ongoing and completed work, particularly as it relates to the

broader financial sector, and a summary of the IG Council’s general observations, with a focus on

measures that should be taken to improve financial oversight. The IG Counsel would also be authorized

to convene a working group to evaluate its effectiveness and internal operations.34

J. LIMITATION ON IMF LOANS

RAFSA would amend the Bretton Woods Agreements Act to require the President to direct the U.S.

Executive Director of the International Monetary Fund to evaluate any proposed loan by it to a country

whose public debt exceeds its gross domestic product. If the director determines that the loan will not be

repaid, the director would be required to provide a certification of this determination to Congress, and the

President would be required to direct the director to use the voice and vote of the U.S. to oppose the

proposed loan.

VI. INSURANCE REFORMS

A. OFFICE OF NATIONAL INSURANCE ACT OF 2010

Subtitle A of Title V of RAFSA, known as the “Office of National Insurance Act of 2010,” would establish

an Office of National Insurance (the “ONI”) within the Treasury Department, to be headed by a director

appointed by the Treasury Secretary. The ONI would be responsible for performing various functions

with respect to all lines of insurance except health insurance (as determined by the Treasury Secretary

based on the definitions set forth in the Public Health Service Act) and crop insurance (as established by

the Federal Crop Insurance Act), including:

• monitoring all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the

34 RAFSA would also enact several technical reforms to the Inspector General Act of 1978, including

how they are removed.


U.S. financial system, and advise the Treasury Secretary on major domestic and prudential international insurance policy issues;

• recommending to the Council that it designate an insurer, including the affiliates35 of such insurer,36 as an entity subject to regulation as a nonbank financial company supervised by the FRB pursuant to Title I;

• assisting the Treasury Secretary in administering the Terrorism Risk Insurance Program established under the Terrorism Risk Insurance Act of 2002;

• coordinating federal efforts and developing federal policy on prudential aspects of international insurance matters, including assisting the Treasury Secretary in negotiating “international insurance agreements on prudential measures” with non-U.S. governments and determining whether such agreements preempt state insurance measures as discussed below;

• consulting with the states (including state insurance regulators) regarding insurance matters of national importance and prudential insurance matters of international importance; and

• performing such other related duties as may be assigned by the Treasury Secretary.

Subtitle A expressly provides that nothing contained in its provisions establishing the ONI and authorizing

“international insurance agreements on prudential measures” would be construed to establish or provide

the ONI or the Treasury Department with general supervisory or regulatory authority over the business of

insurance. Subtitle A further provides that the ONI director would be required to consult with state

insurance regulators, individually or collectively, to the extent the director determined appropriate, in

carrying out the functions of the ONI. In addition, Subtitle A provides that the Treasury Secretary would

advise the President on major domestic and international prudential policy issues in connection with all

lines of insurance except health insurance.

Subtitle A is similar, but not identical, to Title VI (“Federal Insurance Office”) of the House bill (H.R. 4173,

the Wall Street Reform and Consumer Protection Act of 2009). For example, the director of the ONI

would not (unlike the director of the Federal Insurance Office in the House bill) be an advisory member of

the Council, although the ONI would have an advisory role to the Council in the determination of whether

an insurer should be subject to regulation as a nonbank financial company supervised by the FRB

pursuant to Title I.

Three aspects of Subtitle A should be noted in particular: (1) the negotiation of “international insurance

agreements on prudential measures” with non-U.S. governments or regulatory authorities and the

potential preemption of state laws that conflict with such agreements; (2) future reports regarding the

insurance industry and its regulation to be prepared by the ONI for Congress and the President; and

35 An insurer’s affiliate is defined as any person who controls, is controlled by, or is under common

control with the insurer. 36 An insurer is defined for purposes of Subtitle A (except the data collection provisions thereof) as any

person engaged in the business of insurance, including reinsurance.


(3) the ONI’s powers to request and collect data from the insurance industry. Each of these is described

below.

International insurance agreements on prudential measures and preemption. Subtitle A would

authorize the Treasury Secretary, in consultation with the U.S. Trade Representative, to negotiate and

enter into “international insurance agreements on prudential measures” on behalf of the United States,

which are bilateral or multilateral agreements with one or more non-U.S. governments or regulatory

authorities regarding prudential measures applicable to the business of insurance or reinsurance.

Subtitle A provides that a state insurance law, regulation, ruling or practice relating to or affecting

prudential measures applicable to insurance or reinsurance may be preempted if and only to the extent

that the director of the ONI determines that the measure (1) results in less favorable treatment of a non-

U.S. insurer domiciled in a non-U.S. jurisdiction that is subject to an international insurance agreement on

prudential measures than a U.S. insurer domiciled, licensed, or otherwise admitted in that state and (2) is

inconsistent with an international insurance agreement on prudential measures.

Before making any determination of preemption of a state insurance measure, the director of the ONI

would be required to:

• notify and consult with the appropriate state regarding the potential inconsistency or preemption; and

• publish a notice in the Federal Register, provide interested parties an opportunity to comment and consider any comments received.

Upon making any determination of inconsistency, the director of the ONI would further be required to

notify the appropriate state of the determination and the extent of the inconsistency, establish a

reasonable period of time, at least 30 days, before the determination became effective, and notify the

Congressional Banking Committees of the inconsistency. Upon the conclusion of such period, the

determination would become effective if its basis still existed, and the director of the ONI would publish a

notice of effectiveness in the Federal Register and notify the appropriate state.

No state could enforce a state insurance measure to the extent that such measure had been so

preempted. Subtitle A specifies that it would not preempt state insurance measures governing rates,

premiums, underwriting, sales practices or insurance coverage requirements; the application of state

antitrust laws to the business of insurance; or state insurance measures governing the capital or solvency

of an insurer, except to the extent that such state insurance measure results in less favorable treatment of

a non-U.S. insurer than a U.S. insurer.

Subtitle A by itself would not reduce the collateral requirements applicable under state insurance laws to

reinsurance obtained by a U.S. ceding insurer from a non-U.S., nonadmitted reinsurer (although Subtitle

B would preempt application of a state’s reinsurance requirements to cedents domiciled in another state,


as discussed below). It is possible, however, that covered agreements could be entered into with non-

U.S. government or regulatory authorities with the result of preempting and reducing such requirements.

Future reports regarding the study and regulation of the insurance industry. Beginning September

30, 2011, the director of the ONI would be required to report annually to the President and to the

Congressional Banking Committees on the insurance industry any actions taken by the ONI to preempt

inconsistent state insurance measures and any other information requested by the committees or

deemed relevant by the director.

In addition, the director of the ONI would be required to conduct a study and submit a report to Congress,

within 18 months after the enactment of RAFSA, on how to modernize and improve the system of

insurance regulation in the United States. This study and report, which would be required to be prepared

in consultation with the National Association of Insurance Commissioners (the “NAIC”), consumer

organizations, industry and policyholder representatives and other appropriate organizations or experts,

would be “based on and guided by” the following considerations:

• systemic risk regulation with respect to insurance;

• capital standards and the relationship between capital allocation and liabilities, including standards relating to liquidity and duration risk;

• consumer protection for insurance products and practices, including gaps in state regulation;

• the degree of national uniformity of state insurance regulation;

• the regulation of insurance companies and affiliates on a consolidated basis; and

• international coordination of insurance regulation.

The study and report would also examine other specified factors, including:

• the costs and benefits of potential federal regulation of insurance across various lines of insurance (except health insurance);

• the feasibility of regulating only certain lines of insurance at the federal level, while leaving other lines for state regulation;

• the ability of potential federal regulation to eliminate or minimize regulatory arbitrage;

• the impact that developments in the regulation of insurance in non-U.S. jurisdictions might have on the potential federal regulation of insurance;

• the ability of potential federal regulation to provide “robust” consumer protection for policyholders;

• the potential consequences of subjecting insurance companies to a federal resolution authority (including its effect on state guaranty funds, policyholder protection and priorities, separate accounts and international competitiveness); and

• such other factors the director of the ONI determines are necessary or appropriate.

The study and report would be required to contain any legislative, administrative or regulatory

recommendations as the director of the ONI determines appropriate to carry out its findings.


Authority to request and collect data. The ONI would be empowered to request and collect data

(including financial data) on and from the insurance industry and insurers (including reinsurers) and their

affiliates, enter into information-sharing agreements, analyze and disseminate data, and issue reports

regarding all lines of insurance except health insurance. The ONI could require an insurer or an affiliate

of an insurer to submit such data or information as the ONI may reasonably require. For the purpose of

these data collection provisions only, “insurer” would be defined as any person that is authorized to write

insurance or reinsure risks and issue contracts or policies in one or more states.

This data collection authority would not apply to any insurer or affiliate whose size is below a minimum

threshold to be established by the ONI. In addition, before collecting data or information, the ONI would

be required to coordinate with each relevant state insurance regulator (or other relevant federal or state

regulatory agency, in the case of an affiliate of an insurer) to determine whether the information to be

collected is available from such other sources, or from publicly available sources. Subtitle A would

authorize each such relevant federal agency and state insurance regulator or other federal or state

regulatory agency to provide such data to the ONI. Subtitle A further provides that the submission of non-

publicly available data to the ONI under this authority would not constitute a waiver of privilege arising

under federal or state law, that existing legal or written contractual confidentiality protections would

continue (regardless of such submission), and that information-sharing agreements with state insurance

regulators may be entered into to that effect. The director of the ONI would have subpoena powers in

such inquiries, provided he or she makes a written finding that the information sought is required to carry

out the ONI’s functions and that the ONI has coordinated with other regulators or agencies as required.

B. NONADMITTED AND REINSURANCE REFORM ACT OF 2010

Subtitle B of Title V of RAFSA, entitled the “Nonadmitted and Reinsurance Reform Act of 2010,” is

virtually identical to the corresponding measure in the House bill. This subtitle seeks to increase

efficiency, reduce transaction costs and improve consumer access in the nonadmitted property and

casualty insurance market (excess and surplus lines) and to reform the regulation of the reinsurance

markets. Subtitle B would effect such reforms by:

• requiring that the placement of nonadmitted coverage across state lines be subject to the statutory and regulatory requirements of the insured’s home state only;

• promoting the eligibility requirements for nonadmitted insurers of the NAIC as the standard for the surplus lines marketplace;

• limiting state law requirements that currently restrict a surplus lines broker’s ability to place commercial insurance with a nonadmitted carrier;

• preventing policyholders from having to pay premium taxes for nonadmitted reinsurance to more than one state; and

• restricting the ability of non-domiciliary state insurance regulators to deny credit for reinsurance when such credit is recognized by the ceding insurer’s domicile state regulator.


Excess and surplus lines. Subtitle B provides that the placement of nonadmitted insurance (property

and casualty insurance placed with a nonadmitted insurer) would be subject to the statutory and

regulatory requirements solely of the insured’s “home state.” In addition, only the insured’s “home state”

would be permitted to require a surplus lines broker to be licensed in order to sell, solicit or negotiate

nonadmitted coverage with respect to the insured. Any law, regulation or action of any state that applies

or purports to apply to nonadmitted insurance sold to, solicited by or negotiated with an insured whose

“home state” is another state would be preempted with respect to such application.

An insured’s “home state” would be defined as the state in which the insured maintains its principal place

of business or, in the case of an individual, the individual’s principal residence, or if 100 percent of the

insured risk is located outside such state, the state to which the greatest percentage of the insured’s

taxable premium for that insurance contract is allocated. If more than one insured from an affiliated group

are named insureds on a single nonadmitted insurance contract, then the “home state” would be the

home state of the member of the affiliated group that has the largest percentage of premium attributed to

it under such insurance contract.

The above requirements would not preempt any state requirement that restricts placement of workers’

compensation insurance or excess insurance for self-funded workers’ compensation plans placed with a

nonadmitted insurer.

To encourage state insurance departments to participate in the NAIC’s national producer database (or an

equivalent national database), Subtitle B provides that, after two years from the enactment of RAFSA, a

state could not collect fees relating to licensing of a surplus lines broker unless the state has in effect laws

or regulations that provide for such participation.

Subtitle B would further promote state uniformity by prohibiting a state from imposing eligibility

requirements on nonadmitted insurers domiciled in the United States except in conformance with

Sections 5A(2) and 5C(2)(a) of the NAIC’s Non-Admitted Insurance Model Act. These Model Act

provisions, generally, provide for minimum capital and surplus requirements.37 A state could deviate from

such standards if it adopted “nationwide uniform requirements, forms and procedures … that include

alternative nationwide uniform eligibility requirements.” In addition, a state could not prohibit a surplus

lines broker from placing nonadmitted insurance with a nonadmitted insurer domiciled outside the United

States that is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers

Department of the NAIC.

37 Section 5A(2) of the Model Act requires that a surplus lines carrier must be authorized to write the

applicable type of insurance in its domiciliary jurisdiction. Section 5C(2)(a) requires a nonadmitted insurer to have capital and surplus at least equal to the greater of the state’s minimum capital and surplus requirement or $15 million, which is waivable (but not to an amount that is below $4.5 million) by the regulator.


To facilitate access by commercial purchasers to nonadmitted insurance, state laws would no longer be

permitted to require a surplus lines broker seeking to place nonadmitted insurance to investigate whether

a customer’s desired coverage could be obtained from admitted insurers if the following conditions were

satisfied: (1) the customer is an “exempt commercial purchaser,”38 (2) the broker has disclosed to the

exempt commercial purchaser that such insurance may or may not be available from the admitted market

that may provide greater protection with more regulatory oversight, and (3) the exempt commercial

purchaser has subsequently requested in writing that the broker procure such insurance from a

nonadmitted insurer.

The Comptroller General would be required to conduct a study of the nonadmitted insurance market to

determine the effect of the enactment of the nonadmitted insurance provisions on the size and market

share of the nonadmitted insurance market for providing coverage typically provided by the admitted

insurance market.39 The Comptroller General would be required to consult with the NAIC in conducting

this study and to submit a report on the study to the Congressional Banking Committees no later than 30

months after the effective date of RAFSA.

Premium tax on excess and surplus lines insurance. Subtitle B would prevent policyholders from

having to pay more than one layer of state premium taxes with respect to nonadmitted insurance. Only an

insured’s home state would be permitted to require any premium tax payment for nonadmitted insurance.

This limitation would facilitate “nationwide uniform requirements, forms, and procedures” for allocating

premium tax revenues among states with an interest in a policy relating to nonadmitted insurance. The

system would be implemented by compacts entered into between states. To administer this allocation of

38 The term “exempt commercial purchaser” would be defined to mean any person purchasing

commercial insurance that, at the time of placement, meets requirements summarized as follows: the person (1) employs or retains a “qualified risk manager” (separately defined), (2) has paid aggregate nationwide commercial property and casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months, and (3) meets at least one of the following criteria: (a) it possesses a net worth in excess of $20 million, (b) it generates annual revenues in excess of $50 million, (c) it employs more than 500 full-time or full-time-equivalent employees “per individual insured” or is a member of an “affiliated” group employing more than 1,000 employees, (d) it is a not-for-profit organization or public entity generating annual budgeted expenditures of at least $30 million, or (e) it is a municipality with a population in excess of 50,000 persons. These dollar amounts would be adjusted for inflation every five years.

39 The study would be required to determine and analyze the change in the size and market share of the nonadmitted insurance market and in the number of insurance companies providing such business in the 18-month period following RAFSA’s effective date; the extent to which insurance coverage typically provided by the admitted insurance market has shifted to the nonadmitted insurance market; the consequences of any change in the size and market share of the nonadmitted insurance market; the extent to which insurance companies that provide both admitted and nonadmitted insurance have experienced shifts in the volume of business between admitted and nonadmitted insurance; and the extent to which there has been a change in the number of individuals who have nonadmitted insurance policies, the type of coverage provided under such policies and whether such coverage is available in the admitted insurance market.


tax revenue among the states, an insured’s home state could require the filing of an annual tax allocation

report that would detail the portion of premiums attributable to properties, risks, or exposures in each

state. Any such interstate compact would become effective either (1) on the date of the compact, if it is

adopted within 330 days of the passage of RAFSA, or (2) on the first January 1 occurring after the

expiration of 330 days from the passage of RAFSA, unless otherwise provided in the compact.

Reinsurance. Subtitle B would provide that if the state of domicile of a ceding insurer (1) is an NAIC-

accredited state or has financial solvency requirements substantially similar to the requirements

necessary for NAIC accreditation, and (2) recognizes credit for reinsurance for the insurer’s ceded risk,

then no other state would be permitted to deny such credit for reinsurance. In addition, all laws,

regulations or other actions of a state that is not the domiciliary state of the ceding insurer, except those

with respect to taxes and assessments on insurance companies or insurance income, would be

preempted to the extent that they (1) restrict or eliminate the rights of the ceding insurer or the assuming

insurer to resolve disputes pursuant to contractual arbitration to the extent such contractual provision is

not inconsistent with the provisions of Title 9 (“Arbitration”) of the U.S. Code, (2) require that a certain

state’s law govern the reinsurance contract, (3) attempt to enforce a reinsurance contract on terms

different from those set forth in the reinsurance contract, or (4) otherwise apply the laws of the state to

reinsurance agreements of ceding insurers not domiciled in that state.

Subtitle B would further provide that a reinsurer’s domiciliary state would have sole responsibility for

regulating the reinsurer’s financial solvency if that state is NAIC-accredited or has financial solvency

requirements substantially similar to those necessary for NAIC accreditation, and that, in that case, no

other state would be permitted to require the reinsurer to provide any additional financial information other

than the information the reinsurer is required to file with its domiciliary state. “Reinsurer” would be defined

as an insurer to the extent that the insurer (1) is principally engaged in the business of reinsurance, (2)

does not conduct significant amounts of direct insurance as a percentage of its net premiums, and (3) is

not engaged in an ongoing basis in the business of soliciting direct insurance, in each case as determined

under the laws of the domiciliary state.

VII. CONSUMER AND INVESTOR PROTECTION

RAFSA contains provisions designed to protect consumers of financial services from abuses and to

protect securities investors and whistleblowers. RAFSA also contains provisions designed to expand the

range of financial services made available to low-income and moderate-income individuals and other

Americans “who are not fully incorporated into the financial mainstream.”


A. CONSUMER FINANCIAL PROTECTION ACT OF 2010

Title X, dubbed the “Consumer Financial Protection Act of 2010” or “CFPA,” would create a new

consumer financial services regulator, the Bureau of Consumer Financial Protection (the “Bureau”), that

would take on most of the consumer financial services regulatory responsibilities now given to the federal

banking regulators and other agencies.

Independence of the Bureau. There has been much discussion of whether the financial regulatory

reform process will result in an “independent” consumer agency. The CFPA would establish the Bureau

“in the Federal Reserve System,” but the structure created for its governance would allow it to function in

essence as an autonomous agency. Its director would be appointed by the President with the advice and

consent of the Senate, and the FRB would specifically be barred from intervening in any matter before the

Bureau; appointing, directing or removing any Bureau officer or employee; merging or consolidating the

Bureau or any of its functions with any part of the FRB or any Federal Reserve bank; reviewing,

approving, delaying or preventing any Bureau rule or order; or reviewing, approving, or commenting on

the Bureau’s Congressional testimony or other submissions to Congress. In addition, the CFPA would

give the Bureau a dedicated, non-appropriated funding source in the form of annual required transfers

from the Federal Reserve System’s earnings.

Responsibilities of the Bureau. The Bureau’s primary functions would include the supervision of

“covered persons” for compliance with “Federal consumer financial law” and the promulgation of

regulations implementing those laws. These key terms are defined as follows:

• “Covered person” is broadly defined to include any person offering or providing a consumer financial product or service and any affiliated service provider.

• “Financial product or service” is defined to include extending and brokering credit and leases that are the functional equivalent of credit; real estate settlement and appraisals; taking deposits; transmitting funds; providing stored value or payment instruments; check cashing and collection; providing payment and financial data processing to consumers; financial advisory services; and debt collection. “Financial product or service” would expressly exclude the “business of insurance,” which is defined as the writing of insurance or the reinsurance of risks, including acts necessary to such writing or reinsurance, and related activities conducted on behalf of an insurer.

• “Federal consumer financial law” includes the CFPA and other enumerated statutes including the Truth in Lending Act, the Equal Credit Opportunity Act, Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act. Notably, the Community Reinvestment Act is not included, with the result that responsibility for examining for and enforcing compliance with it will remain with the federal bank regulatory agencies.

The CFPA includes several specific grants of authority to the Bureau relating to particular consumer

protections. These include:


• defining “unfair, abusive or deceptive acts and practices”40 and the power to take action to prevent covered persons from engaging in them;

• prescribing new rules regarding disclosures related to consumer financial products and promulgating model forms; and

• requiring covered persons to give a consumer, on request, information that the covered person has about the consumer’s purchase of a consumer financial product from the covered person.

The Bureau would also have the power to prohibit anything connected with the marketing, sale or

enforcement of the terms of a consumer financial product that does not conform to the CFPA or the

Bureau’s rules on unfair, abusive or deceptive acts and practices; violations of recordkeeping or reporting

requirements; and “knowingly or recklessly” providing “substantial assistance to another person” in

connection with an unfair, abusive or deceptive act or practice.

Persons subject to Bureau jurisdiction. The CFPA describes three different types of covered persons

over whom the Bureau would have varying degrees of direct supervisory authority.

• Nondepository covered persons. First is a nondepository covered person, which means any person who originates or brokers consumer real-estate secured loans or who is a “larger participant of a market for other consumer financial products or services.” What constitutes a “larger participant” in a given market would be defined by the Bureau, a definition that will necessarily be of great interest to affected persons. The Bureau would have the power to examine, require reports from and impose registration and recordkeeping requirements on such persons. It would also generally have exclusive enforcement authority over such persons’ compliance with federal consumer financial laws, except that the FTC would retain its existing authority to enforce federal consumer financial laws against those nondepository covered persons over whom it has jurisdiction under the Federal Trade Commission Act. The Bureau and FTC would be required to reach an agreement on coordination of enforcement actions.

• Insured banks and credit unions with assets over $10 billion. The second group would consist of insured banks and credit unions with over $10 billion in assets and their affiliates. The Bureau would be required to examine these institutions directly for consumer compliance, and to require reports from them. The Bureau would also have primary enforcement authority with respect to these institutions’ compliance with federal consumer financial law. The federal banking agencies may recommend that the Bureau initiate an enforcement action, but they may only initiate one themselves if the Bureau does not commence its own action within 120 days of receiving the other agency’s recommendation.

• Insured banks and credit unions with assets under $10 billion. The third group of covered persons would be insured banks and credit unions with assets of $10 billion or less. (Affiliates of such institutions would not be covered, unlike affiliates of larger depository institutions.) The federal banking agencies would be responsible for examining and enforcing these institutions’ compliance with federal consumer financial law. The Bureau would not be given direct examination powers over this class of institutions, but instead would be permitted

40 “Abusive” is not a term currently employed by the federal laws prohibiting unfair and deceptive acts

and practices. The CFPA’s definition of “abusive” broadly covers acts or practices that “materially interfere” with a consumer’s ability to understand a term or condition, or take “unreasonable advantage” of a consumer’s lack of understanding, inability to protect his interests or reliance on a covered person to act in the consumer’s interest.


only to send examiners “on a sampling basis” to accompany examiners from an institution’s federal prudential regulator. Enforcement powers would rest exclusively with the prudential regulator.

The CFPA specifically excludes certain classes of persons from the Bureau’s jurisdiction. In particular,

merchants, retailers and other sellers of non-financial services are not subject to the Bureau’s jurisdiction

except to the extent they offer any consumer financial product or service or are otherwise subject to a

federal consumer financial law for which the Bureau has responsibility. The offering of credit by a

merchant or retailer would generally be excluded from the Bureau’s authority, so long as the credit is

extended to allow a consumer to purchase a non-financial product or service, and the debt is not

conveyed to a third party (unless in default) and is not subject to a finance charge. It appears that this

could cover the sales by merchants or retailers of their accounts receivable. If so, the impact on the

ability or willingness of these businesses to finance themselves through factoring could be very

significant. (However, small businesses would receive some additional protections from Bureau

jurisdiction in this area.) Real estate agents and brokers, manufactured home retailers, accountants and

tax preparers, attorneys, and qualified retirement or eligible deferred compensation plans are also

excluded. In addition, most persons registered or required to be registered with the SEC or CFTC are

excluded as well, although the CFTC is required to consult and coordinate with the Bureau on any CFTC

rulemaking that relates to a product or service that is the same as, or competes directly with, a product

regulated by the Bureau, and the SEC is required similarly to consult with the Bureau “where feasible.”

Finally, the Bureau may not define “engaging in the business of insurance” to be a financial product or

service.

The CFPA would also specifically provide that the FTC may enforce the Bureau’s rules on unfair,

deceptive or abusive acts or practices with respect to persons under the FTC’s jurisdiction. Similarly, the

Bureau could enforce any of the FTC’s rules regarding unfair or deceptive acts or practices with respect

to any covered person.

Bureau rulemaking authority and involvement of prudential regulators. The Bureau would have the

ability to issue rules implementing, and to enforce, the federal consumer financial laws. Responsibility for

existing regulations implementing those laws would likewise be transferred to the Bureau. The Bureau

would also generally be able to grant exemptions from those laws, either to classes of covered persons or

for specific types of financial products and services.

The Bureau would be required to consult with the federal prudential regulators as part of any rulemaking,

but those other regulators would not be permitted to block or otherwise directly affect a Bureau

rulemaking, other than through the Council established in Title I. The Council would have the ability to

stay or set aside any Bureau rulemaking, but could do so only through a cumbersome process that would

have to culminate with two-thirds of the Council’s member agencies voting in favor of staying or setting

aside the rule. Further, before the Council could vote on such an action, numerous other requirements


would have to be met, potentially including public hearings held by each Council member agency on the

proposed Bureau rule. In addition, the standard for this type of Council action is that the Bureau rule

“would put the safety and soundness of the United States banking system or the stability of the financial

system of the United States at risk,” which is a difficult criteria to satisfy. In sum, the procedural

requirements for the Council to stay or set aside a Bureau rule are so substantial that it appears unlikely

that the process could ever be successfully invoked, rendering the Council’s oversight of the Bureau’s

rulemaking largely moot.

In addition, the Bureau’s rulemakings would be subject to additional review requirements under the

Regulatory Flexibility Act for their effect on small businesses (and small nonprofits and local government

entities), and in particular for any potential for a Bureau rule to increase the cost of credit for these small

entities. These additional requirements will likely have the effect of causing many of the Bureau’s

rulemakings to move more slowly.41

State law preemption. The CFPA would not preempt state law except in cases where state law is

“inconsistent” with the CFPA. The CFPA would also authorize state attorneys general, following

consultation with the Bureau, to bring civil actions in the name of their state to enforce the CFPA,

although it would limit this ability in the case of actions against national banks and federal savings

associations. Specifically, state attorneys general would not be permitted to bring civil actions against

national banks and federal savings associations for violations of the CFPA, but they would be authorized

to bring such actions to enforce Bureau regulations issued under the CFPA.

The CFPA would amend the National Bank Act specifically to address preemption of state consumer

laws. The CFPA would permit preemption of state consumer laws only if (1) the state law has a

discriminatory effect on national banks as compared to state banks; (2) the state law is preempted under

the standard articulated in the U.S. Supreme Court’s 1996 decision in Barnett Bank v. Nelson, with that

preemption determination being made either by the OCC (by regulation or order) or by a court, in either

case on a “case-by-case” basis; or (3) the state law is preempted by federal law other than the CFPA.

The second preemption standard has been the focus of rigorous debate, in part because of its

requirement for a “case-by-case” determination, which the CFPA defines as a determination regarding the

effect of a particular state law on “any national bank that is subject to that law” or to a “substantively

equivalent” law of another state. It appears that the OCC may make preemption decisions either by

regulation or order, but in either case the action must be limited to a specific state law and those laws that

are “substantively equivalent” to it. The OCC would be required to consult with the Bureau on any

determination regarding whether a state law is “substantively equivalent” to a law that is the subject of an

41 The only other federal agencies subject to these requirements, which mandate the involvement of the

Small Business Administration in the agency’s rulemaking process, are the Environmental Protection Agency and the Occupational Safety and Health Administration.


OCC preemption determination. In addition, OCC preemption decisions made based on the Barnett Bank

standard would not be valid unless the record supporting the decision includes “substantial evidence” that

preemption would be consistent with that standard.

The CFPA provides that state consumer financial laws would not be preempted by the CFPA (or by

section 24 of the Federal Reserve Act, which permits national banks to make real estate-secured loans)

with respect to subsidiaries and affiliates of national banks that are not themselves national banks—

overruling the recent U.S. Supreme Court decision in Wachovia Bank v. Watters. Furthermore, the

National Bank Act would be amended to specify that neither it nor Section 24 of the Federal Reserve Act

would be construed as preempting, annulling or otherwise affecting the application of any state law to any

subsidiary, affiliate or agent of a national bank (other than one that is a national bank).

Preemption standards for laws affecting federal savings associations would be explicitly made the same

as those applicable to national banks.

Visitorial standards. The CFPA would also amend the National Bank Act to specify that, in accordance

with the recent Supreme Court decision in Cuomo v. Clearing House Association, the visitorial powers

provisions of the federal banking laws should not be construed to limit the ability of state attorneys

general to bring actions in court against a national bank to enforce any applicable law. Given the

formulation of this provision, it appears that its intent is not to grant new powers to state attorneys

general, but to assert that existing federal law permits such actions.

A corresponding change would be made to the Home Owners’ Loan Act regarding actions against federal

savings associations.

Miscellaneous regulatory changes. The CFPA would also make a variety of changes to federal

consumer financial laws, some of which could significantly impact the consumer mortgage industry.

These include restrictions on prepayment penalties in mortgages—including prohibiting prepayment

penalties entirely in mortgages that are not “qualified mortgages,” a term with an elaborate definition;

limits on payments to mortgage brokers and other “loan originators,” with a prohibition on “steering

incentives”; a requirement (added to the Truth in Lending Act) that a lender making a loan secured by real

property determine that the borrower has a “reasonable ability to repay the loan”; and requiring additional

types of data to be collected under the Home Mortgage Disclosure Act.

The Bureau would also be given the authority to establish rules regarding interchange fees charged by

payment card issuers and networks, and to enforce a new statutory requirement that such fees be

reasonable and proportional to the actual cost of a transaction to the issuer or network. RAFSA would

also limit the ability of payment card networks to attempt to limit the ability of any person to offer discounts

or incentives for the use of a competing network or an alternative form of payment.


B. SECURITIES INVESTOR PROTECTIONS AND RELATED REFORMS

1. SEC Investor Advisory Committee and Office of the Investor Advocate

Investor Advisory Committee. Section 911 of RAFSA would add a new Section 39 to the Exchange Act

that would establish within the SEC a new Investor Advisory Committee (the “IAC”). The IAC would

advise and consult with the SEC on regulatory priorities, issues related to the regulation of securities

products, trading strategies and fee structures, the effectiveness of disclosure, investor protection

initiatives and initiatives to promote investor confidence, and the integrity of the securities markets. The

IAC also would be charged with submitting to the SEC such findings and recommendations, including

proposed legislative changes, as the IAC deems appropriate. The IAC would be composed of:

• the Investor Advocate, a new office within the SEC, as described below;

• a representative of the state securities commissions;

• a representative of “the interests of senior citizens”; and

• between 10 and 20 individuals appointed by the SEC who are knowledgeable about investment issues and decisions and who would represent the interests of (1) individual equity and debt investors (including mutual fund investors) and (2) institutional investors (including pension funds and registered investment companies).

Members would serve four-year terms. The IAC members would employ their own officers, although the

chairperson and vice-chairperson could not be employed by an issuer. Officers would serve for three-

year terms.

The IAC would meet at least twice per year. The SEC would be required publicly to disclose any IAC

finding or recommendation that it received, and at the same time to indicate what action, if any, the SEC

would take to address that finding or recommendation.

Section 912 would amend Section 19 of the Securities Act, which sets forth certain “special powers” of

the SEC, to clarify that the SEC has the authority to engage in “investor testing”—gathering information

from and communicating with investors or other members of the public, academics or consultants, and

engaging in “temporary investor testing programs” that the SEC determines are in the public interest or

would protect investors, for the purpose of considering any new rule or program or evaluating and existing

rule or program.

Office of the Investor Advocate. Section 914 of RAFSA would amend Section 4 of the Exchange Act to

establish within the SEC an Office of the Investor Advocate. The Investor Advocate would be appointed

by, and report directly to, the SEC chairperson. The Investor Advocate must be someone with

experience in advocating for the interests of investors in securities, and would serve a range of functions

associated with investor protection matters, including:

• assisting retail investors in resolving significant problems they have with the SEC or SROs;

• identifying areas in which investors would benefit from SEC or SRO rule changes;


• identifying problems investors have with financial service providers and investment products;

• analyzing the potential impact of proposed SEC and SRO rules on investors; and

• proposing legal, administrative or personnel changes designed to mitigate any identified investor protection concerns.

The Investor Advocate would be required to submit annual reports directly to the Congressional Banking

Committees regarding its objectives and its activities, including a discussion of the response of the SEC

and the SROs to any issues that the Investor Advocate identified in the relevant period, without prior

review by the SEC or any of its non-Investor Advocate personnel.

2. Whistleblower Incentives and Protections

Section 922 would add a new Section 21F to the Exchange Act, designed to incentivize and protect

whistleblowers who voluntarily provide original, independently derived information to the SEC. RAFSA

would establish a “Securities and Exchange Commission Investor Protection Fund” in the U.S. Treasury

to be used to “compensate” whistleblowers whose information leads to a successful civil or criminal

enforcement action under the securities laws resulting in monetary penalties exceeding $1 million.

Whistleblowers would be entitled to receive a payment equal to between 10 percent and 30 percent of the

amount of such monetary penalties, with the amount within that range to be determined at the discretion

of the SEC, based on a number of criteria, such as the significance of the information provided and the

interest of the SEC in deterring violations of the relevant laws. The SEC Investor Protection Fund would

also be funded out of these monetary penalties. Among other limitations, whistleblowers would not be

permitted to receive an award if they gained their information during an audit of financial statements

required under the securities laws.

Section 922 would also create a private right of action for whistleblowers against employers who

discharge, demote, suspend, threaten, harass or discriminate against whistleblowers.

In addition, Section 922 would expand protections for whistleblowers employed by nationally recognized

statistical rating organizations, by permitting such employees to bring civil enforcement actions in the

event of discrimination.

Different whistleblower protections are provided to employees of public companies under current law.

Section 929A of RAFSA would amend Section 806(a) of the Sarbanes-Oxley Act to include employees of

subsidiaries and affiliates of public companies in these existing whistleblower protections.

3. Increased SIPC Borrowing Limit

Section 929C would increase the authority of the Securities Investor Protection Corporation to borrow

from the Treasury Department, from $1 billion to $2.5 billion.


4. Studies Relating to Investor Protection

Standard of care applicable to broker-dealers and investment advisers. One topic that has been

discussed in the context of regulatory reform is whether broker-dealers and investment advisers should

be subject to the same standard of conduct and whether that standard should be that of fiduciary or

something else.

Section 913 of RAFSA directs the SEC to evaluate the effectiveness of the existing legal or regulatory

standards of care imposed by the SEC, FINRA and other federal and state laws and authorities on

broker-dealers and investment advisers, and their associated persons, for the provision of personalized

investment advice and recommendations about securities to retail customers. This study would consider

a number of specific questions designed to evaluate the effectiveness of the legal and regulatory

standards applicable to broker-dealers and investment advisers when providing personalized investment

advice and recommendations about securities to retail investors, and the costs and benefits of adopting a

uniform standard. The study would also consider the ability of retail investors to understand regulatory

differences.

The SEC would be required to report to the Congressional Banking Committees within one year after the

enactment of RAFSA and to seek public comment on these matters in order to prepare the report to

Congress. RAFSA would direct the SEC to commence, within two years after enactment, a rulemaking

proceeding to address any deficiencies that the SEC identifies in its study.

Studies of investors’ financial literacy and mutual fund advertising. Section 916 would require the

SEC to conduct a study of the financial literacy of retail investors, including the most useful and relevant

information that retail investors need to make informed investment decisions, methods to increase

transparency of expenses and conflicts of interest, and the most effective existing private and public

investor education efforts. The SEC would be required to submit a report to the Congressional Banking

Committees within two years after the enactment of RAFSA.

Section 917 would require the GAO to conduct and submit to the Congressional Banking Committees

within one year after the enactment of RAFSA a study on mutual fund advertising to identify:

• current marketing practices for the sale of open-end investment company shares, including the use of past performance data, funds that have merged, and incubator funds;

• the impact of such advertising on consumers; and

• recommendations to improve investor protection in mutual fund advertising and additional information that may be necessary to ensure that investors can make informed financial decisions when purchasing mutual fund shares.

Study of potential conflicts of interest between research and investment banking functions at securities firms. In 2003, the SEC and various other regulators entered into a settlement agreement

with several securities firms to resolve certain claims of conflicts of interest between the research and


investment banking functions at the same securities firm. Section 919 of RAFSA would require the GAO

to conduct a new study designed to identify and examine potential conflicts of interest that may exist

between the research and investment banking functions within the same firm (both equity and fixed

income). The GAO is directed to consider in its study, among other things, whether the undertakings set

forth in the 2003 settlement agreement, including physical separations and communications firewalls

between research and investment banking, coverage decisions and other independence measures,

should be codified and applied permanently to securities firms. (Many of these settlement provisions, or

substantially comparable measures, have already been codified in the SRO rules.) In conducting the

study, the GAO would be directed to consult with the SEC, state attorneys general and other state

securities officials, FINRA, investor advocates, broker-dealers, retail and institutional investors, and

academics. The GAO’s report to the Congressional Banking Committees would be due within 18 months

after the enactment of RAFSA.

Study on investor access to information about investment advisers and broker-dealers. Section

919A would require the SEC to study and recommend ways to improve investor access to registration

information about investment advisers, broker-dealers and their associated persons, and to identify

additional information that should be made publicly available. The SEC would be required to complete

this study within six months after the enactment of RAFSA, and the SEC would be required to implement

any recommendations of the study within 18 months of its completion.

Study on financial planners and use of financial designations. Section 919B would require the GAO

to conduct a study on the effectiveness of state and federal regulations to protect consumers from

misleading financial advisor designations, on the regulation of financial planners and on any gaps in such

regulation. In conducting the study, the GAO would be directed to consider a number of factors, including

whether current regulations provide adequate professional standards for financial planners; the use of the

designation “financial planner” in connection with sale of other financial products, such as insurance and

securities; the ability of consumers to distinguish between various financial advisor designations, such as

“financial planner” and “financial consultant”; and whether professional oversight of financial planners

would benefit consumers. The GAO would be required to submit this study to the Congressional Banking

Committees and the Special Committee on Aging of the Senate within 180 days after the enactment of

RAFSA.

5. Study on Fannie Mae and Freddie Mac

Section 1077 would require the Treasury Secretary to prepare and submit to the Congressional Banking

Committees a report with recommendations regarding options for ending the conservatorship of Fannie

Mae and Freddie Mac, such as a wind-down and liquidation, privatization, incorporation of their functions

into a federal agency, or dissolving them into smaller companies. The study would also analyze

numerous aspects of the housing finance system, including the role of federal agencies in supporting that

system.


C. IMPROVING CONSUMER ACCESS TO FINANCIAL SERVICES

Title XII of RAFSA, entitled the “Improving Access to Mainstream Financial Institutions Act of 2010,” has

the purpose of encouraging initiatives for financial products and services that are appropriate and

accessible for millions of Americans who are not fully incorporated into the financial mainstream.

Accordingly, this title is focused primarily on creating government initiatives and encouraging non-

governmental agencies to provide financial products and services to low- and moderate-income

Americans who currently may not have access to mainstream financial products and services.

Among other things:

• The Treasury Secretary would be authorized to establish a multiyear program of grants, cooperative agreements, financial agency agreements and other programs designed to (1) enable low-income and moderate-income individuals to establish one or more accounts in a federally insured depository institution that are appropriate to meet the needs of such persons and (2) improve access to the provision of accounts, on reasonable terms, for such persons.

• Institutional participation in any such program would be restricted to federally insured depository institutions; 501(c)(3) entities; community development financial institutions; state, local and tribal governments; and partnerships or joint ventures of any of such parties.

• Implementation, including product and service offerings by eligible entities, would be effected through Treasury regulations.

• The Treasury Secretary would be authorized to establish multiyear demonstration programs with eligible entities to provide low-cost, small loans that would serve as alternatives to “payday loans”—small cash advances to consumers in exchange for future presentation or negotiation of a personal check, share draft or future account debit, plus a fee.

• Eligible entities participating in the “payday loan alternative” program would be required to promote and take appropriate steps to ensure the provision of financial literacy and education opportunities to each consumer provided with a loan.

• The Community Development Banking and Financial Institutions Act of 1994 would be amended to permit the Community Development Financial Institutions Fund to make grants to community development financial institutions in order to support small-dollar loan programs (consumer loans not exceeding $2,500 and meeting certain other conditions).

For each year that a program or project is carried out under these provisions, the Treasury Secretary

would be required to submit a report to the appropriate committees of the Congress containing a

description of the activities funded, amounts distributed and measurable results.

D. SPECIAL INVESTOR-PROTECTION GRANT PROGRAM TO BENEFIT SENIORS

Section 989A of RAFSA provides that the Office of Financial Literacy of the Bureau would be required to

establish a program to provide monetary grants to states and eligible entities (state securities

commissions, insurance commissions and consumer protection agencies) for protection of seniors

(individuals aged 62 or older) from misleading and fraudulent marketing in the sale of financial products

and misleading designations for persons selling financial products. RAFSA would authorize

appropriations of $8 million in each of fiscal years 2011 through 2015 for this grant program.


VIII. GLOSSARY OF DEFINED TERMS

ABS: asset-backed security

Advisers Act: Investment Advisers Act of 1940, as amended

BHC: bank holding company

BHC Act: Bank Holding Company Act of 1956

Bureau: Bureau of Consumer Financial Protection

CDO: collateralized debt obligation

CFPA: Consumer Financial Protection Act of 2010

CFTC: Commodity Futures Trading Commission

Congo Conflict Minerals: columbite-tantalite, cassiterite, gold, wolframite and derivatives thereof

Congressional Banking Committees: the U.S. Senate Committee on Banking, Housing and Urban Affairs and the U.S. House of Representatives Committee on Financial Services

Council: Financial Stability Oversight Council

Covered BHCs: large, interconnected bank holding companies

Covered financial company: a financial company for which a systemic risk determination has been made under RAFSA Section 203, but not including an insured depository institution

Covered Nonbank Company: a nonbank financial company that the Council determines should be subject to FRB supervision

Covered subsidiary: a subsidiary of a covered financial company other than an insured depository institution, an insurance company or a covered broker-dealer

CRA Board: Credit Rating Agency Board

Designated activity: an activity deemed by the FRB to be a systemically important payment, clearing, or settlement activity

Designated FMU: a financial market utility that has been designated and is engaged in systemically important payment, clearing, and settlement activities

FDI Act: Federal Deposit Insurance Act

FDIC: Federal Deposit Insurance Corporation

FERC: Federal Energy Regulatory Commission

FMU: financial market utility

FOIA: Freedom of Information Act

FRB: Board of Governors of the Federal Reserve System

FTC: Federal Trade Commission

GAO: Government Accountability Office

IAC: Investor Advisory Committee

IBRD: International Bank for Reconstruction and Development

IG Council: Council of Inspectors General on Financial Oversight


Internal financial activities: activities conducted for a Covered Nonbank Company or its affiliates, including internal treasury, investment and employee-benefit functions

Member agency: an agency represented by a member of the Financial Stability Oversight Council

MSP or major swap participant: a non-swap dealer that maintains a substantial position in swaps for any of the major swap categories as determined by the CFTC (excluding positions held for hedging or mitigating commercial risk); has substantial counterparty exposure that could have serious adverse effects on the financial stability of the U.S. banking system or financial markets; or is a financial entity that is highly leveraged relative to the amount of capital it holds and maintains a substantial position in outstanding swaps in any major swap category

MSRB: Municipal Securities Rulemaking Board

NAIC: National Association of Insurance Commissioners

NCUA: National Credit Union Association

NCUB: National Credit Union Board

Nonbank financial company: a U.S. or non-U.S. company predominantly engaged in activities in the United States that are financial in nature

NRSRO: nationally recognized statistical rating organization

NYSE: New York Stock Exchange

OCC: Office of the Comptroller of the Currency

OFR: Office of Financial Research

OLA: orderly liquidation authority

ONI: Office of National Insurance

Originator: any person who either sells an asset to a securitizer or who, through the extension of credit or otherwise, creates a financial asset that collateralizes an ABS

OTC: over the counter

OTS: Office of Thrift Supervision

PCAOB: Public Company Accounting Oversight Board

Proprietary trading: the purchase or sale, or other acquisition or disposition, of stocks, bonds, options, commodities, derivatives or other financial instruments for the trading book (or such other portfolio as the appropriate federal banking agencies determine) of the relevant covered company

RAFSA: Restoring American Financial Stability Act of 2010

SEC: Securities and Exchange Commission

SEF: swap execution facility

SIPA: Securities Investor Protection Act of 1970, as amended

SIPC: Securities Investor Protection Corporation

SLHC: savings and loan holding company

SRO: self-regulatory organization

Transfer date: the date of the transfer of the Office of Thrift Supervision’s supervisory responsibility; within 12 to 18 months after enactment of RAFSA

* * * Copyright © Sullivan & Cromwell LLP 2010

121 U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

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A-1 U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

ANNEX A

SUMMARY OF RULEMAKINGS AND PRINCIPAL STUDIES AND RECOMMENDATIONS UNDER RAFSA, SORTED BY RAFSA TITLE Below are summaries of the rulemakings and principal studies and recommendations RAFSA would

require or authorize to be made by each primary federal agency or other body, in order of the provisions

in RAFSA. For convenience, we have included cross-references to the discussions of the relevant

provisions in this memorandum.

TITLE I — FINANCIAL STABILITY

RAFSA Section

Description of Rulemaking, Study or Recommendation Deadline

See Page

102(a)(5) FRB must promulgate rule defining “significant nonbank financial company” and “significant bank holding company”

18 months after Transfer Date1

27

102(b) FRB must promulgate regulations establishing criteria for determining whether a company is “predominantly engaged” in financial activities in the United States

18 months after Transfer Date

21

111(e) Council must adopt rules necessary for the conduct of its business

N/A 18

115(c) Council must submit to Congress a study on the feasibility, benefits, costs and structure of a contingent capital requirement for Covered Nonbank Companies and Covered BHCs

2 years after enactment of RAFSA

27

115(c)(3) Council is authorized to recommend to the FRB that it require any Covered Nonbank Company and any Covered BHC to maintain a minimum amount of long-term hybrid debt that is convertible to equity in times of stress

N/A 27

115(d) Council is authorized to make recommendations to the FRB and FDIC concerning the required resolution plan for Covered Nonbank Companies and Covered BHCs

N/A 27

115(d) Council is authorized to make recommendations to the FRB and FDIC concerning the advisability of requiring Covered Nonbank Companies and Covered BHCs to report periodically on credit exposures

N/A 27

115(e) Council is authorized to make recommendations to the FRB prescribing concentration limits for Covered Nonbank Companies and Covered BHCs

N/A 28

115(f) Council is authorized to recommend to the FRB that it require periodic public disclosures by Covered BHCs and Covered Nonbank Companies to support market evaluation of the risk profile, capital adequacy and risk-management strategies

N/A 28

1 “Transfer Date” is defined by Section 311 as meaning the date that is 1 year after the date of enactment of

RAFSA. The Transfer Date may be extended 6 additional months by the Treasury Secretary.


RAFSA Section


See Page

120 PFRA2 must impose any standards recommended by Council or explain in writing within 90 days why it has elected not to follow the Council’s recommendation

N/A 30

120 PFRA must promulgate regulations establishing a procedure under which entities under its jurisdiction may appeal a determination by the agency that the standards imposed should remain in effect after Council has recommended removal of standard

N/A 31

120 Council is authorized to (1) issue recommendations applying new or heightened standards and safeguards to a financial activity or practice conducted by bank holding companies or nonbank financial companies and (2) recommend that the applicable agencies remove the standard

N/A 30

120 Council must report to Congress on the recommendations authorized by Section 120, including whether agencies have implemented them, and must make recommendations for legislative changes where there is no PFRA

N/A 31

121 FRB authorized to establish regulations regarding the application of measures to non-U.S. Covered Nonbank Companies and non-U.S. BHCs that the FRB and Council may impose on Covered Nonbank Companies and BHCs with $50 billion in assets that pose a grave threat to the financial stability of the United States

N/A 30

153(c) OFR must issue rules, regulations and orders in consultation with the Council to assist in (1) collecting data on behalf of the Council and providing such data to the Council and member agencies; (2) standardizing the types and formats of data reported and collected; and (3) assisting member agencies in determining the types and formats of data where member agencies are authorized by RAFSA to collect data

N/A 18

153(c) Member agencies, in consultation with OFR, must implement OFR regulations promulgated to standardize the types and formats of data reported and collected

3 years after adoption of OFR regulations

___

153(d) Director of OFR must testify before the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services regarding OFR activities and the assessment of significant financial market developments and potential emerging threats

Annually ___

153(e) Director of OFR authorized to provide additional reports to Congress concerning the financial stability of the United States

N/A ___

154(a) OFR must establish regulations regarding the type and scope of data to be collected by its data center


___

2 “Primary financial regulatory agency” (“PFRA”) is defined in RAFSA Section 2(11) as an institution’s appropriate

federal banking agency, the SEC, the CFTC, a state insurance authority, the Federal Housing Finance Agency or the Federal Home Loan Bank System, depending on the type of institution.


RAFSA Section


See Page

154(d) OFR must submit annual report to Congress assessing the U.S. financial system, including (1) an analysis of threats to U.S. financial stability; (2) the status of its efforts in meeting its mission; and (3) key findings from its research and analysis

2 years after enactment of RAFSA and not later than 120 days after the end of each fiscal year thereafter

___

156(b) OFR must submit annual report to House and Senate Committees containing plans for (1) training and workforce development; (2) workplace flexibility; and (3) recruitment and retention

Terminates 5 years after enactment of RAFSA

___

165(b) FRB must establish standards for Covered Nonbank Companies and Covered BHCs including (1) risk-based capital requirements; (2) leverage limits; (3) liquidity requirements; (4) resolution plan and credit exposure report requirements; and (5) concentration limits

18 months after Transfer Date (but see Sections 165(d) and (e))

26

165(b) FRB authorized to establish standards for Covered Nonbank Companies and Covered BHCs that may include (1) a contingent capital requirement; (2) enhanced public disclosures; and (3) overall risk management requirements

N/A 26

165(b) FRB must submit a report to Congress regarding the implementation of the standards required by Section 165, including the use of such standards to mitigate risks to U.S. financial stability

Annually ___

165(c) FRB authorized to promulgate regulations, subsequent to the Council’s report to Congress under Section 115(c) regarding contingent capital, requiring Covered Nonbank Companies and Covered BHCs to maintain a minimum amount of long-term hybrid debt that is convertible to equity in times of financial stress

N/A 27

165(d) FRB and FDIC must establish standards that include a resolution plan and credit exposure report requirements for Covered BHCS and Covered Nonbank Companies

18 months after enactment of RAFSA

27

165(e) FRB must establish standards that limit credit exposure for BHCs and Covered Nonbank Companies

Not to take effect until at least 3 years after enactment of RAFSA

28

165(e) FRB authorized to issue regulations and orders as may be necessary to administer and carry out credit exposure standards for BHCs and Covered Nonbank Companies


28

165(e) FRB authorized to exempt transactions from definition of “credit exposure” if it finds the exemption is in the public interest and is consistent with the purpose of the credit exposure limits


28

165(f) FRB authorized to establish periodic public disclosure requirements for Covered Nonbank Companies and Covered BHCs to support market evaluations of risk profile, capital adequacy and risk-management capabilities

N/A 28


RAFSA Section


See Page

165(g) FRB must issue regulations requiring all publicly traded Covered Nonbank Companies (within 1 year of final determination) and all publicly traded BHCs with total consolidated assets of at least $10 billion to establish a risk committee

1 year after Transfer Date, to take effect not later than 15 months after Transfer Date

29

165(g) FRB authorized to require publicly traded BHCs with total consolidated assets of less than $10 billion to establish a risk committee

N/A 29

166 FRB, in consultation with the Council and FDIC, must promulgate regulations establishing early remediation requirements for Covered Nonbank Companies or Covered BHCs


29

167 FRB must promulgate regulations to establish criteria for determining whether to require a Covered Nonbank Company to establish an intermediate holding company


25

167 FRB authorized to promulgate regulations to restrict or limit transactions between an intermediate holding company or a Covered Nonbank Company or any subsidiary thereof and its parent company or affiliates that are not its subsidiaries

N/A 25

170 FRB must promulgate regulations on behalf of, and in consultation with, the Council, setting forth criteria for exempting certain types or classes of U.S. and non-U.S. nonbank financial companies from FRB supervision

1 day after enactment of RAFSA

21

Collins amendment

FDIC, FRB and OCC must establish minimum leverage and risk-based capital requirements and, subject to the recommendation of the Council, must develop capital requirements to address risks posed by the activities of depository institutions, depository institution holding companies and Covered Nonbank Companies


31-32

TITLE II — ORDERLY LIQUIDATION AUTHORITY

RAFSA Section


See Page

201(b) FDIC, in consultation with Treasury Secretary, must establish by regulation how to determine how to apply the revenue test to determine whether a company is a “financial company” for purposes of Title I

N/A 35-36

202(b) District Court must establish rules and procedures to ensure the orderly conduct of proceedings relating to the appointment of a receiver for a covered financial company, including to meet the 24-hour decision deadline for the Treasury Secretary to petition for appointment of a receiver for a covered financial company


37

202(d)(5) FDIC may promulgate rules governing the termination of receiverships under Title II

N/A 42


RAFSA Section


See Page

202(e) Administrative Office of U.S. Courts and GAO must conduct separate studies regarding bankruptcy and orderly liquidation process for financial companies under the Bankruptcy Code

1 year after enactment of RAFSA, annually until the third year after enactment, and every fifth year thereafter

42

202(f) GAO must conduct study of international coordination relating to orderly liquidation of financial companies

1 year after enactment of RAFSA

42

202(g) GAO must conduct study of implementation of prompt corrective action by federal banking agencies


___

202(g)(2) Council must report on actions taken in response to GAO report under Section 202(g) on prompt corrective action

6 months after receipt of GAO report

___

203(c)(2) Treasury Secretary must report appointment of FDIC as receiver for covered financial company

24 hours after time of appointment

36

203(c)(3) FDIC must report to Congress after it is appointed receiver of a covered financial company

60 days after appointment

39

203(c)(5) GAO must conduct review of appointment of FDIC as receiver for a covered financial company

N/A 36

203(d) FDIC must establish policies and procedures acceptable to Treasury Secretary governing use of funds available under Title II

As soon as practicable after enactment of RAFSA

41

205(h) FDIC and SEC must jointly, after consultation with SIPC, issue rules to implement Section 205, relating to orderly liquidation of broker-dealers

N/A 39-40

209 FDIC must establish rules and regulations to implement Title II N/A 41

210(a)(6)(D) FDIC authorized to prescribe rules as necessary to establish an interest rate for, or to make payments of, post-insolvency interest to creditors holding proven claims against receivership estate of a covered financial company

N/A ___

210(a)(16)(D) FDIC must prescribe rules and establish retention schedules as are necessary to maintain the documents and records of the FDIC generated in exercising its authority under Title II

N/A ___

210(c)(8)(G) PFRA must jointly prescribe recordkeeping regulations requiring financial companies to maintain records with respect to qualified financial contracts. Treasury Secretary and FDIC have back-up rulemaking authority if the deadline is not met


___

210(c)(9)(D) FDIC may by regulation include institutions in the definition of “financial institution” for purposes of the requirements relating to transfer of qualified financial contracts

N/A ___

210(n)(7) Treasury Secretary and FDIC must jointly, in consultation with Council, establish regulations governing maximum obligation limitation

N/A 41


RAFSA Section


See Page

210(o)(6) FDIC must establish regulations to establish and carry out assessment system and consult with Treasury Secretary on the development and finalization of such regulations

N/A 41

210(s) FDIC must promulgate regulations to recover compensation for prior two years (or in case of fraud, an unlimited prior period) from senior executives and directors substantially responsible for failure of covered financial company

N/A 42

211(d) FDIC inspector general must report on actions taken by FDIC as receiver of a covered financial company

6 months after appointment and every 6 months thereafter

42

211(e) Treasury inspector general must report on actions by Secretary under Title II

6 months after date of appointment and every 6 months thereafter

___

211(f) Inspector general of PFRA must report to PFRA on supervision of a covered financial company

1 year after date of appointment as receiver

___

211(f)(2) PFRA to report to Congress on responses to inspector general reports under RAFSA Section 211(f)

90 days after receipt of inspector general report

___

213(d) FDIC and FRB, in consultation with the Council, must jointly establish rules to issue and carry out orders of prohibition against senior executives and directors of covered financial companies for violations of law or regulatory agency agreements, unsafe or unsound practices or breaches of fiduciary duty

N/A 42

TITLE III — TRANSFER OF POWERS TO OCC, FDIC AND FRB

RAFSA Section


See Page

311 Treasury Secretary authorized to extend Transfer Date of OTS supervisory responsibilities to OCC, FDIC and FRB by up to 6 months

270 days after enactment of RAFSA

42

316 FRB, FDIC and OCC must publish list of regulations transferred to it from OTS that the agency will enforce

Transfer Date 44

331 FDIC must amend assessment base for federal deposit insurance to use average total assets less tangible equity

N/A 44

341 OCC authorized to adopt rules for the examination, operation and regulation of federal savings associations

N/A 44


TITLE IV — PRIVATE FUND INVESTMENT ADVISERS REGISTRATION ACT OF 2010

RAFSA Section


See Page

404 SEC authorized to require any registered investment adviser to maintain records and file reports with the SEC regarding private funds advised by the adviser

N/A 77-78

404 SEC must submit an annual report to Congress on its use of the data collected under new Advisers Act Section 204(b) and rules thereunder to monitor the markets

Annual 78

406 SEC and CFTC must jointly promulgate rules to establish the form and content of reports required to be filed with them by investment advisers that are registered under both the Advisers Act and the Commodity Exchange Act


79

406 SEC authorized to issue rules defining technical trade and other terms used in Private Fund Investment Advisers Registration Act of 2010

N/A 78

407 SEC must define the term “venture capital fund” for purposes of Section 203 of the Advisers Act


76

408 SEC must define “private equity fund” for purposes of Section 203 of the Advisers Act and issue rules requiring advisers to private equity funds to maintain certain records and provide such reports as the SEC determines to be necessary in the public interest and for the protection of investors


76

409 SEC must define the term “family office” for Section 202(a)(11) of the Advisers Act

N/A 77

411 SEC authorized to promulgate rules requiring registered investment advisers to take certain actions to safeguard client assets over which they have custody

N/A 79

412 SEC must review accredited investor definition and make any adjustments and modifications deemed appropriate by rule

4 years after enactment of RAFSA, and within every 4 years thereafter

71

413 GAO must conduct a study on appropriate criteria for accredited investor status and eligibility to invest in private funds and submit a report with its findings to the Congressional Banking Committees


73

414 GAO must conduct a study on the feasibility of forming an SRO to oversee private funds and submit a report with it to the Congressional Banking Committees


73

415 SEC must conduct study on the state of short selling on national securities exchanges and in OTC markets and submit a report on its findings and recommendations to the Congressional Banking Committees


73


TITLE V — INSURANCE

RAFSA Section


See Page

502(a) ONI authorized to identify issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system

N/A 101-102

502(a) ONI authorized to recommend to Council that it designate an insurer as an entity subject to regulation as a nonbank financial company

N/A 102

502(a) ONI authorized to develop federal policy on prudential aspects of international insurance matters

N/A 102

502(a) ONI authorized to determine whether state insurance measures are preempted

N/A 103

502(a) ONI authorized to analyze and disseminate information and issue reports regarding all lines of insurance except health insurance

N/A 104

502(a) ONI must, prior to making a determination that a state measure is preempted, cause to be published in the Federal Register notice of the issue

N/A 103

502(a) ONI must, after making a determination that a state measure is preempted, notify the appropriate state, the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services

N/A 103

502(a) ONI must, after a determination that a state measure is preempted has become effective, cause to be published in the Federal Register notice thereof and notify the appropriate state

N/A 103

502(a) Beginning September 30, 2011, the director of ONI must submit an annual report to the President, the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services regarding the insurance industry

Not later than September 30 of each year

104

502(a) Director of ONI must conduct a study and submit a report to Congress on how to modernize and improve insurance regulation in the U.S., which must also contain the Director’s legislative, administrative or regulatory recommendations to carry out the findings of the report


104

TITLE VI — REGULATION OF BHCS, SLHCS AND DEPOSITORY INSTITUTIONS

RAFSA Section


See Page

603 GAO must conduct a study of the appropriateness of the exemptions for certain depository institutions from the definition of “bank” under the BHC Act, and the adequacy of the federal framework of the regulation of savings associations, and the consequences of removing their exemption from the BHC Act


46

608 FRB authorized to issue rules implementing various amendments to Sections 23A and 23B of Federal Reserve Act, including coverage of credit exposure on derivatives and securities lending and borrowing transactions

N/A; statutory amendments effective 1 year after Transfer Date

48-50


RAFSA Section


See Page

614 FRB authorized to issue rules to implement amendments to insider lending restriction of Section 22(h) of the Federal Reserve Act, covering credit exposure on derivative transactions, repurchase and reverse repurchase agreements, and securities lending and borrowing transactions


51

615 FRB authorized to issue rules to implement requirement that purchases of assets by a bank from, and sales by a bank to, an insider be on market terms

N/A; statutory requirement effective on Transfer Date

51

616 FRB authorized to issue rules to establish capital requirements for BHCs and SLHCs


52

618(d) FRB must adopt capital adequacy and risk management standards for supervised securities holding companies

N/A; statutory requirement effective at enactment of RAFSA

52

619(g) Council must complete study of the Volcker rule and make recommendations regarding definitions in and modifications of the Volcker rule to FRB, FDIC and OCC


54

619(g) FRB, FDIC and OCC must jointly issue rules implementing the Volcker rule and reflecting the Council’s recommendations with respect to the Volcker rule

9 months after completion of Council study of Volcker rule

54-55

619(g) FRB must issue rules establishing additional capital requirements and quantitative limits for nonbank financial companies it supervises that engage in activities covered by the Volcker rule and reflecting the Council’s recommendations


54

620(e) Council must complete study on effect of concentration limit on acquisitions by large financial companies and make recommendations to FRB for modifications to the limit


56

620(d), (e) FRB must issue rules to implement concentration limit on expansion by large financial firms, including definitions of terms and reflecting Council recommendations


56

TITLE VII — DERIVATIVES

RAFSA Section


See Page

712(a) CFTC and SEC must adopt rules regarding mixed swaps 6 months after enactment of RAFSA

64

712(d) CFTC and SEC must establish rules requiring maintenance of records of all uncleared swap and security-based swap activities with such records being available for review by the regulators


68

712(e) CFTC and SEC must jointly establish rules to define “security-based swap agreement”


64


RAFSA Section


See Page

713 CFTC, SEC and prudential regulators must recommend to Congress legislative changes to facilitate portfolio margining of securities and commodity futures and options


67-68

721(c) CFTC must define the terms “swap,” “swap dealer,” “major swap participant,” including “substantial position” and “eligible contract participant”


64-65

723(a) CFTC must establish rules for a derivatives clearing organization’s request for approval of any group, category, type or class of swaps that the organization desires to clear


___

723(a) CFTC must establish rules for reviewing a derivatives clearing organization’s clearing of a swap, or a group, category, type, or class of swaps that the CFTC has accepted for clearing


___

723(a) CFTC must establish rules to identify a group, category, type, or class of swaps not submitted for approval that CFTC determines should be submitted for clearing

Expedited rulemaking authority: regulations may be made without regard to notice and comment provisions of 5 U.S.C. 553

___

725(d) CFTC must establish rules mitigating conflicts of interest between swap dealers and major swap participants (“MSPs”) and derivatives clearing organizations, exchanges, or swap execution facilities (“SEFs”) that clear or execute swaps in which the swap dealer or MSP has a material investment


68-69

726 CFTC must determine whether to issue rules to establishing limits on the control of any derivatives clearing organization, SEF, or exchange by a BHC (or its affiliate), nonbank financial company (or its affiliate), swap dealer, or MSP


___

727 CFTC must establish rules to provide for the public reporting of swap transactions and price data


___

727 CFTC must publicly issue semiannual and annual reports on trading and clearing of swaps and the market participants and developments in new swaps


___

728 CFTC must establish rules to govern swap repositories, including data collection and maintenance standards that are comparable to those for derivatives clearing organizations


___

729 CFTC must adopt an interim final rule to establish reporting requirements for swaps that were entered into before enactment of RAFSA


___

731 CFTC must establish rules for the registration of swap dealers and MSPs


___

731 CFTC must impose capital and margin requirements on swap dealers and MSPs


67-68


RAFSA Section


See Page

731 CFTC must establish rules governing reporting and recordkeeping requirements, and daily trading records for swap dealers and MSPs


68

731 CFTC must establish rules establishing business conduct standards for swap dealers and MSPs


68

731 CFTC must establish rules governing documentation and back office standards for swap dealers and MSPs


___

731(e) FRB, FDIC and OCC, in consultation with CFTC and SEC, must impose capital and margin requirements on swap dealers and MSPs that are depository institutions


67-68

733 CFTC must establish rules on the regulation of SEFs 6 months after enactment of RAFSA

___

737(a) CFTC must establish aggregate position limits across exchanges, SEFs, foreign boards of trades, and swaps that are not traded and perform a significant price discovery function


___

748 CFTC must establish rules implementing commodity whistleblower incentives and protections


___

750(a) Chairperson of CFTC must chair new interagency group, to prepare study and recommendations for Congress on oversight and development of carbon markets


___

751 CFTC must establish an energy and environmental markets advisory committee


___

763(a) SEC must establish rules for clearing agency’s submission for approval of any group, category, type or class of security-based swaps that the clearing agency desires to clear


66-67

763(a) SEC must establish rules for reviewing a clearing agency’s clearing of a security-based swap, or a group, category, type, or class of security-based swaps that SEC has approved for clearing


66-67

763(a) SEC must establish rules to identify a group, category, type, or class of swaps not submitted for approval that SEC deems should be submitted for clearing

Expedited Rulemaking Authority

66-67

763(a) SEC must adopt rules to provide for the public availability of security-based swap transactions and price data


67

763(a) SEC must establish an interim final rule governing reporting requirements for security-based swaps that were entered into prior to enactment of RAFSA


___

763(b) SEC must establish rules governing clearing agencies for security-based swaps


66-67

763(c) SEC must establish rules governing security-based swap execution facilities


67


RAFSA Section


See Page

763(e) SEC may require self-regulatory organizations to adopt position limits, including aggregate position limits


69

763(h) SEC must establish rules to impose aggregate position limits for security-based swap and any loan, group of securities or loans the swap is based on


69

763(i) SEC must establish rules for the public reporting of security-based swap transactions


63

763(i) SEC must publicly issue semiannual and annual report on trading and clearing of security-based swaps and the market participants and developments in new security-based swaps


___

763(n) SEC must establish rules governing security-based swap data repositories


___

764 SEC must adopt rules for the registration of security-based swap dealers and MSPs


___

764 FRB, FDIC and OCC, in consultation with CFTC and SEC, must impose capital and margin requirements on security-based swap dealers and security-based MSPs that are depository institutions


67-68

764 SEC must impose capital and margin requirements on security-based swap dealers and security-based MSPs


67-68

764 SEC must adopt rules governing reporting and recordkeeping requirements, and daily trading records for security-based swap dealers and security-based MSPs


68

764 SEC must adopt rules for the business conduct standards for security-based swap dealers and security-based MSPs, including fiduciary responsibilities for security-based swap dealers


68

764 SEC must adopt rules governing documentation and back office standards for security-based swap dealers and security-based MSPs


69

765 SEC must determine whether or not to issue rules to establish limits on the control of any security-based derivatives clearing organization, SEF, or exchange by a BHC (or its affiliate), nonbank financial company (or its affiliate), security-based swap dealer, or security-based MSP


69



___


TITLE VIII — PAYMENT, CLEARING AND SETTLEMENT SUPERVISION

RAFSA Section


See Page

806(a) FRB must issue orders or establish rules, standards, or guidelines regarding payments and services provided by Federal Reserve banks to designated financial market utilities (including access to the Discount Window)

N/A 35

806(e) FRB must establish regulations defining standards for determining when designated financial market utilities must provide advance notice of certain changes to their rules, procedures, or operations

N/A 34

TITLE IX — INVESTOR PROTECTIONS AND IMPROVEMENTS TO REGULATION OF SECURITIES

RAFSA Section


See Page

913 SEC must evaluate standards of care applicable to broker-dealers and investment advisers for providing personalized investment advice to retail customers, and report to Congressional Banking Committees


116

913 SEC must promulgate rules under the Exchange Act and Advisers Act to address any gaps or overlaps in the legal or regulatory structure identified through the Section 913 study

Rulemaking (if any) to commence not later than 2 years after enactment of RAFSA

116

914 SEC Office of Investor Advocate must submit annual reports on its objectives to Congressional Banking Committees

June 30 of each year after 2010

115

914 SEC Office of Investor Advocate must submit annual report on its activities to the Congressional Banking Committees

December 31 of each year after 2010

115

914 SEC must establish procedures requiring response to all Office of Investor Advocate recommendations, within three months of recommendation

N/A ___

916 SEC must conduct study on the financial literacy of retail investors and submit report with its findings to the Congressional Banking Committees


116

917 GAO must conduct a study regarding mutual fund advertising, with recommendations to improve investor protection and report its findings to the Congressional Banking Committees


116

918 SEC authorized to promulgate rules designating documents or information a broker or dealer must provide to a potential retail investor prior to the purchase of investment products or services

N/A 71-72

919 GAO must conduct a study to identify and examine potential conflicts of interest that may exist between the research and investment banking functions within securities firms and submit a report with its findings and recommendations to the Congressional Banking Committees


116-117

919A SEC must conduct study, including recommendations, on ways to improve investors’ access to registration information about investment advisers, broker-dealers and their associated persons, and to identify additional information that should be made publicly available


117


RAFSA Section


See Page

919A SEC must implement recommendations from the study required by Section 919A

18 months after completion of Section 919A study

117

919B GAO must study the effectiveness of state and federal regulations to protect consumers from misleading financial advisor designations, the regulation of financial planners and other matters, and submit a report with its findings and recommendations to the Congressional Banking Committees


117

921 SEC authorized to promulgate rules regarding the use of mandatory pre-dispute arbitration clauses in agreements between any broker-dealer, municipal securities dealer or investment adviser, and their customers or clients, with respect to disputes that arise under the securities laws or rules of any SRO

N/A 72

922, 924 SEC must promulgate rules and regulations to implement new whistleblower provisions of new Section 21F of the Exchange Act including criteria for rewards and has authorization to issue further rules as appropriate

Initial rules not later than 270 days after enactment of RAFSA

115

922 SEC must submit annual reports to the Congressional Banking Committees on the RAFSA whistleblower reward program

October 30 of each fiscal year after enactment of RAFSA

___

926 SEC must promulgate “bad boy” rules to disqualify certain persons from offerings and sales under Regulation D


72

932 SEC must promulgate rules requiring each NRSRO to submit annual internal control reports to the SEC


___

932 SEC must promulgate rules intended to prevent sales and marketing considerations from influencing NRSROs ratings


88

932 SEC must promulgate rules setting forth fines and penalties for NRSROs violating applicable law and SEC rules


92

932 SEC must promulgate rules requiring NRSROs to publicly disclose information on ratings histories for each type of rated issuer, security and money market instrument


93-94

932 SEC must promulgate rules with respect to procedures and methodologies used by NRSROs


94

932 SEC must promulgate rules requiring each NRSRO to prescribe a standardized form for disclosure of qualitative and quantitative information regarding the data and assumptions underlying the determination of ratings


94

932 SEC must establish the format and content for third-party due-diligence certifications required with respect to NRSRO ratings of asset-backed securities and promulgate rules requiring NRSROs to publicly disclose such certifications


94


RAFSA Section


See Page

933 SEC must promulgate such rules as may be necessary to ensure that NRSROs and other credit rating agencies are subject to certain enforcement and penalty provisions of the Exchange Act


92

936 SEC must promulgate rules to establish NRSRO credit rating analyst standards of training, experience, competence and testing


94

938 SEC must promulgate rules requiring each NRSRO to establish written policies and procedures that assess default probabilities with respect to securities and money market instruments, clearly define and disclose the meaning of any credit rating symbols used and ensure that such symbols are applied consistently


94

939 SEC must conduct a study on the feasibility and desirability of standardizing credit rating terminology and the market stress conditions under which ratings are evaluated and submit a report with the findings and any recommendations to Congress


96

939A SEC must conduct a study on the independence of NRSROs and submit a report with the findings of the study and any recommendations to the Congressional Banking Committees


96

939B GAO must conduct a study on alternative means for compensation in NRSROs and submit a report with its findings and recommendations to the Congressional Banking Committees


96

939C GAO must conduct a study on the feasibility and merits of creating an independent professional organization for analysts employed by NRSROs and submit a report with its findings and recommendations to the Congressional Banking Committees


96

939D CRA Board may prescribe the form and manner of the application used by NRSROs to be deemed “qualified NRSROs” for the purposes of providing initial credit ratings for structured finance products

N/A 90

939D CRA Board must issue rules describing how it can modify the process by which it assigns initial credit ratings for structured finance products to qualified NRSROs

N/A 90

939D CRA Board authorized to issue regulations requiring that an issuer that has received an initial credit rating pursuant to the assignment process request a revised initial credit rating upon a “material change in circumstances,” as defined by the CRA Board

N/A 90

939D CRA Board must prescribe rules by which it will evaluate the performance of each qualified NRSRO

N/A 91

939D CRA Board must issue regulations to define the term “reasonable fee” with respect to the fees that qualified NRSROs may charge issuers for initial credit ratings for structured finance products

N/A 90

939D SEC authorized to promulgate rules defining the term “category of structured finance products,” for which issuer-requested initial credit ratings will be assigned by the CRA Board. SEC also authorized to issue further rules and regulations on the composition and responsibilities of the CRA Board

N/A 90


RAFSA Section


See Page

939D SEC must establish the CRA Board, select initial members of the CRA Board, and establish a schedule to ensure that the CRA Board begins assigning qualified NRSROs to provide initial credit ratings for structured finance products within 1 year of the selection of its members


89

939D SEC must establish fair procedures for the nomination and election of future members of the CRA Board

The expiration of the initial 4-year term of the members of the CRA Board

89

939D SEC must provide to Congress a report with recommendations on the continuation of the CRA Board, any modification to the procedures of the CRA Board, and any modification to the applicable statutory provisions

5 years after the CRA Board begins assigning qualified NRSROs to provide initial ratings

91

941 OCC, FDIC, FRB and SEC must jointly promulgate regulations requiring any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer (through an ABS) transfers, sells or conveys to a third party


85

941 Rules required to implement new “skin in the game” requirements with respect to ABS backed by residential mortgages

1 year after publication in the Federal Register

85-86

941 Rules required to implement new “skin in the game” requirements with respect to ABS backed by any asset class other than residential mortgages

2 years after publication in the Federal Register

86

942 SEC authorized to promulgate rules or regulations suspending or terminating the duty of to file under Section 15(d) of the Exchange Act for certain classes of ABS

N/A 87

942 SEC must promulgate rules requiring each issuer of ABS to disclose, for each tranche or class of securities, information regarding the assets backing such securities

N/A 87

943 SEC must promulgate rules regulating the use of representations and warranties in the ABS market that (1) require each NRSRO to describe the representations, warranties, and enforcement mechanisms available to investors and how they differ from the representations, warranties and enforcement mechanisms available in issuances of similar securities and (2) require each securitizer to disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by the securitizer


87-88

945 SEC must promulgate rules requiring any issuer of ABS to perform a due diligence analysis of the underlying assets and disclose the nature of such diligence in its registration statement


88

952 SEC must promulgate rules requiring national securities exchanges to prohibit the listing of securities, with certain exceptions, of any issuer whose board does not have an independent compensation committee, and SEC rules must identify factors affecting the independence of compensation consultants, legal counsel and other advisors to compensation committees


80


RAFSA Section


See Page

953 SEC must promulgate rules requiring issuers to provide clear descriptions of compensation required to be disclosed under Item 402 of Regulation S-K in proxy statements and consent solicitations for annual meetings of shareholders

N/A 81-82

953 SEC must amend Item 402 of Regulation S-K to require each issuer to disclose (1) the median total compensation of its non-CEO employees, (2) the total compensation for its CEO, and (3) a ratio of (1) to (2)

N/A 82

954 SEC must promulgate rules requiring national securities exchanges to prohibit the listing of securities of issuers who do not develop and implement appropriate “claw-back” policies

N/A 82

955 SEC must promulgate rules requiring each issuer to disclose whether employees or directors (or any designee) may hedge against decreases in the value of equity owned by such employee or director

N/A 82

956 FRB, in consultation with OCC and FDIC, must promulgate rules prohibiting BHCs from providing excessive compensation, fees or benefits

180 days after Transfer Date

82-83

957 SEC authorized to determine “significant matters” with respect to which members of national securities exchanges may not vote securities absent instructions from the beneficial owner

N/A 84

961 GAO must review adequacy and effectiveness of internal supervisory control structure and procedures of SEC to the Congressional Budget Committees

Not later than date of submission of SEC’s first Section 961 report

98-99

961 SEC must submit report on conduct of examination enforcement procedures and review of filings to the Congressional Banking Committees

90 days after end of each fiscal year

98-99

962 GAO must submit triennial report that evaluates the quality of personnel management by the SEC

3 years after enactment of RAFSA and every subsequent 3 years

99

962 SEC must submit a report to the Congressional Banking Committees describing the actions taken in response to the GAO triennial report, required by Section 962, evaluating the quality of the SEC’s personnel management

90 days after submission of the GAO report

99

963 GAO must submit annual report to Congress assessing the effectiveness of the SEC’s internal control procedures and structures

6 months after the end of each fiscal year

99

963 GAO must submit annual report to Congress assessing the SEC’s assessment of the GAO’s evaluation of the quality of the SEC’s personnel management


99

963 SEC must submit annual report to Congress describing the responsibility of SEC management for establishing and maintaining internal control structures and procedures for financial reporting, and assessing such controls and procedures


99


RAFSA Section


See Page

964 GAO must report to the Congressional Banking Committees evaluating the SEC’s oversight of registered national securities associations

2 years after enactment of RAFSA and every 3 years thereafter

99-100

966 SEC inspector general must submit annual report to Congress describing efficiency suggestions and allegations of inefficiency obtained from the confidential SEC hotline and the related actions recommended by the inspector general

N/A 100

971 SEC must promulgate rules directing national securities exchanges and associations to prohibit listings, with certain exceptions, by issuers not in compliance with the new director election requirements


83

972 SEC authorized to promulgate rules permitting shareholders to use an issuer’s proxy solicitation materials for the purpose of nominating directors

N/A 84

973 SEC must promulgate rules requiring an issuer’s annual proxy statements to disclose the reasons why the issuer chose to combine or separate the positions of chairperson of the board and CEO


84

975 MSRB effectively required to revise and supplement its rules generally in order to address the addition of “municipal advisor” as a new category of person subject to regulation and disciplinary authority

N/A 96-97

975 MSRB authorized to establish information systems and charge reasonable fees to access such information

N/A 97

975 MSRB authorized to promulgate rules regarding advice provided to or on behalf of a municipal entity or “obligated person” (persons committed to support payment of all or part of an issue of municipal securities) by broker-dealers, municipal securities dealers and municipal advisors

N/A 97

975 MSRB must establish the terms and conditions under which any broker-dealer or municipal securities dealer may sell, or prohibit any of them from selling, any part of a new issue of municipal securities to a related account of a broker-dealer or to a municipal securities dealer during the underwriting period

N/A 97

976 GAO must conduct a study on the disclosure required to be made by issuers of municipal securities and submit a report with its findings and recommendations to Congress


97

977 GAO must conduct a study on the municipal securities markets and submit a report with its findings and recommendations to the Congressional Banking Committees


97

977 SEC must submit a response to the report required by Section 976 (see above) to the Congressional Banking Committees, describing the actions taken in response to the report

180 days after receipt of GAO report

97-98

978 SEC must conduct a study on the Government Accounting Standards Board, including its role in municipal securities markets and its funding and submit a report with its findings to the Congressional Banking Committees


98

983 SEC given authority to approve portfolio margining programs N/A ___


RAFSA Section


See Page

984 SEC must promulgate rules designed to increase the transparency of information available with respect to the lending or borrowing of securities


73

984 SEC authorized to promulgate rules under its general authority to prohibit fraudulent, manipulative and deceptive devices under Section 10 of the Exchange Act regarding the lending or borrowing of securities

N/A 73

987 Inspector general of FRB, OCC, NCUA and FDIC must submit semi-annual report to his or her agency and Congress regarding Deposit Insurance Fund losses that are not material

90 days after the relevant 6-month period (first 6-month period ended March 30, 2010)

45

988 NCUB inspector general must submit a report to GAO, FDIC and, if appropriate, the appropriate State supervisor whenever the Share Insurance Fund incurs a material loss

N/A 62-63

988 NCUB inspector general must submit semi-annual report to the NCUB and Congress regarding Share Insurance Fund losses that are not material


62-63

989 GAO must conduct a study on the risks and conflicts associated with proprietary trading (including investing as principal in securities, commodities, derivatives, hedge funds and private equity) by and within insured depository institutions and their affiliates, BHCs and financial holding companies and their subsidiaries, and any other person the Comptroller General may determine, and submit a report with its findings to Congress


55

989A Bureau’s Office of Financial Literacy shall establish a grant program for states related to protection of senior investors

N/A 118

991 SEC must make adjustments to fee rates in connection with transition to self-funding

N/A 100

TITLE X — BUREAU OF CONSUMER FINANCIAL PROTECTION

RAFSA Section


See Page

1012(a) Bureau authorized to establish rules for conducting its general business

N/A 109

1022 Bureau authorized to implement federal consumer financial law N/A 109

1022(c)(5) Bureau must establish rules regarding confidential treatment of information it obtains

N/A ___

1023(f) Council to establish rules implementing procedures for its review of Bureau rulemakings

N/A 111-112

1024(a) Bureau must establish rules defining nondepository “covered person,” in consultation with FTC

1 year after Transfer Date

110

1024(b)(7) Bureau must establish rules to facilitate supervision of nondepository covered persons, including registration

N/A 110


RAFSA Section


See Page

1024(b)(7) Bureau authorized to establish rules for such entities relating to recordkeeping and to ensure they are “legitimate entities … able to perform their obligations to consumers”

N/A 110

1028(b) Bureau authorized to establish rules governing use of mandatory pre-dispute arbitration clauses in consumer financial product agreements

N/A ___

1031(b) Bureau authorized to establish rules that prohibit unfair, deceptive or abusive acts and practices

N/A 110

1032(a)-(b) Bureau authorized to establish rules governing disclosures for consumer financial products and services, including model forms

N/A 110

1032(f), 1096, 1099

Bureau must propose, for public comment, rules and model disclosures combining Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) disclosures into a single disclosure


109

1033 Bureau must establish rules governing a consumer’s right to obtain information from covered persons about the consumer’s transactions with that person

N/A 110

1034 Bureau must establish, in consultation with other federal agencies, procedures for responding to consumer complaints

N/A ___

1041(c) Bureau must issue notice of proposed rulemaking whenever a majority of states have passed resolutions in favor of the establishment or modification of a Bureau regulation

N/A ___

1042(c) Bureau must establish rules regarding consultation with state attorneys general who bring civil actions to enforce RAFSA Title X or regulations thereunder

N/A 112

1072 Bureau must establish rules regarding collection of data on loan applications by women- or minority-owned small businesses

N/A ___

1073 GAO must conduct a study of real estate appraisal methods Study due 12 months after enactment of RAFSA with progress report 90 days after enactment

___

1076 Bureau must establish rules implementing limits on mortgage prepayment penalties in consultation with HUD, FHFA and the Department of Agriculture

N/A 113

10773 Bureau must issue rules establishing standards for assessing whether the amount of an interchange fee charged by a payment card issuer or network is reasonable and proportional to the actual cost incurred by the issuer or network with respect to the transaction


113

3 Several of the amendments to RAFSA approved by the Senate were numbered as Section 1077. The final

numbering should be resolved in the official version of RAFSA.


RAFSA Section


See Page

10773 Treasury Secretary must conduct a study and develop recommendations on the options for ending the conservatorships of Fannie Mae and Freddie Mac, and submit it to Congress

Not later than January 31, 2011

117

1078 Bureau to establish rules establishing standards for remittance providers regarding resolution of errors in remittance transfers

One year from date of enactment

___

1078 Board of Governors of the Federal Reserve System must report to Congress on the status of the automated clearinghouse system and its progress in complying with the requirement of section 1078 of RAFSA that it be expanded to permit its use for remittance transfers

Not later than one year from date of enactment, and biennially thereafter during the 10-year period after the date of enactment of RAFSA

___

1083 Bureau must review existing OCC and NCUA rules under the Alternative Mortgage Transaction Parity Act of 1982 and promulgate additional rules under that Act

N/A ___

1098 Bureau must develop a system for registering employees of depository institutions, their subsidiaries, and institutions regulated by the Farm Credit Administration as loan originators with the National Mortgage Licensing System and Registry


___

1098 Bureau authorized to establish rules establishing minimum net worth or surety bond requirements for residential mortgage loan originators and minimum requirements for recovery funds paid into by loan originators

N/A ___

TITLE XI — FEDERAL RESERVE SYSTEM PROVISIONS

RAFSA Section


See Page

1151 FRB, in consultation with the Treasury Secretary, must issue rules establishing policies and procedures regarding its emergency lending authority under Section 13(3) of the Federal Reserve Act, including certain policies required by RAFSA

As soon as practicable

57

1155 FDIC, in consultation with the Treasury Secretary, must issue regulations establishing policies and procedures to govern the Emergency Financial Stabilization Authority


61

1159 FRB must publish on its website the identity of borrowers and terms of assistance provided under FRB facilities and programs between December 1, 2007 and enactment of RAFSA, including the Term Auction Facility

December 1, 2010 59

1159 GAO audits required for (1) programs and facilities established by the FRB between December 1, 2007 and enactment of RAFSA to address the financial crisis including the Term Auction Facility and (2) for FRB governance


58-59


TITLE XII — IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS ACT OF 2010

RAFSA Section


See Page

1204 Treasury Secretary authorized to establish grants and other programs to improve access to financial services for low- and moderate-income Americans

N/A 118

1204 Treasury Secretary authorized to establish grant and other programs regarding “pay-day” loan substitutes

N/A 118

1209 Treasury Secretary authorized to promulgate regulations to implement the programs and undertakings authorized by Title XII

N/A 118

1210 Treasury Secretary must submit annual report to the Congressional Banking Committees describing the activities funded, amounts distributed and measurable results of Title XII for each year that any such activities are in place

Annually 118

TITLE XIII — OTHER PROVISIONS4

RAFSA Section


See Page

SEC must promulgate rules requiring disclosure related to Congo Conflict Minerals


73-74

GAO must submit a report to Congress (1) assessing the effectiveness of Congo Conflict Minerals disclosure requirements in promoting peace and security in the eastern Democratic Republic of Congo, (2) describing any enforcement problems encountered by the SEC, (3) describing any adverse impact of the disclosure requirements on communities in eastern Democratic Republic of Congo and (4) recommending legislative actions to improve the disclosure requirements and to promote peace and security


73-74

Treasury Secretary must report to Congress on amounts received in connection with TARP that are deposited to the general fund under the Emergency Economic Stabilization Act of 2008

Every 6 months ___

FHFA must submit a report to Congress regarding its plans to continue to support and maintain the U.S. housing industry while also guaranteeing taxpayers will not suffer unnecessary losses

N/A ___

4 Amendments that were not made to existing titles of the base text were designated Title XIII and began with

Section 1301 (except in one case, where no designation at all was made). These provisions presumably will be organized in the final bill.

B-1 U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

ANNEX B

SUMMARY OF RULEMAKINGS AND PRINCIPAL STUDIES AND RECOMMENDATIONS UNDER RAFSA, SORTED BY AGENCY Below are summaries of the rulemakings and principal studies and recommendations RAFSA would

specifically require or authorize to be made by each primary federal agency or other body, organized

based on the relevant agency or body. For convenience, we have included cross-references to the

discussions of the relevant provisions in this memorandum.

ADMINISTRATIVE OFFICE OF U.S. COURTS

RAFSA Section


See Page

202(e) Administrative Office of U.S. Courts and GAO must conduct separate studies regarding bankruptcy and orderly liquidation process for financial companies under the Bankruptcy Code

1 year after enactment of RAFSA, annually until the third year after enactment, and every fifth year thereafter

42

BUREAU OF CONSUMER FINANCIAL PROTECTION (“BUREAU”)

RAFSA Section


See Page

989A Bureau’s Office of Financial Literacy shall establish a grant program for states related to protection of senior investors

N/A 118

1012(a) Bureau authorized to establish rules for conducting its general business

N/A 109

1022 Bureau authorized to implement federal consumer financial law N/A 109

1022(c)(5) Bureau must establish rules regarding confidential treatment of information it obtains

N/A ___

1024(a) Bureau must establish rules defining nondepository “covered person,” in consultation with FTC

1 year after Transfer Date1

110

1024(b)(7) Bureau must establish rules to facilitate supervision of nondepository covered persons, including registration

N/A 110

1024(b)(7) Bureau authorized to establish rules for such entities relating to recordkeeping and to ensure they are “legitimate entities … able to perform their obligations to consumers”

N/A 110

1028(b) Bureau authorized to establish rules governing use of mandatory pre-dispute arbitration clauses in consumer financial product agreements

N/A ___

1031(b) Bureau authorized to establish rules that prohibit unfair, deceptive or abusive acts and practices

N/A 110

1 “Transfer Date” is defined by Section 311 as meaning the date that is 1 year after the date of enactment of

RAFSA. The Transfer Date may be extended 6 additional months by the Treasury Secretary.


RAFSA Section


See Page

1032(a)-(b) Bureau authorized to establish rules governing disclosures for consumer financial products and services, including model forms

N/A 110

1032(f), 1096, 1099

Bureau must propose, for public comment, rules and model disclosures combining Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”) disclosures into a single disclosure


109

1033 Bureau must establish rules governing a consumer’s right to obtain information from covered persons about the consumer’s transactions with that person

N/A 110

1034 Bureau must establish, in consultation with other federal agencies, procedures for responding to consumer complaints

N/A ___

1041(c) Bureau must issue notice of proposed rulemaking whenever a majority of states have passed resolutions in favor of the establishment or modification of a Bureau regulation

N/A ___

1042(c) Bureau must establish rules regarding consultation with state attorneys general who bring civil actions to enforce RAFSA Title X or regulations thereunder

N/A 112

1072 Bureau must establish rules regarding collection of data on loan applications by women- or minority-owned small businesses

N/A ___

1076 Bureau must establish rules implementing limits on mortgage prepayment penalties in consultation with HUD, FHFA and the Department of Agriculture

N/A 113

10772 Bureau must issue rules establishing standards for assessing whether the amount of an interchange fee charged by a payment card issuer or network is reasonable and proportional to the actual cost incurred by the issuer or network with respect to the transaction


113

1078 Bureau to establish rules establishing standards for remittance providers regarding resolution of errors in remittance transfers

One year from date of enactment

___

1083 Bureau must review existing OCC and NCUA rules under the Alternative Mortgage Transaction Parity Act of 1982 and promulgate additional rules under that Act

N/A ___

1098 Bureau must develop a system for registering employees of depository institutions, their subsidiaries, and institutions regulated by the Farm Credit Administration as loan originators with the National Mortgage Licensing System and Registry


___

1098 Bureau authorized to establish rules establishing minimum net worth or surety bond requirements for residential mortgage loan originators and minimum requirements for recovery funds paid into by loan originators

N/A ___




COMMODITY FUTURES TRADING COMMISSION (“CFTC”)

RAFSA Section


See Page



78


64

712(d) CFTC and SEC must establish rules requiring maintenance of records of all uncleared swap and security-based swap activities, with such records being available for review by the regulators


68



64



67-68

721(c) CFTC must define the terms “swap,” “swap dealer,” “major swap participant,” including “substantial position” and “eligible contract participant”


64-65

723(a) CFTC must establish rules for a derivatives clearing organization’s request for approval of any group, category, type or class of swaps that the organization desires to clear


___

723(a) CFTC must establish rules for reviewing a derivatives clearing organization’s clearing of a swap, or a group, category, type, or class of swaps that the CFTC has accepted for clearing


___

723(a) CFTC must establish rules to identify a group, category, type, or class of swaps not submitted for approval that CFTC determines should be submitted for clearing

Expedited rulemaking authority; regulations may be made without regard to notice and comment provisions of 5 U.S.C. 553

___

725(d) CFTC must establish rules mitigating conflicts of interest between swap dealers and major swap participants (“MSPs”) and derivatives clearing organizations, exchanges, or swap execution facilities (“SEFs”) that clear or execute swaps in which the swap dealer or MSP has a material investment


68-69

726 CFTC must determine whether to issue rules to establishing limits on the control of any derivatives clearing organization, SEF, or exchange by a BHC (or its affiliate), nonbank financial company (or its affiliate), swap dealer, or MSP


___

727 CFTC must establish rules to provide for the public reporting of swap transactions and price data


___


RAFSA Section


See Page

727 CFTC must publicly issue semiannual and annual report on trading and clearing of swaps and the market participants and developments in new swaps


___

728 CFTC must establish rules to govern swap repositories, including data collection and maintenance standards that are comparable to those for derivatives clearing organizations


___

729 CFTC must adopt an interim final rule to establish reporting requirements for swaps that were entered into before enactment of RAFSA


___

731 CFTC must establish rules for the registration of swap dealers and MSPs


___

731 CFTC must impose capital and margin requirements on swap dealers and MSPs


67-68

731 CFTC must establish rules governing reporting and recordkeeping requirements, and daily trading records for swap dealers and MSPs


68

731 CFTC must establish rules establishing business conduct standards for swap dealers and MSPs


68

731 CFTC must establish rules governing documentation and back office standards for swap dealers and MSPs


___

733 CFTC must establish rules on the regulation of SEFs 6 months after enactment of RAFSA

___

737(a) CFTC must establish aggregate position limits across exchanges, SEFs, foreign boards of trades, and swaps that are not traded and perform a significant price discovery function


___

748 CFTC must establish rules implementing commodity whistleblower incentives and protections


___

750(a) Chairperson of CFTC must chair new interagency group, to prepare study and recommendations for Congress on oversight and development of carbon markets


___

751 CFTC must establish an energy and environmental markets advisory committee


___

CREDIT RATING AGENCY BOARD (“CRA BOARD”)

RAFSA Section


See Page

939D CRA Board may prescribe the form and manner of the application used by NRSROs to be deemed “qualified NRSROs” for the purposes of providing initial credit ratings for structured finance products

N/A 90


939D CRA Board must issue rules describing how it can modify the process by which it assigns initial credit ratings for structured finance products to qualified NRSROs

N/A 90

939D CRA Board authorized to issue regulations requiring that an issuer that has received an initial credit rating pursuant to the assignment process request a revised initial credit rating upon a “material change in circumstances,” as defined by the CRA Board

N/A 90

939D CRA Board must prescribe rules by which it will evaluate the performance of each qualified NRSRO

N/A 91

939D CRA Board must issue regulations to define the term “reasonable fee” with respect to the fees that qualified NRSROs may charge issuers for initial credit ratings for structured finance products

N/A 90

FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”)

RAFSA Section


See Page

165(d) FRB and FDIC must establish standards that include a resolution plan and credit exposure report requirements for Covered BHCS and Covered Nonbank Companies


27

166 FRB, in consultation with the Council and FDIC, must promulgate regulations establishing early remediation requirements for Covered Nonbank Companies or Covered BHCs


29

Collins amendment



31-32

201(b) FDIC, in consultation with Treasury Secretary, must establish by regulation how to determine how to apply the revenue test to determine whether a company is a “financial company” for purposes of Title I

N/A 35-36

202(d)(5) FDIC may promulgate rules governing termination of receiverships under Title II

N/A 42

203(c)(3) FDIC must report to Congress after it is appointed receiver of a covered financial company

60 days after appointment

39

203(d) FDIC must establish policies and procedures acceptable to Treasury Secretary governing use of funds available under Title II

As soon as practicable after enactment of RAFSA

41

205(h) FDIC and SEC must jointly, after consultation with SIPC, issue rules to implement Section 205, relating to orderly liquidation of broker-dealers

N/A 39-40

209 FDIC must establish rules and regulations to implement Title II N/A 41

210(a)(6)(D) FDIC authorized to prescribe rules as necessary to establish an interest rate for, or to make payments of, post-insolvency interest to creditors holding proven claims against receivership estate of a covered financial company

N/A ___


RAFSA Section


See Page

210(a)(16)(D) FDIC must prescribe rules and establish retention schedules as are necessary to maintain the documents and records of the FDIC generated in exercising its authority under Title II

N/A ___

210(c)(8)(G) PFRA must jointly prescribe recordkeeping regulations requiring financial companies to maintain records with respect to qualified financial contracts. FDIC and Treasury Secretary have back-up rulemaking authority if the deadline is not met


___

210(c)(9)(D) FDIC may by regulation include institutions in the definition of “financial institution” for purposes of the requirements relating to transfer of qualified financial contracts

N/A ___


N/A 41


N/A 41

210(s) FDIC must promulgate regulations to recover compensation for prior two years (or in case of fraud, an unlimited prior period) from senior executives and directors substantially responsible for failure of covered financial company

N/A 42

211(d) FDIC inspector general must report on actions taken by FDIC as receiver of a covered financial company

6 months after appointment and every 6 months thereafter

42


N/A 42


Transfer Date 44


N/A 44



54-55



67-68



67-68



85


RAFSA Section


See Page

956 FRB, in consultation with OCC and FDIC, must promulgate rules prohibiting BHCs from providing excessive compensation, fees or benefits


82-83


90 days after the relevant 6-month period (first 6-month period ends March 30, 2010)

45

1155 FDIC, in consultation with the Treasury Secretary, must issue regulations establishing policies and procedures to govern the Emergency Financial Stabilization Authority


61

FEDERAL HOUSING FINANCE AGENCY (“FHFA”)

RAFSA Section


See Page

FHFA must submit a report to Congress regarding its plans to continue to support and maintain the U.S. housing industry while also guaranteeing taxpayers will not suffer unnecessary losses

N/A ___

PRIMARY FINANCIAL REGULATORY AGENCY (“PFRA”)3

RAFSA Section


See Page

120 PFRA must impose any standards recommended by Council or explain in writing within 90 days why it has elected not to follow the Council’s recommendation

N/A 30

120 PFRA must promulgate regulations establishing a procedure under which entities under its jurisdiction may appeal a determination by the agency that the standards imposed should remain in effect after Council has recommended removal of standard

N/A 31



___

211(f) Inspector general of PFRA must report to PFRA on supervision of a covered financial company

1 year after date of appointment as receiver

___

211(f)(2) PFRA to report to Congress on responses to inspector general reports under RAFSA Section 211(f)

90 days after receipt of inspector general report

___

3 “Primary financial regulatory agency” is defined in RAFSA Section 2(11) as an institution’s appropriate federal

banking agency, the SEC, the CFTC, a state insurance authority, the Federal Housing Finance Agency or the Federal Home Loan Bank System, depending on the type of institution.


FEDERAL RESERVE BOARD (“FRB”)

RAFSA Section


See Page

102(a)(5) FRB must promulgate rule defining “significant nonbank financial company” and “significant bank holding company”


27

102(b) FRB must promulgate regulations establishing criteria for determining whether a company is “predominantly engaged” in financial activities in the United States


21

121 FRB authorized to establish regulations regarding the application of measures to non-U.S. Covered Nonbank Companies and non-U.S. BHCs that the FRB and Council may impose on Covered Nonbank Companies and BHCs with $50 billion in assets that pose a grave threat to the financial stability of the United States

N/A 30

165(b) FRB must establish standards for Covered Nonbank Companies and Covered BHCs including (1) risk-based capital requirements; (2) leverage limits; (3) liquidity requirements; (4) resolution plan and credit exposure report requirements; and (5) concentration limits

18 months after Transfer Date (but see Sections 165(d) and (e))

26

165(b) FRB authorized to establish standards for Covered Nonbank Companies and Covered BHCs that may include (1) a contingent capital requirement; (2) enhanced public disclosures; and (3) overall risk management requirements

N/A 26

165(b) FRB must submit a report to Congress regarding the implementation of the standards required by Section 165, including the use of such standards to mitigate risks to U.S. financial stability

Annually ___

165(c) FRB authorized to promulgate regulations, subsequent to the Council’s report to Congress under Section 115(c) regarding contingent capital, requiring Covered Nonbank Companies and Covered BHCs to maintain a minimum amount of long-term hybrid debt that is convertible to equity in times of financial stress

N/A 27

165(d) FRB and FDIC must establish standards that include a resolution plan and credit exposure report requirements for covered BHCs and Covered Nonbank Companies


27

165(e) FRB must establish standards that limit credit exposure for BHCs and Covered Nonbank Companies


28

165(e) FRB authorized to issue regulations and orders as may be necessary to administer and carry out credit exposure standards for BHCs and Covered Nonbank Companies


28

165(e) FRB authorized to exempt transactions from definition of “credit exposure” if it finds the exemption is in the public interest and is consistent with the purpose of the credit exposure limits


28


RAFSA Section


See Page

165(f) FRB authorized to establish periodic public disclosure requirements for Covered Nonbank Companies and Covered BHCs to support market evaluations of risk profile, capital adequacy, and risk-management capabilities

N/A 28

165(g) FRB must issue regulations requiring all publicly traded Covered Nonbank Companies (within one year of final determination) and all publicly traded BHCs with total consolidated assets of at least $10 billion to establish a risk committee

1 year after Transfer Date, to take effect not later than 15 months after Transfer Date

29

165(g) FRB authorized to require publicly traded BHCs with total consolidated assets of less than $10 billion to establish a risk committee

N/A 29

166 FRB, in consultation with the Council and FDIC, must promulgate regulations establishing early remediation requirements for Covered Nonbank Companies and Covered BHCs


29

167 FRB must promulgate regulations to establish criteria for determining whether to require a Covered Nonbank Company to establish an intermediate holding company


25

167 FRB authorized to promulgate regulations to restrict or limit transactions between an intermediate holding company or a Covered Nonbank Company or any subsidiary thereof and its parent company or affiliates that are not its subsidiaries

N/A 25

170 FRB must promulgate regulations on behalf of, and in consultation with, the Council, setting forth criteria for exempting certain types or classes of U.S. and non-U.S. nonbank financial companies from FRB supervision


21

Collins amendment



31-32


N/A 42


Transfer Date 44

608 FRB authorized to issue rules implementing various amendments to Sections 23A and 23B of Federal Reserve Act, including coverage of credit exposure on derivatives and securities lending and borrowing transactions


48-50

614 FRB authorized to issue rules to implement amendments to insider lending restriction of Section 22(h) of the Federal Reserve Act, covering credit exposure on derivative transactions, repurchase and reverse repurchase agreements, and securities lending and borrowing transactions


51


RAFSA Section


See Page

615 FRB authorized to issue rules to implement requirement that purchases of assets by a bank from, and sales by a bank to, an insider be on market terms


51



52

618(d) FRB must adopt capital adequacy and risk management standards for supervised securities holding companies

N/A; statutory requirement effective at enactment of RAFSA

52



54-55

619(g) FRB must issue rules establishing additional capital requirements and quantitative limits for nonbank financial companies it supervises that engage in activities covered by the Volcker rule and reflecting the Council’s recommendations


54

620(d), (e) FRB must issue rules to implement concentration limit on expansion by large financial firms, including definitions of terms and reflecting Council recommendations


56



67-68



67-68

806(a) FRB must issue orders or establish rules, standards, or guidelines regarding payments and services provided by Federal Reserve banks to designated financial market utilities (including access to the Discount Window)

N/A 35

806(e) FRB must establish regulations defining standards for determining when designated financial market utilities must provide advance notice of certain changes to their rules, procedures, or operations

N/A 34



85

956 FRB, in consultation with the OCC and FDIC, must promulgate rules prohibiting BHCs from providing excessive compensation, fees or benefits


82-83


RAFSA Section


See Page



45

1078 Board of Governors of the Federal Reserve System must report to Congress on the status of the automated clearinghouse system and its progress in complying with the requirement of section 1078 of RAFSA that it be expanded to permit its use for remittance transfers

Not later than one year from date of enactment, and biennially thereafter during the 10-year period after the date of enactment of RAFSA

___



57

1159 FRB must publish on its website the identity of borrowers and terms of assistance provided under FRB facilities and programs between December 1, 2007 and enactment of RAFSA, including the Term Auction Facility

December 1, 2010 58-59

FINANCIAL STABILITY OVERSIGHT COUNCIL (“COUNCIL”)

RAFSA Section


See Page

111(e) Council must adopt rules necessary for the conduct of its business

N/A 18

115(c) Council must submit to Congress a study on the feasibility, benefits, costs, and structure of a contingent capital requirement for Covered Nonbank Companies and Covered BHCs


27

115(c)(3) Council is authorized to recommend to the FRB that it require any Covered Nonbank Company and any Covered BHC to maintain a minimum amount of long-term hybrid debt that is convertible to equity in times of stress

N/A 27

115(d) Council is authorized to make recommendations to the FRB and FDIC concerning the required resolution plan for Covered Nonbank Companies and Covered BHCs

N/A 27

115(d) Council is authorized to make recommendations to the FRB and FDIC concerning the advisability of requiring Covered Nonbank Companies and Covered BHCs to report periodically on credit exposures

N/A 27

115(e) Council is authorized to make recommendations to the FRB prescribing concentration limits for Covered Nonbank Companies and Covered BHCs

N/A 28

115(f) Council is authorized to recommend to the FRB that it require periodic public disclosures by Covered BHCs and Covered Nonbank Companies to support market evaluation of the risk profile, capital adequacy, and risk-management strategies

N/A 28


RAFSA Section


See Page

120 Council is authorized to (1) issue recommendations applying new or heightened standards and safeguards to a financial activity or practice conducted by bank holding companies or nonbank financial companies, and (2) recommend that the applicable agencies remove the standard

N/A 30

120 Council must report to Congress on the recommendations authorized by Section 120, including whether agencies have implemented them, and must make recommendations for legislative changes where there is no PFRA

N/A 31

166 FRB, in consultation with the Council and FDIC, must establish regulations establishing early remediation requirements for Covered Nonbank Companies or Covered BHCs


29

202(g)(2) Council must report on actions taken in response to GAO report under Section 202(g) on prompt corrective action

6 months after receipt of GAO report

___


N/A 41


N/A 42

619(g) Council must complete study of the Volcker rule and make recommendations regarding definitions in and modifications of the Volcker rule to FRB, FDIC and OCC


54

620(e) Council must complete study on effect of concentration limit on acquisitions by large financial companies and make recommendations to FRB for modifications to the limit


56

1023(f) Council to establish rules implementing procedures for its review of Bureau rulemakings

N/A 111-112

GOVERNMENT ACCOUNTABILITY OFFICE/COMPTROLLER GENERAL (“GAO”)

RAFSA Section


See Page

202(e) Administrative Office of U.S. Courts and GAO must conduct separate studies regarding bankruptcy and orderly liquidation process for financial companies and the Bankruptcy Code

1 year after enactment of RAFSA and each successive year until third year, and every fifth year after enactment of RAFSA

42

202(f) GAO must conduct study of international coordination relating to orderly liquidation of financial companies


42

202(g) GAO must conduct study of implementation of prompt corrective action by federal banking agencies


___


RAFSA Section


See Page

203(c)(5) GAO must conduct review of appointment of FDIC as receiver for a covered financial company

N/A 36

413 GAO must conduct a study on appropriate criteria for accredited investor status and eligibility to invest in private funds and submit a report with its findings to the Congressional Banking Committees


73

414 GAO must conduct a study on the feasibility of forming an SRO to oversee private funds and submit a report with it to the Congressional Banking Committees


73

603 GAO must conduct a study of the appropriateness of the exemptions for certain depository institutions from the definition of “bank” under the BHC Act, and the adequacy of the federal framework of the regulation of savings associations, and the consequences of removing their exemption from the BHC Act


46

917 GAO must conduct a study regarding mutual fund advertising, with recommendations to improve investor protection and report its findings to the Congressional Banking Committees


116

919 GAO must conduct a study to identify and examine potential conflicts of interest that may exist between the research and investment banking functions within securities firms and submit a report with its findings and recommendations to the Congressional Banking Committees


116-117

919B GAO must study the effectiveness of state and federal regulations to protect consumers from misleading financial advisor designations, the regulation of financial planners and other matters, and submit a report with its findings and recommendations to the Congressional Banking Committees


117

939B GAO must conduct a study on alternative means for compensation in NRSROs and submit a report with its findings and recommendations to the Congressional Banking Committees


96

939C GAO must conduct a study on the feasibility and merits of creating an independent professional organization for analysts employed by NRSROs and submit a report with its findings and recommendations to the Congressional Banking Committees


96

961 GAO must review adequacy and effectiveness of internal supervisory control structure and procedures of SEC to the Congressional Budget Committees

Not later than date of submission of SEC’s first Section 961 report

98-99

962 GAO must submit triennial report that evaluates the quality of personnel management by the SEC

3 years after enactment of RAFSA and every subsequent 3 years

99

963 GAO must submit annual report to Congress assessing the effectiveness of the SEC’s internal control procedures and structures


99

963 GAO must submit annual report to Congress assessing the SEC’s assessment of the GAO’s evaluation of the quality of the SEC’s personnel management


99


RAFSA Section


See Page

964 GAO must report to the Congressional Banking Committees evaluating the SEC’s oversight of registered national securities associations

2 years after enactment of RAFSA and every 3 years thereafter

99-100

976 GAO must conduct a study on the disclosure required to be made by issuers of municipal securities and submit a report with its findings and recommendations to Congress


97

977 GAO must conduct a study on the municipal securities markets and submit a report with its findings and recommendations to the Congressional Banking Committees


97

989 GAO must conduct a study on the risks and conflicts associated with proprietary trading (including investing as principal in securities, commodities, derivatives, hedge funds and private equity) by and within insured depository institutions and their affiliates, BHCs and financial holding companies and their subsidiaries, and any other person the Comptroller General may determine, and submit a report with its findings to Congress


55

1073 GAO must conduct a study of real estate appraisal methods Study due 12 months after enactment of RAFSA with progress report 90 days after enactment

___

1159 GAO audits required for (1) programs and facilities established by the FRB between December 1, 2007 and enactment of RAFSA to address the financial crisis including the Term Auction Facility, and (2) for FRB governance


58-59

GAO must submit a report to Congress (1) assessing the effectiveness of Section 1302 in promoting peace in the Republic of Congo, (2) describing any problems encountered by the SEC enforcing Section 1302, (3) describing any adverse impact on communities in eastern Congo, (4) recommending legislative actions that could be taken to improve peace and mitigate any adverse impact


73-74

MUNICIPAL SECURITIES RULEMAKING BOARD (“MSRB”)

RAFSA Section


See Page

975 MSRB effectively required to revise and supplement its rules generally in order to address the addition of “municipal advisor” as a new category of person subject to regulation and disciplinary authority

N/A 96-97

975 MSRB authorized to establish information systems and charge reasonable fees to access such information

N/A 97

975 MSRB authorized to promulgate rules regarding advice provided to or on behalf of a municipal entity or “obligated person” (persons committed to support payment of all or part of an issue of municipal securities) by broker-dealers, municipal securities dealers and municipal advisors

N/A 97


RAFSA Section


See Page

975 MSRB must establish the terms and conditions under which any broker-dealer or municipal securities dealer may sell, or prohibit any of them from selling, any part of a new issue of municipal securities to a related account of a broker-dealer or to a municipal securities dealer during the underwriting period

N/A 97

NATIONAL CREDIT UNION ADMINISTRATION (“NCUA”)

RAFSA Section


See Page

987 Inspector general of FRB, OCC, NCUA and FDIC must submit semi-annual report to his or her federal banking agency and Congress regarding immaterial Deposit Insurance Fund losses


45

NATIONAL CREDIT UNION BOARD (“NCUB”)

RAFSA Section


See Page

988 NCUB inspector general must submit a report to GAO, FDIC and, if appropriate, the appropriate state supervisor whenever the Share Insurance Fund incurs a material loss

N/A 62-63

988 NCUB inspector general must submit semi-annual report to the NCUB and Congress regarding Share Insurance Fund losses that are not material


62-63

OFFICE OF THE COMPTROLLER OF THE CURRENCY (“OCC”)

RAFSA Section


See Page

Collins amendment



31-32


Transfer Date 44


N/A 44



54-55

731(e) FRB, FDIC and OCC, in consultation with CFTC and SEC, must impose capital and margin requirements on swap dealer and MSPs that are depository institutions


67-68


RAFSA Section


See Page



67-68



85

956 FRB, in consultation with the OCC and the FDIC, must promulgate rules prohibiting BHCs from providing excessive compensation, fees or benefits


82-83

987 Inspector general of FRB, OCC, NCUA and FDIC must submit semi-annual report to his or her federal banking agency and Congress regarding immaterial Deposit Insurance Fund losses


45

OFFICE OF FINANCIAL RESEARCH (“OFR”)

RAFSA Section


See Page

153(c) OFR must issue rules, regulations, and orders in consultation with the Council to assist in: (1) collecting data on behalf of the Council and providing such data to the Council and member agencies; (2) standardizing the types and formats of data reported and collected; and (3) assisting member agencies in determining the types and formats of data where member agencies are authorized by RAFSA to collect data

N/A 18

153(c) Member agencies, in consultation with OFR, must implement OFR regulations promulgated to standardize the types and formats of data reported and collected

3 years after adoption of OFR regulations

___

153(d) Director of OFR must testify before the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services regarding OFR activities and the assessment of significant financial market developments and potential emerging threats

Annually ___

153(e) Director of OFR authorized to provide additional reports to Congress concerning the financial stability of the United States

N/A ___

154(a) OFR must establish regulations regarding the type and scope of data to be collected by its data center


___

154(d) OFR must submit annual report to Congress assessing the U.S. financial system, including: (1) an analysis of threats to U.S. financial stability; (2) the status of its efforts in meeting its mission; and (3) key findings from its research and analysis

2 years after enactment of RAFSA and not later than 120 days after the end of each fiscal year thereafter

___

156(b) OFR must submit annual report to House and Senate Committees containing plans for (1) training and workforce development; (2) workplace flexibility; and (3) recruitment and retention

Terminates 5 years after enactment of RAFSA

___


OFFICE OF NATIONAL INSURANCE (“ONI”)

RAFSA Section


See Page

502(a) ONI authorized to identify issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system

N/A 101-102

502(a) ONI authorized to recommend to Council that it designate an insurer as an entity subject to regulation as a nonbank financial company

N/A 102

502(a) ONI authorized to develop federal policy on prudential aspects of international insurance matters

N/A 102

502(a) ONI authorized to determine whether state insurance measures are preempted

N/A 103

502(a) ONI authorized to analyze and disseminate information and issue reports regarding all lines of insurance except health insurance

N/A 104

502(a) ONI must, prior to making a determination that a state measure is preempted, cause to be published in the Federal Register notice of the issue

N/A 103

502(a) ONI must, after making a determination that a state measure is preempted, notify the appropriate state, the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services

N/A 103

502(a) ONI must, after a determination that a state measure is preempted has become effective, cause to be published in the Federal Register notice thereof and notify the appropriate state

N/A 103

502(a) Beginning September 30, 2011, the director of ONI must submit an annual report to the President, the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services regarding the insurance industry

Not later than September 30 of each year

104

502(a) Director of ONI must conduct a study and submit a report to Congress on how to modernize and improve insurance regulation in the U.S., which must also contain the Director’s legislative, administrative or regulatory recommendations to carry out the findings of the report


104

SECURITIES AND EXCHANGE COMMISSION (“SEC”)

RAFSA Section


See Page

205(h) SEC and FDIC must jointly, after consultation with SIPC, issue rules to implement Section 205, relating to orderly liquidation of broker-dealers

N/A 39-40

404 SEC authorized to require any registered investment adviser to maintain records and file reports with the SEC regarding private funds advised by the adviser

N/A 77-78

404 SEC must submit an annual report to Congress on its use of the data collected under new Advisers Act Section 204(b) and rules thereunder to monitor the markets

Annual 78


RAFSA Section


See Page



79

406 SEC authorized to issue rules defining technical trade and other terms used in Private Fund Investment Advisers Registration Act of 2010

N/A 78

407 SEC must define the term “venture capital fund” for purposes of Section 203 of the Advisers Act


76

408 SEC must define “private equity fund” for purposes of Section 203 of the Advisers Act and issue rules requiring advisers to private equity funds to maintain certain records and provide such reports as the SEC determines to be necessary in the public interest and for the protection of investors


76

409 SEC must define the term “family office” for Section 202(a)(11) of the Advisers Act

N/A 77

411 SEC authorized to promulgate rules requiring registered investment advisers to take certain actions to safeguard client assets over which they have custody

N/A 79

412 SEC must review accredited investor definition and make any adjustments and modifications deemed appropriate by rule

4 years after enactment of RAFSA, and within every 4 years thereafter

71

415 SEC must conduct study on the state of short selling on national securities exchanges and in OTC markets and submit a report on its findings and recommendations to the Congressional Banking Committees


73


64

712(d) CFTC and SEC must establish rules requiring maintenance of records of all uncleared swap and security-based swap activities with such records being available for review by the regulators


68



64



67-68

731(e) FRB, FDIC and OCC, in consultation with CFTC and SEC, must impose capital and margin requirements on swap dealer and MSPs that are depository institutions


67-68

763(a) SEC must establish rules for clearing agency’s submission for approval of any group, category, type or class of security-based swaps that the clearing agency desires to clear


66-67


RAFSA Section


See Page

763(a) SEC must establish rules for reviewing a clearing agency’s clearing of a security-based swap, or a group, category, type, or class of security-based swaps that SEC has approved for clearing


66-67

763(a) SEC must establish rules to identify a group, category, type, or class of swaps not submitted for approval that SEC deems should be submitted for clearing

Expedited Rulemaking Authority

66-67

763(a) SEC must adopt rules to provide for the public availability of security-based swap transactions and price data


67



___

763(b) SEC must establish rules governing clearing agencies for security-based swaps


66-67

763(c) SEC must establish rules governing security-based swap execution facilities


67

763(e) SEC may require self-regulatory organizations to adopt position limits, including aggregate position limits


69

763(h) SEC must establish rules to impose aggregate position limits for security-based swap and any loan, group of securities or loans the swap is based on


69

763(i) SEC must establish rules for the public reporting of security-based swap transactions


63

763(i) SEC must publicly issue semiannual and annual report on trading and clearing of security-based swaps and the market participants and developments in new security-based swaps


___

763(n) SEC must establish rules governing security-based swap data repositories


___

764 SEC must adopt rules for the registration of security-based swap dealers and MSPs


___

764 SEC must impose capital and margin requirements on security-based swap dealers and security-based MSPs


67-68

764 SEC must adopt rules governing reporting and recordkeeping requirements, and daily trading records for security-based swap dealers and security-based MSPs


68

764 SEC must adopt rules for the business conduct standards for security-based swap dealers and security-based MSPs, including fiduciary responsibilities for security-based swap dealers


68


RAFSA Section


See Page

764 SEC must adopt rules governing documentation and back office standards for security-based swap dealers and security-based MSPs


69

765 SEC must determine whether or not to issue rules to establish limits on the control of any security-based derivatives clearing organization, SEF, or exchange by a BHC (or its affiliate), nonbank financial company (or its affiliate), security-based swap dealer, or security-based MSP


69



___

913 SEC must evaluate standards of care applicable to broker-dealers and investment advisers for providing personalized investment advice to retail customers, and report to Congressional Banking Committees


116

913 SEC must promulgate rules under the Exchange Act and Advisers Act to address any gaps or overlaps in the legal or regulatory structure identified through the Section 913 study

Rulemaking (if any) to commence not later than 2 years after enactment of RAFSA

116

914 SEC Office of Investor Advocate must submit annual reports on its objectives to Congressional Banking Committees

June 30 of each year after 2010

115

914 SEC Office of Investor Advocate must submit annual report on its activities to the Congressional Banking Committees

December 31 of each year after 2010

115

914 SEC must establish procedures requiring response to all Office of Investor Advocate recommendations, within three months of recommendation

N/A ___

916 SEC must conduct study on the financial literacy of retail investors and submit report with its findings to the Congressional Banking Committees


116

918 SEC authorized to promulgate rules designating documents or information a broker or dealer must provide to a potential retail investor prior to the purchase of investment products or services

N/A 71-72

919A SEC must conduct study, including recommendations, on ways to improve investors’ access to registration information about investment advisers, broker-dealers and their associated persons, and to identify additional information that should be made publicly available


117

919A SEC must implement recommendations from the study required by Section 919A

18 months after completion of Section 919A study

117

921 SEC authorized to promulgate rules regarding the use of mandatory pre-dispute arbitration clauses in agreements between any broker-dealer, municipal securities dealer or investment adviser, and their customers or clients, with respect to disputes that arise under the securities laws or rules of any SRO

N/A 72


RAFSA Section


See Page

922 SEC must submit annual reports to the Congressional Banking Committees on the RAFSA whistleblower reward program

October 30 of each fiscal year after enactment of RAFSA

___

922, 924 SEC must promulgate rules and regulations to implement new whistleblower provisions of new Section 21F of the Exchange Act including criteria for rewards and has authorization to issue further rules as appropriate

Initial rules not later than 270 days after enactment of RAFSA

115

926 SEC must promulgate “bad boy” rules to disqualify certain persons from offerings and sales under Regulation D


72

932 SEC must promulgate rules requiring each NRSRO to submit annual internal control reports to the SEC


___

932 SEC must promulgate rules intended to prevent sales and marketing considerations from influencing NRSROs ratings


88

932 SEC must promulgate rules setting forth fines and penalties for NRSROs violating applicable law and SEC rules


92

932 SEC must promulgate rules requiring NRSROs to publicly disclose information on ratings histories for each type of rated issuer, security and money market instrument


93-94

932 SEC must promulgate rules with respect to procedures and methodologies used by NRSROs


94

932 SEC must promulgate rules requiring each NRSRO to prescribe a standardized form for disclosure of qualitative and quantitative information regarding the data and assumptions underlying the determination of ratings


94

932 SEC must establish the format and content for third-party due-diligence certifications required with respect to NRSRO ratings of asset-backed securities and promulgate rules requiring NRSROs to publicly disclose such certifications


94

933 SEC must promulgate such rules as may be necessary to ensure that NRSROs and other credit rating agencies are subject to certain enforcement and penalty provisions of the Exchange Act


92

936 SEC must promulgate rules to establish NRSRO credit rating analyst standards of training, experience, competence and testing


94

938 SEC must promulgate rules requiring each NRSRO to establish written policies and procedures that assess default probabilities with respect to securities and money market instruments, clearly define and disclose the meaning of any credit rating symbols used and ensure that such symbols are applied consistently


94


RAFSA Section


See Page

939 SEC must conduct a study on the feasibility and desirability of standardizing credit rating terminology and the market stress conditions under which ratings are evaluated and submit a report with the findings and any recommendations to Congress


96

939A SEC must conduct a study on the independence of NRSROs and submit a report with the findings of the study and any recommendations to the Congressional Banking Committees


96

939D SEC authorized to promulgate rules defining the term “category of structured finance products,” for which issuer-requested initial credit ratings will be assigned by the CRA Board. SEC also authorized to issue further rules and regulations on the composition and responsibilities of the CRA Board

N/A 90

939D SEC must establish the CRA Board, select initial members of the CRA Board, and establish a schedule to ensure that the CRA Board begins assigning qualified NRSROs to provide initial credit ratings for structured finance products within 1 year of the selection of its members


89

939D SEC must establish fair procedures for the nomination and election of future members of the CRA Board

The expiration of the initial 4-year term of the members of the CRA Board

89

939D SEC must provide to Congress a report with recommendations on the continuation of the CRA Board, any modification to the procedures of the CRA Board, and any modification to the applicable statutory provisions

5 years after the CRA Board begins assigning qualified NRSROs to provide initial ratings

91



85

942 SEC authorized to promulgate rules or regulations suspending or terminating the duty of to file under Section 15(d) of the Exchange Act for certain classes of ABS

N/A 87

942 SEC must promulgate rules requiring each issuer of ABS to disclose, for each tranche or class of securities, information regarding the assets backing such securities

N/A 87

943 SEC must promulgate rules regulating the use of representations and warranties in the ABS market that (1) require each NRSRO to describe the representations, warranties, and enforcement mechanisms available to investors and how they differ from the representations, warranties and enforcement mechanisms available in issuances of similar securities and (2) require each securitizer to disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by the securitizer


87-88

945 SEC must promulgate rules requiring any issuer of ABS to perform a due diligence analysis of the underlying assets and disclose the nature of such diligence in its registration statement


88


RAFSA Section


See Page

952 SEC must promulgate rules requiring national securities exchanges to prohibit the listing of securities, with certain exceptions, of any issuer whose board does not have an independent compensation committee, and SEC rules must identify factors affecting the independence of compensation consultants, legal counsel and other advisors to compensation committees


80

953 SEC must promulgate rules requiring issuers to provide clear descriptions of compensation required to be disclosed under Item 402 of Regulation S-K in proxy statements and consent solicitations for annual meetings of shareholders

N/A 81-82

953 SEC must amend Item 402 of Regulation S-K to require each issuer to disclose (2) the median total compensation of its non-CEO employees, (2) the total compensation for its CEO, and (3) a ratio of (1) to (2)

N/A 82

954 SEC must promulgate rules requiring national securities exchanges to prohibit the listing of securities of issuers who do not develop and implement appropriate “claw-back” policies

N/A 82

955 SEC must promulgate rules requiring each issuer to disclose whether employees or directors (or any designee) may hedge against decreases in the value of equity owned by such employee or director

N/A 82

957 SEC authorized to determine “significant matters” with respect to which members of national securities exchanges may not vote securities absent instructions from the beneficial owner

N/A 84

961 SEC must submit report on conduct of examination enforcement procedures and review of filings to the Congressional Banking Committees

90 days after end of each fiscal year

98-99

962 SEC must submit a report to the Congressional Banking Committees describing the actions taken in response to the GAO triennial report, required by Section 962, evaluating the quality of the SEC’s personnel management

90 days after submission of the GAO report

99

963 SEC must submit annual report to Congress describing the responsibility of SEC management for establishing and maintaining internal control structures and procedures for financial reporting, and assessing such controls and procedures


99

966 SEC inspector general must submit annual report to Congress describing efficiency suggestions and allegations of inefficiency obtained from the confidential SEC hotline and the related actions recommended by the inspector general

Annually 10

971 SEC must promulgate rules directing national securities exchanges and associations to prohibit listings, with certain exceptions, by issuers not in compliance with the new director election requirements


83

972 SEC authorized to promulgate rules permitting shareholders to use an issuer’s proxy solicitation materials for the purpose of nominating directors

N/A 84


RAFSA Section


See Page

973 SEC must promulgate rules requiring an issuer’s annual proxy statements to disclose the reasons why the issuer chose to combine or separate the positions of chairperson of the board and CEO


84

977 SEC must submit a response to the report required by Section 976 (see above) to the Congressional Banking Committees, describing the actions taken in response to the report

180 days after receipt of GAO report

97-98

978 SEC must conduct a study on the Government Accounting Standards Board, including its role in municipal securities markets and its funding and submit a report with its findings to the Congressional Banking Committees


98

983 SEC given authority to approve portfolio margining programs N/A ___

984 SEC must promulgate rules designed to increase the transparency of information available with respect to the lending or borrowing of securities


73

984 SEC authorized to promulgate rules under its general authority to prohibit fraudulent, manipulative and deceptive devices under Section 10 of the Exchange Act regarding the lending or borrowing of securities

N/A 73

991 SEC must make adjustments to fee rates in connection with transition to self-funding

N/A 100

GAO must submit a report to Congress (1) assessing the effectiveness of Congo Conflict Minerals disclosure requirements in promoting peace and security in the eastern Democratic Republic of Congo, (2) describing any enforcement problems encountered by the SEC, (3) describing any adverse impact of the disclosure requirements on communities in eastern Democratic Republic of Congo and (4) recommending legislative actions to improve the disclosure requirements and to promote peace and security


73-74

U.S. DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (“DISTRICT COURT”)

RAFSA Section


See Page

202(b) District Court must establish rules and procedures to ensure the orderly conduct of proceedings relating to the appointment of a receiver for a covered financial company, including to meet the 24-hour decision deadline for the Treasury Secretary to petition for appointment of a receiver for a covered financial company


37

U.S. DEPARTMENT OF THE TREASURY (“TREASURY”)

RAFSA Section


See Page

203(c)(2) Treasury Secretary must report appointment of FDIC as receiver for covered financial company

24 hours after time of appointment

36



___


RAFSA Section


See Page


N/A 41


N/A 41

211(e) Treasury inspector general must report on actions by Secretary under Title II

6 months after date of appointment and every 6 months thereafter

___

311 Treasury Secretary authorized to extend Transfer Date of OTS supervisory responsibilities to OCC, FDIC, and FRB by up to 6 months


42

10774 Treasury Secretary must conduct a study and develop recommendations on the options for ending the conservatorships of Fannie Mae and Freddie Mac, and submit it to Congress

Not later than January 31, 2011

117



57

1155 FDIC, in consultation with the Treasury Secretary, must adopt by regulation policies and procedures to govern the Emergency Financial Stabilization Authority


61

1204 Treasury Secretary authorized to establish grant and other programs to improve access to financial services for low and moderate income Americans

N/A 118

1204 Treasury Secretary authorized to establish grant and other programs regarding “pay-day” loan substitutes

N/A 118

1209 Treasury Secretary authorized to promulgate regulations to implement the programs and undertakings authorized by Title XII

N/A 118

1210 Treasury Secretary must submit annual report to the Congressional Banking Committees describing the activities funded, amounts distributed and measurable results of Title XII for each year that any such activities are in place

Annually 118

Treasury Secretary must report to Congress on amounts received in connection with TARP that are deposited to the general fund under the Emergency Economic Stabilization Act of 2008

Every 6 months ___



C-1 U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010

ANNEX C

EFFECTIVE DATES OF PRINCIPAL RAFSA PROVISIONS The following table provides the effective dates of the principal provisions of RAFSA. For convenience,

we have included cross-references to the discussions of the relevant provisions in this memorandum.

Pursuant to Section 4, the provisions of RAFSA are effective one day after its enactment, except as

specifically provided otherwise in the statute. For summaries of the principal rulemakings contemplated

by RAFSA, including the dates by which those rules are required to be promulgated, see Annexes A and

B. This chart generally does not include the effective date of RAFSA provisions that require rulemaking

to be implemented, except where noted.

TITLE I — FINANCIAL STABILITY

RAFSA Section Description of Section Effective Date

See Page

111 Establishment of the Council Enactment of RAFSA

16

113 Council authorized to make determinations that nonbank financial companies should be subject to FRB supervision


19

114 Registration requirements for Covered Nonbank Companies 1 day after enactment of RAFSA

23

115 “Large, interconnected” BHCs subject to enhanced prudential, supervisory and other requirements


25

117 Former BHCs with $50 billion or more in assets that received TARP funds treated as Covered Nonbank Companies


22

120 Council authorized to recommend additional standards applicable to activities or practices for financial stability purposes


30

121 FRB authorized, with consent of Council, to impose mitigatory requirements on Covered Nonbank Companies and BHC with $50 billion or more in assets that pose a grave threat to U.S. financial stability


30

151-156 Establishment of OFR 1 day after enactment of RAFSA

18

161 Authority for FRB to require reports and examine Covered Nonbank Companies


23

162 Covered Nonbank Companies subject to enforcement provisions in the FDI Act


23



See Page

163 Acquisitions of banks and BHCs by Covered Nonbank Companies and prior notice requirements for large acquisitions by Covered Nonbank Companies and Covered BHCs


23-24

164 Prohibition on management interlocks for Covered Nonbank Companies


24-25

165(e) Establishment of concentration limits 3 years after enactment of RAFSA

28

TITLE II — ORDERLY LIQUIDATION AUTHORITY


See Page

201-212 Establishment of OLA 1 day after enactment of RAFSA

35-42

TITLE III — TRANSFER OF POWERS TO OCC, FDIC AND FRB


See Page

312 Transfer of OTS responsibilities to OCC, FDIC and FRB Transfer Date1 42

313 OTS to be abolished 90 days after Transfer Date

43


Transfer Date 44

318 FRB must assess fees to cover expenses in supervising BHCs and SLHCs with assets of $50 billion or more and covered nonbank companies

Transfer Date 44



44

341 OTS and OCC may not issue new federal savings association charters

Enactment of RAFSA

45


Transfer Date 45

342 Savings associations converting to national banks may retain branches


45

1 The “Transfer Date” is the date of the transfer of the Office of Thrift Supervision’s supervisory responsibility, to

occur 12 to 18 months after enactment of RAFSA.


TITLE IV — PRIVATE FUND INVESTMENT ADVISERS REGISTRATION ACT OF 2010


See Page

403 Elimination of the “private adviser” exemption and other changes to registration requirements

1 year after enactment of RAFSA (but voluntary registration prior to effectiveness permitted)

74-75, 80

406 Clarification of SEC rulemaking authority 1 year after enactment of RAFSA

78-79

407-408 Exemption from registration for advisers to “venture capital funds” and “private equity funds”; direction to SEC to issue rules defining “venture capital fund” and “private equity fund” and requiring advisers to “private equity funds” to maintain certain records

1 year after enactment of RAFSA, but definitional and recordkeeping rules must be issued within 6 months after enactment of RAFSA

76

409 Exception of “family offices” from the definition of “investment adviser”


77

410 Increased assets under management threshold for federal registration


77

412 Adjustments to accredited investor standard, including exclusion of value of principal residence from calculation of net worth

1 year after enactment of RAFSA (but Section 412 indicates exclusion of principal residence applies during the 4-year period that begins on the date of enactment of RAFSA)

71

TITLE V — INSURANCE


See Page

501-502 Establishment of Office of National Insurance 1 day after enactment of RAFSA

101-105

511-522; 524-542

Reform of regulation of the nonadmitted property/casualty insurance market and the reinsurance markets

1 year after enactment of the Act

105-108

523 Prohibition on states collecting any fees relating to the licensing of a surplus lines broker in the state, unless the state has laws or regulations providing for the participation by the state in the national insurance database of the NAIC

2 years after enactment of the Act

106


TITLE VI — REGULATION OF BHCS, SLHCS AND DEPOSITORY INSTITUTIONS


See Page

603 Three-year moratorium on grant of federal insurance for certain depository institutions excluded from definition of “bank” under BHC Act and approval of Change In Bank Control notices for such institutions


45-46

603 GAO study of exemptions from “bank” definition in BHC Act Not later than 18 months after enactment of RAFSA

46

604 Removal of restrictions in Section 10 of BHC Act on FRB examination, enforcement and rulemaking authority over functionally regulated subsidiaries of BHCs

Transfer Date 46

604(d), (f) A financial stability standard added to Bank Merger Act and BHC Act

Transfer Date 46

604(e) Prior FRB approval under BHC Act required for acquisitions of nonbank companies by financial holding companies with consolidated assets over $25 billion

Transfer Date 47

605 Lead federal banking agency (OCC or FDIC) required to examine nonbank subsidiaries of BHCs and SLHCs engaged in activities permissible for depository institution subsidiaries and provided back-up enforcement authority over these subsidiaries


47-48

606 Financial holding companies must be well-capitalized and well-managed to maintain status

Transfer Date 48

607 Well-capitalized and well-managed standard required for interstate acquisitions of and mergers with banks under BHC Act and Bank Merger Act

Transfer Date 48

608 - 609 Amendments to Section 23A of the Federal Reserve Act, including coverage of credit exposure on derivative transactions and securities lending and borrowing transactions


48-50

610 Credit exposure on derivatives and other transactions covered under national bank lending limit


50

611 Applies national bank lending limit to insured state banks 1 year after Transfer Date

51

612 Charter conversions of insured banks prohibited if subject to an enforcement order or memorandum of understanding with respect to a significant supervisory matter


51

613 De novo branching for national and state banks into other states permitted if a state bank chartered in that state could establish a branch at proposed location


51

614 Amendments to insider lending restriction of Section 22(h) of the Federal Reserve Act, covering credit exposure on derivative transactions, repurchase and reverse repurchase agreements, and securities lending and borrowing transactions


51

615 FDI Act amended to require that purchases of assets by a bank from, and sales by a bank to, an insider must be on market terms

Transfer Date 51



See Page


Transfer Date 52

616 FRB authorized to require BHCs or SLHCs to serve as a source of strength to subsidiary insured depository institutions

Transfer Date 52

617 Investment bank holding company framework under Exchange Act repealed

Transfer Date 52

618 Securities holding companies that are required by a foreign regulator or statute to be subject to comprehensive consolidated supervision may register with the FRB


52

619 Council study of Volcker rule and recommendations on modifications to Rule and its implementation


54

619 Appropriate federal banking agency rules required to implement Volcker rule


54

619 Divestiture required for investments and relationships prohibited by the final agency rules implementing the Volcker rule

2 years from adoption of final regulations with possibility of 3 one-year extensions

55

620 Limit on expansion by large financial firms 1 day after enactment of RAFSA, subject to Council study (within 6 months) and FRB rulemaking (within 9 months)2

56

TITLE VII — DERIVATIVES


See Page

712 Judicial resolution of CFTC-SEC objection over regulations 6 months after Enactment of RAFSA

63

714 CFTC granted authority over abusive swaps 6 months after enactment of RAFSA

70

715 CFTC and SEC authorized to prohibit foreign entity from participating in U.S. swap market


70

716 Prohibition against federal assistance to swaps entity 6 months after enactment of RAFSA

66

2 It is unclear whether Section 620 would be effective prior to the adoption of the FRB’s rule pursuant to this

provision.



See Page

717 Amends Commodity Exchange Act and Securities Exchange Act to create joint process to approve new products


___

718(a) CFTC and SEC granted authority to determine status of novel derivative products


___

718(b) Judicial resolution of CFTC and SEC conflict over status of novel derivative products


___

721(a) Treasury Secretary authority to exempt certain foreign exchange swaps and forwards


65

721(a) Amends Commodity Exchange Act to include new definitions 6 months after enactment of RAFSA

___

723 Prohibition against entering into or execution of agricultural swaps unless CFTC permits such swaps pursuant to section 4(c) of the Commodity Exchange Act


___

724(a) Futures commission merchants must segregate swap customer margin


___

724(c) Segregation requirement for cleared and uncleared swaps 6 months after enactment of RAFSA

___

725 Registration requirement for derivatives clearing organizations, including core principles and reporting requirements


___

728 Registration requirement for swap data repositories, including reporting requirements


___

730 Large swap trader reporting requirements 6 months after enactment of RAFSA

___

733 Registration requirements for swap execution facilities, including core principles, imposition of position limits and reporting requirements


___

735 Core principles for designated contract markets, including imposition of position limits


69

738(a) CFTC granted authority over foreign boards of trade 6 months after enactment of RAFSA

69

739 Legal certainty for swap transactions 6 months after enactment of RAFSA

___

742 CFTC authority over retail commodity transactions, including retail foreign exchange transactions


___



See Page

745 Imposes core principles on derivatives clearing organizations 6 months after enactment of RAFSA

___

746 Commodity Exchange Act prohibition against governmental insider trading


___

752 Amends Commodity Exchange Act manipulation standard and prohibits market manipulation for swap transactions


70

761 Amends Security Exchange Act of 1934 to include new definitions


___

762 Repeals Sections 206B and 206C of the Gramm-Leach-Bliley Act (prohibition of regulation of security-based swap agreements)


___

763(b) Registration requirement for clearing agencies, including reporting requirements


___

763(b) Registration requirement for security-based swap execution facilities, including core principles, imposition of position limits, and reporting requirements


___

763(d) Segregation requirement for cleared and uncleared security-based swaps


___

763(h) Large security-based swap reporting requirements 6 months after enactment of RAFSA

___

763(n) Registration requirement for swap data repositories, including reporting requirements


___

767 Authority of State gaming and bucket shop laws 6 months after enactment of RAFSA

___

768 Amends Securities Act of 1933 to include security-based swap 6 months after enactment of RAFSA

___

769-770 Amends definition under the Investment Company Act of 1940 and the Investment Advisers Act of 1940


___

TITLE VIII — PAYMENT, CLEARING AND SETTLEMENT SUPERVISION


See Page

Title VIII Provides for the designation and supervision of payment, clearing and settlement activities

Enactment of RAFSA

33-35


TITLE IX — INVESTOR PROTECTIONS AND IMPROVEMENTS TO REGULATION OF SECURITIES


See Page

911 Establishment of IAC within the SEC 1 day after enactment of RAFSA

114

914 Establishment of the Office of the Investor Advocate within the SEC


114-115

915 Accelerating time allowed for SEC evaluation of proposed SRO rule changes


72

922-923 Incentives and protection to whistleblowers 1 day after enactment of RAFSA

115

925 SEC’s collateral bar authority with regard to individuals who violate the Exchange Act or the Advisers Act extended to the full range of registered securities entities


72

927 Voiding any contractual provisions requiring a person to waive compliance with SRO rules (rather than rules of an exchange)


72

928 Clarifying that the restrictions of Section 205 of the Advisers Act do not apply to state-registered investment advisers


79-80

929 Amendment of Section 7(c)(1)(A) of the Exchange Act regarding margin lending prohibitions


___

929A Employees of subsidiaries and affiliates of public companies included in existing whistleblower protections of the Sarbanes-Oxley Act


115

929B Civil money penalties for securities laws violations may be used to benefit victims even without obtaining disgorgement from the defendant


___

929C Increasing Securities Investor Protection Corporation borrowing limits from the Treasury Department


115

932-935 Establishment of the Office of Credit Ratings to oversee NRSROs; reforms of NRSRO corporate governance, liability and disclosure


88-94

939 The FDI Act, the Investment Company Act of 1940, the Exchange Act and other U.S. statutes revised to remove references to credit ratings


94-95

941 Rules required to implement new “skin in the game” requirements with respect to ABS backed by residential mortgages

1 year after publication in the Federal Register

85-87

941 Rules required to implement new “skin in the game” requirements with respect to ABS backed by any asset class other than residential mortgages

2 years after publication in the Federal Register

85-87



See Page

942 Certain new ABS disclosure and reporting obligations 1 day after enactment of RAFSA

87

944 Elimination of existing exemption from registration for some mortgage-backed securities


88

951 Any proxy, consent or authorization for meetings occurring more than 6 months after enactment of RAFSA must provide for non-binding shareholder vote to approve executive compensation packages

For meetings occurring after 6 months following enactment of RAFSA

80

952 Disclosure requirements regarding compensation committee use of compensation consultants

For meetings occurring on or after 1 year following enactment of RAFSA

81

957 Provisions regarding new broker voting rules of any exchange to be registered as a “national securities exchange” with the SEC


84

965 SEC’s Division of Trading and Markets and Division of Investment Management to maintain a separate staff of examiners


100

966 SEC inspector general required to establish a system confidential submission of suggestions to improve the efficiency of, or allegations of inefficiency in, the SEC; inspector general required to submit annual report to Congress regarding the suggestions and allegations received


100

972 Expansion of SEC rulemaking authority with respect to proxy access


84

975 “Municipal advisors” required to register under Section 15B of the Exchange Act and subject to liability for fraudulent, deceptive or manipulative acts or practices; changes to the composition, authority and obligations of the MSRB

October 1, 2010 96-97

979 Establishment of the Office of Municipal Securities within the SEC


98

981 PCAOB authorized to share information relating to a public accounting firm with any non-U.S. auditor oversight authority under certain circumstances


98

982 PCAOB granted the authority to inspect and examine auditors of brokers and dealers; auditors of brokers and dealers required to register with the PCAOB; brokers or dealers required to pay annual accounting support fees to the PCAOB; PCAOB authorized to refer investigations to an SRO with jurisdiction over the relevant broker or dealer


98

983 Securities Investor Protection Act protections extended to cover both securities and futures contracts in a single “portfolio margining account”


___



See Page

984 Prohibition on participating in transactions involving the lending or borrowing of securities in contravention of SEC rules


73

987 Threshold for “material loss” under the FDI Act increased; process established for review of losses below the “material loss” threshold


45

988 New procedures established for reporting material and non-material losses by the Share Insurance Fund of the NCUA


62-63

989A Bureau’s Office of Financial Literacy required to establish a grant program for states related to protection of senior investors

1 day after enactment of RAFSA; appropriations for fiscal years 2011-2015 authorized

118

989B, C, D, E Reforms of the Inspector General Act of 1978; creation of the Council of Inspectors General on Financial Oversight


101

991 Transition of SEC to “self-funded” agency First day of the fiscal year following the fiscal year in which RAFSA is enacted (except that transition amendments with respect to fee adjustments are effective upon the date of enactment of RAFSA)

100

TITLE X — BUREAU OF CONSUMER FINANCIAL PROTECTION


See Page

1011-1018 Establishment of Bureau of Consumer Financial Protection Enactment of RAFSA

109

1021-1029 Enumeration of the powers of the Bureau of Consumer Financial Protection

Designated Transfer Date3

109-113

1031-1037 Sets forth certain specific authorities of the Bureau of Consumer Financial Protection

Designated Transfer Date

109-113

1041-1048 Concerning the effect of Title X on state law, the enforcement powers of states, and preemption of state consumer financial protection laws by federal law


106-107

1051-1058 Establishment of the enforcement powers of the Bureau of Consumer Financial Protection


112-113

3 The Designated Transfer Date is the date of the transfer of functions to the Bureau, which must be between 180

days and 18 months after the date of enactment of RAFSA, unless extended by the Treasury Secretary.



See Page

1061 Transfer of functions from other agencies to the Bureau of Consumer Financial Protection


___

1064 Transfer of personnel from other agencies to the Bureau of Consumer Financial Protection

Transfers to occur not later than 90 days after designated Transfer Date

___

1073 Amendment to the Equal Credit Opportunity Act requiring collection of certain small business loan data under that Act


___

1081 Conforming amendments to the Inspector General Act of 1978 1 day after enactment of RAFSA

101

1082 Conforming amendments to the Privacy Act of 1974 1 day after enactment of RAFSA

___

1083-1104 Conforming amendments to other statutes affected by Title X, including the Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair and Accurate Credit Transactions Act, Home Mortgage Disclosure Act, Truth in Lending Act and others


113

TITLE XI — FEDERAL RESERVE SYSTEM PROVISIONS


See Page

1151 FRB’s emergency lending authority under section 13(3) of the Federal Reserve Act limited to credit programs and facilities with broad-based eligibility and subject to certain requirements


57

1153 FRB required to place on its website, within 6 months of public release, specified information, including public information regarding GAO audits and audited financial statements of FRB and federal reserve banks


59-60

1155 FDIC granted emergency financial stabilization authority, with FRB, Treasury approval and Congressional authorization, to provide a widely-available program to guarantee obligations of solvent depository institutions and their holding companies and subsidiaries of such entities


60

1156 Elimination of FDIC’s current authority to provide systemic risk assistance to solvent insured depository institutions and their solvent holding companies under a widely available program and to provide open bank assistance

Enactment of RAFSA

61

1157 Presidential appointment of President of Federal Reserve Bank of New York required; new restrictions on voting for directors of and membership on boards of directors of Federal Reserve banks


62

1158 Creation of a Second Vice Chairman of the FRB for Supervision

Enactment of RAFSA

62

1158 Adding to the functions of the FRB certain responsibilities for U.S. financial stability


62


TITLE XII — IMPROVING ACCESS TO MAINSTREAM FINANCIAL INSTITUTIONS ACT OF 2010


See Page

1204 Treasury Secretary authorized to establish a program designed to expand access to financial institutions for low- and moderate-income individuals


118

1205 Treasury Secretary authorized to establish programs to provide low-cost alternatives to payday loans


118

1206 Community Development Financial Institutions Fund permitted to make grants to community development financial institutions


118

1201-1203

1207-1210

All other provisions of Improving Access to Mainstream Financial Institutions Act of 2010


___

TITLE XIII — OTHER PROVISIONS4


See Page

Restrictions on use of federal funds to finance bailouts of foreign governments


101

“Pay It Back Act”, including amendment reducing TARP authorization and amendment to Housing and Economic Recovery Act of 2008


___

Small Business Fairness and Regulatory Transparency 1 day after enactment of RAFSA

___

4 Amendments that were not made to existing titles of the base text were designated Title XIII and began with

Section 1301 (except in one case, where no designation at all was made). These provisions presumably will be organized in the final bill.

Documents

U.S. Senate Approves Significant Revision of Financial Services … · 2014-01-03 · U.S. Senate Approves Significant Revision of Financial Services Regulation May 22, 2010 technical