the dodd-frank act - sullivan & cromwell · 2011-07-19 · the dodd-frank act also requires...

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July 17, 2011

The Dodd-Frank Act Many Provisions of the Dodd-Frank Act Become Effective on July 21, 2011 — the One-Year Anniversary of Its Enactment

SUMMARY

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”)

was signed into law by President Obama on July 21, 2010. Many of its provisions became effective the

next day (July 22, 2010), but many other provisions will become effective July 21, 2011 — the one-year

anniversary of its enactment. This memorandum outlines the statutory provisions of the Act that become

effective on, or require that an action be taken by a regulatory agency by, July 21, 2011 (or, with respect

to Title VII, July 16, 20111) and the status of associated rulemakings, if any.

Several of the provisions that become effective July 21, 2011 do so by amendment to other existing

statutes. In most cases, the Dodd-Frank Act does not explicitly require implementing regulations with

respect to these provisions. Even where regulations are not expressly required, many of these

automatically effective provisions create difficult interpretive issues for which regulatory guidance would

be helpful or even essential. In some of these cases, therefore, the appropriate federal regulatory

agencies either have proposed regulations implementing such provisions or otherwise announced that

new regulations in connection therewith are on the agency’s rulemaking agenda.

For a number of other provisions that become effective July 21, 2011, the Dodd-Frank Act explicitly

requires certain federal regulatory agencies to promulgate implementing regulations by July 21, 2011.

The sheer magnitude of the regulatory rulemaking under the Act and the difficulty of the implementation

and interpretive issues arising thereunder, as well as other demands, have made it impossible for the

regulators to finalize all such rules by July 21, 2011. In any event, the Dodd-Frank Act provisions

described in this memorandum will be in force on that date, irrespective of whether implementing

regulations have been proposed, finalized or will be forthcoming in the future. Accordingly, there may be

a period of uncertainty as institutions must abide by these newly effective statutory requirements even in

-2- The Dodd-Frank Act July 17, 2011

the absence of regulations to help clarify the various interpretive issues that inevitably will arise given the

breadth and scope of the Act. Some of these required regulations have been proposed, but final rules

have not yet been adopted. This is the case, for example, with rules under Section 932 of the Act,

proposed by the Securities and Exchange Commission (“SEC”) in June 2011 but not yet finalized.2 A

table summarizing the status of those rules required by the Dodd-Frank Act to be completed by July 21,

2011 that are not yet complete is attached as Annex A hereto.

The Dodd-Frank Act also requires various federal regulatory agencies to conduct studies, many of which

are required to be completed by July 21, 2011. It appears that a number of these studies will not be

completed by this deadline.

The table below lists such Dodd-Frank Act provisions and the corresponding page number of this

memorandum where you can find further information related thereto.

AUTOMATICALLY EFFECTIVE PROVISIONS

TOPIC SECTION PAGE

Removal of Restrictions on FRB Authority over BHCs Section 604 3

Removal of Restrictions on FRB Authority over SLHCs Section 606 3

Source of Strength Section 616 3

Required Examination of Nondepository Institution Subsidiaries Section 605 5

Capital Rules for BHCs and SLHCs Section 616 5

Well-Capitalized and Well-Managed Requirements Section 606 6

Acquisition of Bank Shares by BHCs Section 607 6

New Required Application for Large Acquisitions Section 604 7

Consideration of Systemic Financial Stability in Applications Sections 604(d),(f) 7

Transfer of OTS Functions and Supervisory Authority Section 312 7

Required Agency Actions Section 327 8

Identification of OTS Regulations to Be Enforced Section 316 9

Collection of Supervision Fees Section 318 10

Elimination of Federal Prohibitions of Interest on Demand Deposits Section 627 11

Additional Restrictions on Transactions with Affiliates and Insiders Section 615 11

Revised Regulatory Framework for Securities Holding Companies Sections 617, 618 12

HOLA Amendments Regarding Dividends by Mutual Holding Companies Section 625 12

Realignment of the Board of Directors of the FDIC Section 336 13

Investment Adviser Reforms Title IV 13

Bureau of Consumer Financial Protection Title X 14


TOPIC SECTION PAGE

Transfer of Authority to the CFPB Section 1066 15

Consumer Transactions Section 1100E 16

Consumer Reports Section 1100F 16

Small Business Impact Section 1100G 16

Reasonable Fees and Rules for Payment Card Transactions Section 1075 17

Nonadmitted and Reinsurance Reform Act of 2010 Title V 17

Derivative Reforms Title VII 18

For up-to-date information on agency actions and additional summaries and memoranda, please visit

Sullivan & Cromwell LLP’s Dodd-Frank Developments database (available at

http://sullcrom.com/doddfrankdevelopments).

I. BANKING REFORMS EFFECTIVE JULY 21, 2011

A. ENHANCED FEDERAL RESERVE EXAMINATION AND SUPERVISORY AUTHORITY

1. Removal of Restrictions on Federal Reserve Reporting, Examination and Enforcement Authority

Section 604 of the Dodd-Frank Act removes from the Bank Holding Company Act (the “BHC Act”) many

of the restrictions imposed under the Gramm-Leach-Bliley Act3 on the authority of the Board of Governors

of the Federal Reserve System (the “FRB”) to require reports from, examine, adopt prudential rules for,

impose restraints on or take enforcement and other actions against functionally regulated subsidiaries of

bank holding companies (“BHCs”) (for instance, broker-dealers, registered investment advisers,

investment companies and state-regulated insurance subsidiaries). Section 604 becomes effective

July 21, 2011,4 but the FRB has not adopted, or proposed, implementing regulations. Because these

subsidiaries remain functionally regulated, we do not believe they need to adopt new procedures or

policies at this time.

In connection with the Act’s elimination of the Office of Thrift Supervision (“OTS”), Section 606 also

amends the Home Owners’ Loan Act (“HOLA”), effective July 21, 2011, to provide the FRB with the same

extensive supervisory authority over savings and loan holding companies (“SLHCs”) and their

subsidiaries, including functionally regulated subsidiaries.5

2. Source of Strength

Section 616 of the Act amends the Federal Deposit Insurance Act (the “FDI Act”) to codify the FRB’s

“source-of-strength” doctrine for the bank subsidiaries of BHCs and to expand it to cover SLHCs and any

other company (including a BHC) that controls an insured depository institution, with respect to their

insured depository institution subsidiaries. This represents an expansion not only of the scope of entities


obligated to act as a source of strength (that is, SLHCs and other companies that control insured

depository institutions as well as BHCs) but also an expansion of the entities covered (that is, not just

banks controlled by another company but any insured depository institution subsidiary, including industrial

loan companies as well as savings associations).6

The term “source of financial strength” is defined for purposes of Section 616 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. The appropriate federal banking agency for such a depository institution

may require reports from the company that controls the insured depository institution to assess its ability

to serve as a source of strength and to enforce compliance with the source-of-strength requirement.

Section 616’s statutory requirements become effective July 21, 2011. Although Section 616 requires the

appropriate federal banking agencies to “jointly issue final rules to carry out this section” by July 21, 2012,

no final regulations have been adopted.

FDIC. The Federal Deposit Insurance Corporation (the “FDIC”) lists among its planned objectives,

between August and December 2011, an initiative to issue a joint notice of proposed rulemaking and

request for public comment (“NPR”) (with other federal banking agencies) requiring a BHC, SLHC, and

any other company that controls an insured depository institution to serve as a source of financial

strength for such depository institution.7

FRB. On June 17, 2011, the FRB issued an NPR that would amend its Regulation Y to require a large

U.S. BHC to submit capital plans on an annual basis and to provide prior notice under certain

circumstances before making a capital distribution.8 Under this NPR, each capital plan submitted by a

large BHC would be required to contain a discussion of how the BHC would, under stressful conditions,

serve as a source of strength for its depository institution subsidiaries.

In addition, the FRB has stated, in the FRB Notice of Intent to Apply Certain Supervisory Guidance to

SLHCs (the “FRB Notice of Intent”), that one of the objectives in establishing the supervisory program to

be applied to SLHCs is ensuring that each SLHC can serve as a source of strength for its subsidiary

depository institutions.9

OCC. There have been no issuances to date from the Office of the Comptroller of the Currency (the

“OCC”) regarding source-of-strength issues.

Prior to the adoption of implementing regulations by the federal banking agencies, we believe that no

special actions need to be taken by companies required to serve as a source of strength, except that no

capital distribution should be made without advising the FRB as recommended in its June 17th NPR. We

anticipate that the federal banking agencies will continue to apply the source-of-strength requirement in

the same manner as the FRB did prior to the Dodd-Frank Act.


3. Required Examination of Nondepository Institution Subsidiaries

Section 605 of the Dodd-Frank Act amends the FDI Act to require the FRB to conduct examinations of the

activities of nondepository institution subsidiaries of BHCs and SLHCs (other than functionally regulated

subsidiaries or subsidiaries of a depository institution) that are permissible for the depository institution

subsidiaries of the holding company (such as mortgage banking or consumer finance activities). In

conducting these examinations, the FRB must consult and coordinate with any state regulator of the

subsidiary. This amendment becomes effective July 21, 2011. The Act does not require the FRB to

issue implementing regulations. Nonetheless, in the FRB Notice of Intent, the FRB states that its

supervisory program for SLHCs may entail heightened review of the activities of nonbank subsidiaries of

SLHCs.

Section 605 also grants back-up examination and enforcement authority to the OCC and other

appropriate federal banking agencies if the FRB does not conduct the examination in the manner required

by the provision. In addition, Section 605 provides specific authority for the OCC, FDIC and FRB to

assess fees on nondepository institution subsidiaries for the costs of examination. The OCC issued an

NPR on May 26, 2011 that, among other things, proposes an assessment methodology for federal

savings associations under Section 318 of the Act (as discussed in further detail below). The OCC

indicates, without further discussion, that the proposals in such NPR, when adopted, also will implement

Section 605.10

4. Capital Rules for BHCs and SLHCs

BHCs. Section 616 of the Dodd-Frank Act amends the BHC Act, effective July 21, 2011, to provide

specific authorization for the FRB to issue orders and regulations relating to the capital requirements of

BHCs. In establishing these rules, the FRB must seek to make the requirements countercyclical, so that

the amount of capital a company is required to maintain increases in times of economic expansion and

decreases in times of economic contraction, consistent with the safety and soundness of the company.11

SLHCs. Section 616 provides the FRB with the same authority for capital requirements with respect to

SLHCs under HOLA, including seeking to make capital requirements countercyclical. This provision

becomes effective July 21, 2011. In the FRB Notice of Intent, the FRB notes that a material difference

between the OTS and FRB supervisory programs for holding companies is the assessment of capital

adequacy with respect to SLHCs. SLHCs were not previously subject to explicit regulatory capital

requirements. The FRB has informally indicated that it may take some time to promulgate capital

requirements for SLHCs, particularly for SLHCs that have significant nonfinancial assets (and are

“grandfathered” under Section 10(c)(9)(C) of HOLA). The FRB has further indicated that it may need to

develop individual capital requirements for SLHCs.

It should be noted that the FRB currently is considering a variety of capital-related matters. For example,

the FRB is working on an NPR that would implement the internationally agreed Basel III standards for


U.S. financial institutions, which we understand that the FRB currently is aiming to release by the end of

the summer. The NPR is expected to address a variety of heretofore open issues, including whether the

full panoply of Basel III provisions will be applied to all U.S. banks or whether certain provisions will be

applied to a particular institution depending on its size or other factors.12

5. Heightened Standards and Requirements for Expansion Approval

a. Well-Capitalized and Well-Managed Requirements

BHCs. Section 606 of the Act amends the BHC Act, effective July 21, 2011, to require that a BHC that is

a financial holding company (“FHC”), and therefore permitted to engage in the expanded financial

activities authorized by the Gramm-Leach-Bliley Act, be and remain “well-capitalized” and “well-

managed.” Currently, these requirements do not apply to the FHC itself but only to the FHC’s depository

institution subsidiaries. Thus, BHCs that have elected to be treated as FHCs will need to meet these new

standards beginning on July 21, 2011 for this election to continue to be effective. Although the Act does

not require the FRB to issue implementing regulations, the FRB lists an NPR implementing this

requirement as one of its initiatives planned for the period from October to December 2011.13 We expect

that the FRB will amend Regulation Y in order to conform to Section 606. We assume that the standards

for BHCs will be basically the same as those currently applied to their depository subsidiaries.

SLHCs. Section 606 also amends HOLA, effective July 21, 2011, to require an SLHC engaging or

seeking to engage in the expanded financial activities permissible under Section 4(k) of the BHC Act to

meet the same well-capitalized/well-managed and other standards required for an FHC to conduct these

activities, including maintaining at each of its subsidiary depository institutions a satisfactory rating under

the Community Reinvestment Act of 1977 with respect to its record of meeting community credit needs.

The SLHC also must conduct the applicable activity in accordance with the same terms, conditions and

requirements that apply to the conduct of such activity by an FHC under the BHC Act and FRB

regulations and interpretations. In addition, an SLHC seeking to acquire control of a company (other than

an insured depository institution) with consolidated assets exceeding $10 billion on or after July 21, 2011

would need to obtain the prior approval of the FRB as discussed below. Although this amendment is self-

effectuating, the FRB lists an NPR to implement this change as one of its initiatives planned for the period

from July to September 2011.

b. Acquisition of Bank Shares by BHCs

Effective July 21, 2011, Section 607 of the Dodd-Frank Act amends the BHC Act to require that a BHC

seeking approval to acquire shares of a bank located outside the BHC’s home state be well-capitalized

and well-managed. Similarly, the Bank Merger Act is amended to require that the surviving bank in an

interstate merger transaction be well-capitalized and well-managed. As a practical matter, the FRB

currently applies those tests.


c. New Required Application for Large Acquisitions

Section 604 of the Dodd-Frank Act amends Section 4(k) of the BHC Act to add a new application

requirement before an FHC may acquire a nonbank company with $10 billion or more in total

consolidated assets. This requirement becomes effective July 21, 2011.

Nonetheless, we understand that the FRB has been requesting such applications since the Act’s

enactment. Although this amendment is self-effectuating, the FRB lists an NPR to implement this

requirement as one of its initiatives planned for the period from October to December 2011.

d. Consideration of Systemic Financial Stability in Applications

Section 604(d) and Section 604(f) of the Act 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 also applies 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. These statutory

amendments become effective July 21, 2011. Although this amendment is self-effectuating, the FRB lists

an NPR to implement these changes as one of its initiatives planned for the period from October to

December 2011. The other federal banking agencies have not given any indication of their rulemaking

plans with respect to these provisions.

6. Transfer of OTS Functions and Supervisory Authority

Title III of the Dodd-Frank Act abolishes the OTS, reassigning its responsibility for the supervision of

savings associations and SLHCs to the other federal banking agencies as described below.14 This

change also transfers to the new appropriate federal banking agency 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.

Section 311 of the Act requires this transfer of the OTS’s supervisory responsibility to be completed on

the “transfer date,” which is defined as July 21, 2011. Although Section 311 authorizes the Secretary of

the Treasury to extend this date for up to six months upon certain findings, the Secretary has determined

not to delay the transfer. Therefore, the shift of functions and supervisory authority set out below will

occur on July 21, 2011. Section 313 provides that the OTS will be abolished within 90 days of the date of

transfer of authority.

The Act establishes two requirements in order to facilitate the transition process: (i) the FDIC, OCC, and

FRB must publish in the Federal Register a list of those OTS regulations that they will start enforcing on

July 21, 2011 and (ii) these agencies and the OTS must issue a joint implementation plan on or before six

months after the enactment of the Dodd-Frank Act. The federal banking agencies issued a plan


governing the transfer of OTS responsibilities, personnel and property to the Congressional Banking

Committees in April 2011, and the FRB and FDIC, but not the OCC, have proposed rules implementing

the transition. In addition, the OCC and the FDIC jointly published in the Federal Register, on July 6,

2011, a list of the OTS regulations that they will continue to enforce on July 21, 2011. It is unclear,

however, at this time how much (if any) of the implementing rulemaking will be finalized by that date.

Therefore, certain details regarding the transfer of supervisory authority from the OTS may very well be

unknown at that time.

a. Transfer of OTS Functions

Under Section 312, the functions and authority of the OTS with respect to savings associations and

SLHCs are to be transferred as follows:

the supervision of federal savings associations is transferred to the OCC;

the supervision of state savings associations is transferred to the FDIC;

the supervision of SLHCs is transferred to the FRB;

the rulemaking authority of the OTS for savings associations is transferred to the OCC;

the rulemaking and other authorities of the OTS for SLHCs are transferred to the FRB;

the rulemaking authority of the OTS under HOLA with respect to transactions with affiliates and insiders and anti-tying prohibitions is transferred to the FRB; and

a deputy comptroller within the OCC is to be designated to supervise and examine federal savings associations.

b. Required Agency Actions

In January 2011 (revised in April), the OCC, FDIC, FRB and OTS submitted a joint OTS transition

implementation plan pursuant to Section 327 of the Dodd-Frank Act to the Congressional Banking

Committees.15 The plan provides an overview of actions taken and proposed by the agencies to

implement Section 301 through Section 326 of the Act and covers matters such as:

transfer of personnel;

transfer of authority and responsibilities regarding oversight of federal savings associations, state savings associations and SLHCs;

transfer of OTS examination staff;

continuation of thrift industry reporting requirements;

continuation of suits, existing orders, resolutions, determinations, agreements and regulations;

transfer of funds, property, records, contracts and other assets; and

disposition of OTS affairs.

In continuation of this joint transition plan, the federal banking agencies have issued NPRs or other

releases to implement certain provisions under Title III as discussed below.


i. OCC

On May 26, 2011, the OCC published an NPR governing the transfer to the OCC of all functions of the

OTS and the OTS Director and setting out the OCC’s assumption of responsibility for the examination,

supervision and regulation of federal savings associations, including enforcement authority for all OTS

orders and resolutions in effect the day before July 21, 2011. The NPR also addresses the transfer to the

OCC of OTS rulemaking authority relating to all savings associations, both state and federal, as well as

enforcement authority for all OTS orders and resolutions in effect the day before July 21, 2011.16

ii. FRB

The FRB Notice of Intent discusses how the FRB plans to supervise SLHCs, starting on the July 21, 2011

transfer date. The FRB states its objective of assessing the condition, performance and activities of

SLHCs on a consolidated risk-based basis in a manner that is consistent with the FRB’s established

approach for BHCs, taking into account any unique characteristics of SLHCs and the requirements of

HOLA. The FRB then identifies three elements of its current BHC supervisory program that it believes

are particularly critical to evaluate effectively the consolidated condition of holding companies and

describes how it intends to apply each to SLHCs:

the FRB’s consolidated supervision program for large and regional holding companies;

the FRB’s supervisory program for small, noncomplex holding companies; and

the FRB’s holding company rating system.

The FRB expects that its program will entail more rigorous review than under the OTS, including with

regard to nondepository institution subsidiaries, and that, as mentioned above, it intends to introduce

formal regulatory capital requirements for SLHCs, which have not previously applied to such financial

institutions.17 The FRB invited public comments on its Notice of Intent on or before May 23, 2011 and

noted that it plans to issue formal guidance or NPRs after July 21, 2011.

c. Identification of OTS Regulations to Be Enforced

Section 316(b) of the Act provides for continuation and enforcement of OTS regulations transferred by

Title III of the Act and requires the federal banking agencies to issue a joint notice, by July 21, 2011, of

the OTS regulations that they will continue to enforce. On July 6, 2011, the OCC and FDIC issued a joint

notice, as required under Section 316 of the Act, in which they identify those OTS regulations that are

continued under Section 316 that the OCC, with respect to federal savings associations, and the FDIC,

with respect to state savings associations, will enforce.18 The FRB has indicated that it expects to publish

a list of all OTS regulations that it will continue to enforce for SLHCs in the period from July to September

2011.

In addition to the OCC and FDIC joint rule, the OCC has indicated that it plans to issue separately an

interim final rule, effective July 21, 2011, with a request for public comment which republishes those OTS


regulations that the OCC will enforce as of the transfer date. Similarly, on June 21, 2011, the FDIC’s

Board of Directors issued an interim final rule, effective July 21, 2011, with a request for public comment

to revise a number of existing FDIC administrative and procedural final rules to reflect the FDIC’s

supervision of state savings associations.19 The FDIC plans to issue a second interim final rule, also

effective July 21, 2011, which will republish certain OTS rules for which the FDIC has rulemaking

authority.

7. Collection of Supervision Fees

Under Section 318 of the Dodd-Frank Act, the federal banking agencies are authorized, and, in the case

of the FRB, required, to collect assessments from the financial institutions they supervise. These

provisions take effect on July 21, 2011. Although the Act does not direct rulemaking by the federal

banking agencies, the OCC and FRB have nonetheless taken steps to finalize implementing regulations

as discussed below.

OCC. Section 318 of the Dodd-Frank Act amends the Federal Reserve Act (the “FRA”) to authorize the

OCC to collect an assessment fee or other charge from any entity for which it is the appropriate federal

banking agency to carry out its supervisory responsibilities. On May 26, 2011, the OCC published an

NPR in which it proposes a phased-in approach to assessing federal savings associations, providing for

two cycles before these financial institutions are assessed under this new rule.20 Under the OCC’s

current regulation, assessments on national banks are due on March 31 and September 30 of each year.

During the first two assessment cycles after July 21, 2011, the OCC proposes to base federal savings

association assessments on either the OCC’s assessment regulation (as amended to include federal

savings associations) or the former OTS assessment structure, whichever yields the lower assessment

for that savings association. After the March 2012 assessment, the OCC proposes to assess all national

banks and federal savings associations using the OCC’s assessment structure. Comments on the NPR

were due on or before June 27, 2011. Final rules are not expected to be in place before July 21, 2011.

FRB. Section 318 of the Act amends the FRA to require the FRB to assess supervisory fees against

BHCs, SLHCs and certain nonbank financial companies regulated by the FRB. The FRB lists an NPR

implementing this requirement as one of its initiatives planned for the period from July to September

2011.

FDIC. Section 318 amends the FDI Act to authorize the FDIC to assess the cost of any regulatory or

special examination it conducts of a depository institution or other entity against the institution or entity

examined. The FDIC has not issued any NPRs to date and does not include rulemaking with respect to

this assessment with its initiatives planned through December 2011.


8. Elimination of Federal Prohibitions of Interest on Demand Deposits

Section 627 of the Act amends the FRA, HOLA and the FDI Act, effective July 21, 2011, to repeal the

federal prohibitions on the payment by insured depository institutions of interest on demand deposits.

Accordingly, banks and federal savings associations will be authorized, but not required, to offer

customers new interest-bearing demand deposit accounts. This provision, which has received relatively

little attention, could have a serious negative impact on net interest margins of financial institutions in a

higher-rate environment.

The Dodd-Frank Act does not require rulemaking to implement Section 627. Nonetheless, the FRB and

FDIC are amending their respective regulations to address these provisions as discussed below.

FRB. Section 627 eliminates the statutory authority under which the FRB implemented its Regulation Q

(which prohibits the payment of interest on demand deposits by member banks, national banks and any

federal or state uninsured branch or agency of a foreign bank). On July 12, 2011, the FRB approved a

final rule repealing Regulation Q and the FRB’s published interpretations of Regulation Q effective

July 21, 2011.21

OCC. In a June 24, 2011 bulletin, the OCC notified national banks that Section 627 will be effective

July 21, 2011. The OCC referenced the FRB’s repeal of Regulation Q and associated amendments

(which, at the time, were proposed in an NPR) and alerted national banks that the statutory provisions

take effect even in the absence of final regulations. Accordingly, the OCC advised national banks to

make the appropriate changes to their practices, policies, and/or disclosures as necessary to comply with

these provisions.22

FDIC. On July 14, 2011, the FDIC issued a final rule that rescinds 12 C.F.R. Part 329 – the regulation

implementing the prohibition on the payment of interest on demand deposits with respect to state

nonmember banks – effective July 21, 2011.23 At the same time, the FDIC moved the definition of

“interest” contained in that part of its regulations to the definition provisions contained in 12 C.F.R.

Part 330 because the definition has continued relevance in determining whether an account qualifies for

the temporary unlimited insurance coverage that Section 343 of the Act provides for noninterest-bearing

transaction accounts. In addition, the FDIC has indicated on its website that it imposes no specific

conditions on insured depository institutions that must be satisfied on or after July 21, 2011 to begin

paying interest on demand deposit accounts.24

9. Additional Restrictions on Transactions with Affiliates and Insiders

Effective July 21, 2011, Section 615 of the Dodd-Frank Act prohibits 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 the FRB’s

Regulation O), unless the transaction is on market terms. If the transaction represents more than 10% of


the capital stock and surplus of the insured depository institution, the transaction must be approved in

advance by a majority of members of the board of directors who do not have an interest in the

transaction.

Section 615 also provides that the FRB may issue regulations necessary to define the terms and carry

out the purposes of Section 615 and, before doing so, it must consult with the OCC and the FDIC

regarding these rules. The FRB has not issued any NPRs to date and does not include an NPR or other

guidance under this provision with its initiatives planned through December 2011, so it is unclear at this

time whether or when there will be regulations concerning this new restriction.

10. Revised Regulatory Framework for Securities Holding Companies

Section 617 of the Dodd-Frank Act amends the Securities Exchange Act of 1934 (the “Exchange Act”) to

eliminate the elective investment bank holding company framework, effective July 21, 2011. Nonbank

securities firms will no longer be able to elect to become investment bank holding companies subject to

regulation by the SEC. These provisions were in place to permit companies to elect to be supervised on

a consolidated basis if required by foreign regulators. In its place, Section 618 established 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.

That framework became effective July 22, 2010. Section 618 does not require rulemaking by the FRB

implementing the new framework. From July 22, 2010, the FRB was required to accept registration from

financial institutions, and to put in place processes to handle recordkeeping and reporting from such

institutions.

11. HOLA Amendments Regarding Dividends by Mutual Holding Companies

Section 625 of the Act amends HOLA by adding a requirement that any savings association subsidiary of

a mutual holding company provide the appropriate federal banking agency and the FRB with 30 days’

prior notice of a proposed declaration of any dividend and invalidates any dividend declared without such

notice. Section 625 also provides that a mutual holding company may waive the right to receive any

dividend from a subsidiary in certain circumstances if it provides 30 days’ prior notice to the FRB of the

proposed waiver. The FRB may not object to the waiver if the waiver would not be detrimental to the safe

and sound operation of the subsidiary savings association, the board of directors of the holding company

expressly determines that the waiver is consistent with their fiduciary duties to the mutual members of the

holding company and the mutual holding company meets certain qualifications. This amendment will be

effective July 21, 2011. Although Section 625 does not require the FRB to promulgate implementing

regulations, the FRB lists implementation of Section 625 as one of its initiatives planned for the period

from July to September 2011.


12. Realignment of the Board of Directors of the FDIC

On July 21, 2011, Section 336 of the Dodd-Frank Act adds the Director of the Bureau of Consumer

Financial Protection (the “CFPB”) to the Board of Directors of the FDIC and removes the OTS Director.

Therefore, the CFPB will hold a seat on the FDIC Board when a Director of the CFPB is properly seated.

As discussed in further detail below, President Obama has recently indicated that he will appoint Richard

Cordray for the position but Mr. Cordray almost certainly will not be confirmed by the Senate prior to

July 21, 2011.

II. INVESTMENT ADVISER REFORMS

Title IV of the Act, entitled the “Private Fund Investment Advisers Registration Act of 2010,” makes

several changes to the registration requirements of the Investment Advisers Act of 1940 (the “Advisers

Act”). Under Title IV, the SEC is required to finalize implementing rules by July 21, 2011.

On June 22, 2011, the SEC adopted final rules to implement Title IV of the Act regarding investment

advisers, notably including advisers to private funds, such as hedge funds and private equity funds.25

Although Title IV and the new rules become effective July 21, 2011, the SEC has provided additional time

for advisers to come into compliance with the new registration requirements. Together, these provisions

will:

require advisers to hedge funds and other private funds who have previously been exempt from SEC registration under the “private adviser exemption” to register with the SEC by March 30, 2012, or with the states, unless they fall within one of the new exemptions under the Dodd-Frank Act;

reallocate regulatory oversight authority for mid-sized advisers between the SEC and the states, as required by the Dodd-Frank Act;

establish a uniform method for advisers to calculate their assets under management (“AUM”) for regulatory purposes in order to determine registration requirements and exemptions;

implement three exemptions from SEC registration created by the Dodd-Frank Act for advisers solely to venture capital funds, advisers solely to private funds with less than $150 million in aggregate AUM in the U.S. and certain foreign private advisers;

establish expanded reporting requirements for registered advisers and new reporting requirements for certain unregistered advisers relying upon the venture capital fund adviser and private fund adviser exemptions under the Dodd-Frank Act;

amend and expand Form ADV to accommodate use by both registered advisers and unregistered exempt reporting advisers and reflect the additional reporting, categorization and disclosure requirements required by the Dodd-Frank Act; and

define “family offices” to be excluded from the definition of “investment adviser” under the Advisers Act.

The SEC also concurrently adopted final rules defining the term “family office” to implement a new

statutory exception from the definition of “investment adviser.” These rules become effective August 29,

2011.


All investment advisers subject to registration or reporting will be required to do so on Form ADV, which

must be submitted electronically through the Investment Adviser Registration Depository (the “IARD”).

The IARD has not yet been modified to accommodate the filing of Amended Form ADV by, and the SEC

has indicated that new registration statements and reports will not be accepted before, January 2, 2012.

Investment advisers who are required to register with the SEC will have until March 30, 2012 to come into

compliance with the new regulations (although the SEC cautions that they should file Form ADV no later

than February 14, 2012 in order to be registered by March 30), and investment advisers who are required

to deregister with the SEC and register with a state will have until June 28, 2012 to come into compliance,

although they must identify themselves as subject to deregistration by March 30, 2012.26

III. CONSUMER AND INVESTOR PROTECTION

A. BUREAU OF CONSUMER FINANCIAL PROTECTION

Title X of the Dodd-Frank Act, entitled the “Consumer Financial Protection Act of 2010” (the “CFPA”),

created the CFPB, which will nominally be housed within the FRB but will function as an autonomous

agency. The CFPB will become responsible, effective July 21, 2011, for most of the consumer financial

services regulatory authority now given to the federal banking regulators and other agencies. The

CFPB’s primary functions include the supervision of “covered persons” for compliance with “federal

consumer financial law” and the promulgation of regulations implementing those laws.27 The CFPB has

broad authority to issue rules to implement, and to enforce, the federal consumer financial laws. The Act

includes several specific grants of authority to the CFPB relating to particular consumer protections.

Section 1062 requires the Secretary of the Treasury to specify a date for both the transfer of existing

functional and regulatory powers and the grant of new rulemaking authority. The Secretary has selected

July 21, 2011 as the “designated transfer date.”28

The CFPB also has the power to prohibit the marketing, sale or enforcement of the terms of a consumer

financial product that does not conform to the CFPA’s or CFPB’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.

The Dodd-Frank Act provides for a Director to head the CFPB. On July 17, 2011, the President indicated

that he will nominate Richard Cordray, the former attorney general of Ohio, as the CFPB’s Director.

Mr. Cordray joined the CFPB in December 2010 as the leader of its enforcement division. President

Obama previously appointed Harvard Law Professor Elizabeth Warren to serve as an Assistant to the

President, and the Secretary of the Treasury appointed her as a Special Advisor, delegating to her his

management powers under Title X with respect to the CFPB and giving her responsibility for overseeing


the development of the CFPB. It is unclear at this time whether Professor Warren will remain in her

current position until a Director is confirmed for the CFPB.

1. Transfer of Authority to the CFPB

Section 1066 of the Dodd-Frank Act does permit the Secretary of the Treasury to perform two functions in

the absence of a Senate-confirmed Director: (i) provide the CFPB with administrative services prior to the

“designated transfer date” (which, as noted above, is July 21, 2011) and (ii) exercise authority under

Subtitle F of Title X, entitled “Transfer of Functions and Personnel; Transitional Provisions.”

On July 21, 2011, Subtitle F of Title X transfers the following functions to the CFPB and, in the absence of

a Senate-confirmed Director, Section 1066(a) authorizes the Secretary of the Treasury to perform them:

prescribe rules, issue orders and produce guidance related to the federal consumer financial laws that were, prior to July 21, 2011, within the authority of the FRB, OCC, OTS, FDIC and National Credit Union Administration (“NCUA”);

conduct examinations (for federal consumer financial law purposes) of banks, savings associations and credit unions with total assets in excess of $10 billion and their affiliates;

prescribe rules, issue guidelines and conduct studies under the enumerated consumer laws that were previously within the authority of the Federal Trade Commission;

conduct all consumer protection functions relating to the Real Estate Settlement Procedures Act of 1974, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 and the Interstate Land Sales Full Disclosure Act (previously within the authority of the Department of Housing and Urban Development (“HUD”));

enforce those consumer financial protection functions that are transferred to the CFPB, with respect to financial institutions with total assets in excess of $10 billion and their affiliates; and

replace the FRB, OCC, OTS, FDIC, NCUA and HUD in any lawsuit or proceeding that was commenced by or against one of the transferor agencies prior to July 21, 2011, with respect to a consumer financial protection function transferred to the CFPB.

The authority of the Secretary of the Treasury under Section 1066(a) to perform the functions described

above for the CFPB terminates when a Director is confirmed by the Senate, rather than on July 21, 2011.

If the CFPB does not have a Senate-confirmed Director by July 21, 2011, the CFPB continues to operate

under the grant of authority defined in Section 1066(a).

Section 1066(b) of the Dodd-Frank Act provides that the Department of the Treasury may provide

administrative services necessary to support the CFPB until July 21, 2011. The authority under

Section 1066(b) terminates on July 21, 2011.

2. Bank Supervision

Scope of bank supervision program. On July 12, 2011, the CFPB outlined its approach to supervising

large depository institutions to ensure compliance with federal consumer financial protection laws,

beginning on July 21, 2011. The CFPB will conduct examinations to help ensure that consumer financial

practices at large banks conform to consumer financial protection legal requirements. The CFPB’s bank


supervision program will oversee the 111 depository institutions that have total assets over $10 billion as

well as subsidiaries and all other affiliates of these institutions.

Supervision process. As set forth in a July 12, 2011 release from the Department of the Treasury,29

CFPB supervision will be an ongoing process of pre-examination scoping and review of information, data

analysis, on-site examinations, and regular communication with regulated entities and prudential

regulators, as well as follow-up monitoring. Monitoring is intended to be a constructive process, ensuring

that, where required, consumer risks are addressed and compliance programs are strengthened.30

During an examination, the CFPB will assess each institution’s internal ability to detect, prevent and

remedy violations that may harm consumers. If an examined institution is not fully compliant, the CFPB

may seek corrective actions, including strengthening the institution’s programs and processes to ensure

that such violations do not recur and, where appropriate, that remedies are instituted. When necessary,

examiners will coordinate and work closely with CFPB’s enforcement staff to implement appropriate

enforcement actions to address harm to consumers.

Next steps. On July 21, 2011, the CFPB will reach out to banks and their affiliates to establish channels

of communication and to introduce them to the agency’s supervision and examination process. The

CFPB will provide additional information via letters to the 111 covered depository institutions and will

conduct informational roundtables starting in early August 2011.

3. Additional Provisions31

Consumer transactions. Effective July 21, 2011, Section 1100E of the Act amends the Consumer

Leasing Act by increasing the threshold for exempt consumer leases from $25,000 to $50,000 and also

provides that this threshold must be adjusted annually by any annual percentage increase in the

Consumer Price Index for Urban Wage Earners and Clerical Workers. Section 1100E also increases the

Truth in Lending Act thresholds for exempt consumer credit transactions to $50,000. Although the Act

does not require the FRB to implement any rulemaking under this Section, on April 4, 2011 the FRB

issued final rules making corresponding changes to its Regulation W, which implements the Consumer

Leasing Act, Regulation Z, which implements the Truth in Lending Act, and the accompanying staff

commentary for each such regulation to conform this guidance to these amendments.32 These rules

become effective July 21, 2011.

Consumer reports. Section 1100F of the Act amends the Fair Credit Reporting Act, effective July 21,

2011, to provide consumers with their numerical credit score in cases where the score resulted in an

adverse credit action. The Dodd-Frank Act does not require the FRB to issue implementing regulations.

Nevertheless, on July 6, 2011, the FRB issued a final rule, effective July 21, 2011, implementing Section

1100F of the Act.

Small business impact. Effective July 21, 2011, rulemaking by the CFPB is subject to additional review

requirements under the Regulatory Flexibility Act for its effect on small businesses (and small nonprofits


and local government entities), and the potential for its rules to increase their cost of credit pursuant to

Section 1100G of the Dodd-Frank Act.

B. REASONABLE FEES AND RULES FOR PAYMENT CARD TRANSACTIONS

Under the Durbin Amendment (Section 1075 of the Dodd-Frank Act), effective July 21, 2011, a new

Section 920 is added to the Electronic Fund Transfer Act regarding interchange transaction fees and

rules for payment card transactions. Section 920 requires the FRB to establish rules regarding

interchange fees charged by payment card issuers for electronic debit transactions and regarding

implementation of a new statutory requirement that such fees be reasonable and proportional to the

actual cost of a transaction to the issuer, with specific allowances for the costs of fraud prevention. It also

restricts 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 and requires the FRB

to issue rules barring issuers or payment card networks from placing certain restrictions on the number of

payment card networks over which an electronic debit transaction may be processed or inhibiting the

ability of a person which accepts debit cards from directing the routing of electronic debit transactions.

There are statutory exemptions to the interchange fee limits for issuers with assets of less than $10 billion

and for fees for transactions involving government-issued debit or prepaid cards. Although the Dodd-

Frank Act generally gives the CFPB the authority to enforce the Electronic Fund Transfer Act’s

rulemaking, that enforcement authority under Section 920 is given exclusively to the FRB.

Section 920(a), which relates to interchange transaction fees, becomes effective July 21, 2011, and does

not require rulemaking. Section 920(b), which relates to network exclusivity arrangements and debit card

transaction routing restrictions, requires the FRB to issue rules, no later than July 21, 2011, implementing

this provision. The provision does not, however, set a date by which the rules must be effective.

On June 30, 2011, the FRB issued a final rule to implement both Section 920(a) and Section 920(b)

effective October 1, 2011.33 The final rule establishes standards for assessing whether debit card

interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by

issuers for electronic debit transactions. The final rule also prohibits all issuers and networks from

restricting to less than two unaffiliated networks the number of networks over which electronic debit

transactions may be processed. The rule in effect allows for processing electronic debit transactions over

multiple networks. Finally, the rule prohibits issuers and payment card networks from inhibiting a

merchant’s ability to direct the routing of an electronic debit transaction over any network that the issuer

has enabled them to process on.

IV. NONADMITTED AND REINSURANCE REFORM ACT OF 2010

Subtitle B of Title V of the Act, entitled the “Nonadmitted and Reinsurance Reform Act of 2010” (the

“NRRA”), generally becomes effective July 21, 2011, subject to limited exceptions.


The NRRA 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 reinsurance markets. The main provisions become effective July 21, 2011 and implement

such reforms by:

requiring that the placement of nonadmitted insurance (property and casualty insurance placed with a nonadmitted insurer) across state lines be subject to the statutory and regulatory requirements of the insured’s “home state” only, and preempting any other state’s law, regulation, provision or action purporting to apply to such transactions;

promoting the eligibility requirements of the National Association of Insurance Commissioners (“NAIC”) for nonadmitted insurers as the standard for the surplus lines marketplace by prohibiting states from (i) imposing eligibility requirements on nonadmitted insurers domiciled in the United States, except in accordance with the provisions of the NAIC’s Non-Admitted Insurance Model Act addressing capital and surplus requirements or (ii) restricting surplus lines brokers from placing nonadmitted insurance with non-United States insurers listed on the NAIC’s Quarterly Listing of Alien Insurers;

prohibiting states from requiring that surplus lines brokers placing nonadmitted insurance with customers defined as “exempt commercial purchasers” investigate whether the desired coverage could be obtained from admitted insurers, subject to certain disclosure and consent requirements;

preventing policyholders from having to make payments of state premium taxes to more than one state with respect to nonadmitted insurance, by prohibiting states other than the insured’s home state from requiring premium payments for nonadmitted insurance, and encouraging states to adopt uniform requirements, such as interstate compacts, to allocate among states the premium taxes paid to the insured’s home state;

prohibiting states from denying credit for reinsurance to a ceding insurer if the ceding insurer’s state of domicile is NAIC-accredited or has financial solvency requirements substantially similar to those necessary for accreditation, and recognizes credit for the insurer’s ceded risk;

preempting all state laws, regulations or other actions of states other than a ceding insurer’s domiciliary state, except those relating to taxes or assessments, that purport to (i) restrict the ceding or assuming insurer’s right to arbitrate disputes, (ii) require that a certain state’s laws govern the reinsurance contract, (iii) enforce a reinsurance contract on terms different than those set forth in the contract or (iv) otherwise apply the laws of such state to reinsurance agreements of ceding insurers not domiciled therein; and

placing sole responsibility for regulating a reinsurer’s financial solvency with the reinsurer’s domiciliary state, if that state is NAIC-accredited or has financial solvency requirements substantially similar to those necessary for accreditation, and providing that, in such case, no other state will be permitted to require the reinsurer to provide more financial information than it is required to file with its domiciliary state.

V. DERIVATIVE REFORMS

Title VII of the Dodd-Frank Act, entitled the “Wall Street Transparency and Accountability Act of 2010,”

gives the Commodity Futures Trading Commission (“CFTC”) and the SEC extensive new authority, and

imposes significant requirements on those agencies, to regulate the over-the-counter (“OTC”) derivative

markets, products and market participants. As a general matter, under Title VII, the CFTC has authority

over swaps, swap dealers and major swap participants, and the SEC has authority over security-based

swaps (“SBS”), SBS dealers and major SBS participants.


Several provisions of Title VII, including key amendments to the Exchange Act, the Securities Act of 1933

(the “Securities Act”) and the Commodity Exchange Act (“CEA”), generally become effective July 16,

2011. However, the Act also provides that, if a provision of Title VII requires implementing rules, such

provision will become effective on the later of July 16, 2011 and the 60th day following the publication of

final rules in the Federal Register.

Among Title VII’s provisions are those that repeal various exemptions and exclusions set forth in the

CEA, such as provisions providing legal certainty by exempting certain OTC derivative transactions from

CFTC jurisdiction, which have been the basis of the OTC derivative markets for the past ten years.34

Title VII also adds or amends provisions that reference key terms, including defined terms that will

determine which market participants are subject to the new regulatory regime, which require further

rulemaking.

Title VII requires the CFTC and the SEC to engage in numerous rulemakings, both jointly and separately,

to implement the new regulatory regime. In the absence of final rules by the CFTC, there would be

limited authority or legal certainty for derivative transactions that are exempt under the current regulatory

regime and that will become regulated under the Act. The CFTC and SEC acted recently to issue

temporary relief and defer many Title VII requirements that otherwise would have gone into effect on

July 16, 2011.

A. CFTC EXEMPTIVE RELIEF

On July 14, 2011, the CFTC issued an order providing temporary relief from certain swaps-related

provisions of Title VII that automatically took effect on July 16, 2011 (the “Final Order”). The purpose of

the Final Order is to provide a legal framework for those swap transactions that are entered into after

July 16, 2011 but before the required CFTC rulemaking to implement the Dodd-Frank Act has been

completed. Under the Final Order, the CFTC granted temporary exemptive relief that, by its terms, will

expire upon the earlier of the effective date of the required final rulemaking or December 31, 2011.

To address the various effective times of the provisions of Title VII, the CFTC defined in the Final Order

four categories of Dodd-Frank Act provisions. The provisions requiring rulemaking, which will not go into

effect until 60 days after the required rulemaking has been finalized, are deemed Category One

provisions.35 Category One provisions are outside the scope of the Final Order. Category Two

provisions are provisions that reference the terms “swap,” “swap dealer,” “major swap participant” or

“eligible contract participant,” that are added to the CEA or amended in the CEA by Title VII. The Final

Order would provide exemptive relief only with respect to those requirements or portions of such

provisions that specifically relate to these referenced terms. Category Three includes provisions of the

CEA enacted under the Commodity Futures Modernization Act that provided legal certainty to swap

transactions, including Section 2 of the CEA, and that are repealed under the Dodd-Frank Act. The Final

Order would provide exemptive relief to the extent those transactions (and persons offering or entering


into such transactions) came within the scope of any of the existing CEA Sections 2(d), 2(e), 2(g), 2(h)

and Section 5d as in effect prior to July 16, 2011. Finally, certain provisions that are self-effectuating fall

into Category Four, for which the CFTC is not providing exemptive relief, and will go into effect on July 16,

2011.36 The Final Order notes as an example that the “Core Principles” for derivatives clearing

organizations and designated contract markets and the antidisruptive trading provisions are Category

Four provisions. The CFTC has posted a list of these self-effectuating provisions on its website.37

In addition, the CFTC issued a separate no-action letter on July 14, 2011 to provide relief from the Title

VII provisions that are not eligible for an exemption under Section 4(c) and therefore would not receive

relief under the Final Order.38 Specifically, the no-action letter states that the CFTC will not recommend

an enforcement action against any person for failure to comply with: (i) Section 4s(l) of the CEA, which

imposes upon swap dealers and major swap participants certain segregation requirements with respect to

collateral for uncleared swaps; (ii) Section 5b(a) of the CEA, which requires a derivatives clearing

organization to register with the CFTC in order to clear swaps; and (iii) Section 4s(k) of the CEA, which

provides for the duties and designation of a chief compliance officer for swap dealers and major swap

participants. The no-action letter will expire on December 31, 2011.

B. SEC EXEMPTIVE RELIEF

On July 1, 2011, the SEC issued interim final rules and an order providing temporary relief from certain

requirements of Title VII relating to SBS that would otherwise apply beginning on July 16, 2011.

Generally, the July 1, 2011 interim rules exempt SBS that:

would have been, prior to July 16, 2011, within the definition of “security-based swap agreement” under the Securities Act and the Exchange Act; and

are entered into solely between “eligible contract participants” (“ECPs”) (as defined prior to July 16, 2011)

from all provisions of the Securities Act (other than the Section 17(a) antifraud provisions), the registration

requirements of the Exchange Act and the indenture provisions of the Trust Indenture Act. According to

the SEC, the interim rules are intended to “maintain the status quo with respect to the ability of market

participants to engage in” security-based swap agreements until the compliance date for final rules that

the SEC adopts further defining the terms “security-based swap” and “eligible contract participant.”

The order provides exemptions to ECPs (as that term was defined on July 20, 2010, just prior to the

enactment of the Dodd-Frank Act), registered broker-dealers, exchanges and certain central

counterparties from many of the consequences that would otherwise apply because of the inclusion of

SBS in the definition of the term “security” in the Exchange Act on July 16, 2011. The “overall approach”

of the order is to maintain “the status quo” as Dodd-Frank is implemented through final rulemaking, “by

preserving the application of particular Exchange Act requirements that already are applicable in

connection with instruments that will be [SBS] following [July 16, 2011], but deferring the applicability of


additional Exchange Act requirements in connection with those instruments explicitly being defined as

‘securities’ as of [July 16, 2011].”39

The interim final rules and order are part of a series of actions the SEC is taking to clarify the

requirements that will apply to SBS transactions, and persons transacting in SBS, as of July 16, 2011.

These actions include an order issued by the SEC on June 15, 2011 providing temporary relief from most

of the requirements of Title VII relating to SBS transactions that would otherwise have applied on July 16,

2011. The June 15 order provides exemptions with respect to registration, reporting and clearing

requirements for SBS dealers, major SBS participants, SBS execution facilities, SBS data repositories

and registered clearing agencies. The Dodd-Frank Act requirements will not apply until the SEC adopts

final rules.40

VI. REVIEW OF RELIANCE ON RATINGS

Although not a provision that becomes automatically effective July 21, 2011, it is worth noting that

Section 939A(a) of the Dodd-Frank Act requires each federal regulatory agency to review any of its

regulations that require an assessment of creditworthiness of a security and any reference in such

regulation regarding credit ratings by no later than July 21, 2011.41 Section 939A(b) then goes on to

require such agencies to modify the regulations identified under subsection (a) to remove any references

to, or requirements of reliance on, credit ratings, but the provision does not specify a time period limitation

for such modifications. We understand that the federal banking agencies believe that removal of such

references and requirements from their regulations within the one-year period provided for in

subsection (a) for identifying relevant regulations is not required by Section 939A because, literally read,

subsection (b) of Section 939A does not technically specify a date by which federal regulatory agencies

are required to eliminate them.

VII. STUDIES

A number of the Dodd-Frank Act’s provisions require federal regulatory agencies, and in some cases

other U.S. governmental authorities, to conduct studies on a variety of matters, certain of which are

required to be completed by July 21, 2011. Some of these studies have already been published. Several

other studies are expected on or before July 21, 2011. A table summarizing the status of those studies

required by the Dodd-Frank Act to be completed by July 21, 2011 is attached as Annex B hereto.

For up-to-date information on agency actions and additional summaries and memoranda, please visit

Sullivan & Cromwell LLP’s Dodd-Frank Act Developments database (available at

http://sullcrom.com/doddfrankdevelopments).

* * *

Copyright © Sullivan & Cromwell LLP 2011


ENDNOTES

1 Pursuant to Section 754 of Title VII of the Act, provisions under Title VII become effective 360 days after the act was passed.

2 Section 932 of the Act does not specify a date by which final rulemaking is required. However, pursuant to Section 937, for all provisions of Subtitle C of Title IX of the Act that do not specify such a date, final rulemaking is required “not later than one year after the date of enactment of [the Act]” – July 21, 2011.

3 15 U.S.C. Section 6802 et seq. 4 In literal terms, all the provisions of Title VI outlined in this memorandum are effective on the

“transfer date.” Section 2(17) of the Dodd-Frank Act defines “transfer date’ as the date established under Section 311 of the Act. Section 311 in turn generally defines “transfer date” as July 21, 2011.

5 This new authority is substantially similar to the FRB’s powers contained in the BHC Act with respect to BHCs. The FRB has stated its belief that applying the BHC consolidated and enterprise-wide supervision program to SLHCs is essential to implementing the FRB’s supervisory responsibilities under the Dodd-Frank Act and that the FRB’s supervisory program may therefore entail heightened review of the activities of nonbank subsidiaries of SLHCs. See FRB, Notice of Intent to Apply Certain Supervisory Guidance to SLHCs, 76 Fed. Reg. 22,662 (April 22, 2011). Although Section 606 of the Act does not require the FRB to promulgate implementing regulations, we believe that the FRB will include functionally regulated subsidiaries in any NPR regarding its examination authority. In addition, on April 22, 2011, the FRB issued a notice of its intention to require SLHCs to submit the same supervisory reports as BHCs, beginning with the March 31, 2012 reporting period. 76 Fed. Reg. 22,662 (April 22, 2011).

6 Prior to the passage of the Dodd-Frank Act, the FRB applied the “source-of-strength” doctrine to BHCs under Section 225.4(a) of Regulation Y (12 C.F.R. § 225.4(a)). In addition, the Dodd-Frank Act includes in Section 167 another “source-of-strength” provision, although this provision does not relate to insured depository institutions, does not become effective on July 21, 2011 and, instead, is effective whenever relevant circumstances exist. Section 113 of the Act gives the newly established Financial Stability Oversight Council the power to designate certain “nonbank financial companies” to be supervised by the FRB because they are deemed to be systemically important (on the basis of a list of factors, including size, leverage and interrelationships with other significant financial companies). Section 167 permits the FRB to require such nonbank financial companies to conduct all or a portion of their activities that are financial in nature in an “intermediate holding company” for which the top-level nonbank financial companies supervised by the FRB would be required to act as a source of strength. It also provides that any company that directly or indirectly controls an intermediate holding company must act as a source-of-strength to “its subsidiary intermediate holding company.” The term “source of strength” is not defined in Section 167, and there is uncertainty as to the scope of the source-of-strength obligation – that is, does it run merely to the intermediate holding company or also to subsidiaries of the intermediate holding company and, if so, which subsidiaries.

7 FDIC Initiatives under the Dodd-Frank Wall Street Reform and Consumer Protection Act (available at http://www.fdic.gov/regulations/reform/initiatives.html).

8 The proposed rule would apply to every top-tier BHC domiciled in the United States that has $50 billion or more in total consolidated assets. 76 Fed. Reg. 35,353 (June 17, 2011).

9 FRB, Notice of Intent to Apply Certain Supervisory Guidance to SLHCs, 76 Fed. Reg. 22,662 (April 22, 2011). The FRB lists the Dodd-Frank Act initiatives planned for the period from October to December 2011 at http://www.federalreserve.gov/newsevents/reform_milestones201110.htm.

10 76 Fed. Reg. 30,558 (May 26, 2011). (. . . continued)

http://www.federalreserve.gov/newsevents/reform_milestones201110.htm


ENDNOTES (CONTINUED) 11 Section 616 of the Act requires that the federal banking agencies jointly issue implementing rules

no later than one year after the transfer date, hence July 21, 2012. 12 For additional information regarding Basel III, please refer to our December 31, 2010

memorandum to clients entitled “Basel III Capital and Liquidity Framework: Basel Committee Issues Final Revisions to International Regulation of Bank Capital and Liquidity” (available at http://www.sullcrom.com/Basel-III-Capital-and-Liquidity-Framework) and our December 28, 2009 memorandum to clients entitled “Bank Capital and Liquidity Requirements: Basel Committee Issues Proposals to Strengthen Bank Capital and Liquidity Regulation” (available at http://www.sullcrom.com/Bank-Capital-and-Liquidity-Requirements-07-28-2010).

In addition, Section 165 of the Dodd-Frank Act requires the FRB to adopt rules subjecting U.S. BHCs with more than $50 billion in total consolidated assets to “more stringent” capital requirements. When formulating these requirements, we believe the FRB is likely to follow new capital measures for global systemically important banks released by the Group of Governors and Heads of Supervision (“GHOS”) of the Basel Committee on Banking Supervision – on which the United States is represented – on June 25, 2011. These measures were incorporated in a full “consultative document” submitted to the Financial Stability Board under the auspices of the Group of 20 industrialized and developing economies nations. The GHOS indicated that the public release of this consultative document is expected at the end of July 2011. In the context of the “more stringent” capital requirement of Section 165 of the Dodd-Frank Act, we believe it is likely that the FRB will take into account differences in relative size among institutions – for example, treating a bank with $51 billion in assets differently for these purposes than one with $750 billion or more in assets.

Furthermore, it should also be noted that Section 165 of the Dodd-Frank Act also requires the FRB to develop rules for certain BHCs covering a variety of other important matters, including concentration limits, the establishment of risk committees, stress tests, and leverage limitations. The FRB includes in its list of initiatives planned for the period from July to September 2011 the provisions of Section 165 with respect to which it intends to issue an NPR (available at http://www.federalreserve.gov/newsevents/reform_milestones201107.htm).

13 The FRB lists the Dodd-Frank Act initiatives planned for the period from October to December 2011 at http://www.federalreserve.gov/newsevents/reform_milestones201110.htm.

14 In addition, Section 312(c) of the Dodd-Frank Act amends the definition of “appropriate federal banking agency” in the FDI Act, effective July 21, 2011, to reflect the transfer of supervisory authority for depository institutions and their holding companies required under the Act.

15 Joint Implementation Plan, 301-326 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (January 2011 (Revised April 2011)) by the FRB, FDIC, OCC, and OTS (available at http://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-other-joint-implementation-plan.pdf).

16 76 Fed. Reg. 30,558 (May 26, 2011). 17 FRB, Notice of Intent to Apply Certain Supervisory Guidance to SLHCs, 76 Fed. Reg. 22,662

(April 22, 2011); see also 76 Fed. Reg. 7,091 (February 8, 2011). 18 The joint notice setting forth the OTS regulations that the OCC and FDIC will enforce can be

found at “List of OTS Regulations to be Enforced by the OCC and the FDIC Pursuant to Dodd-Frank” (available at http://www.fdic.gov/news/board/14june2011no2.pdf).

19 76 Fed. Reg. 35,963 (June 21, 2011). 20 76 Fed. Reg. 30,564 (May 26, 2011). 21 76 Fed. Reg. 21,265 (April 14, 2011).

(. . . continued)


ENDNOTES (CONTINUED) 22 OCC Bulletin 2011-25, Dodd-Frank Wall Street Reform and Consumer Protection Act –

Regulations CC and Q (June 24, 2011) (available at http://www.occ.treas.gov/news-issuances/bulletins/2011/bulletin-2011-25.html).

23 76 Fed. Reg. 41,392 (July 14, 2011). 24 The FDIC provides guidance on its website regarding Section 627 (available at

http://www.fdic.gov/deposit/deposits/unlimited/section627.html). 25 76 Fed. Reg. 39,646 (July 6, 2011); 76 Fed. Reg. 37,983 (June 29, 2011). 26 For additional information about recent SEC rulemaking under Title IV, please refer to our June

30, 2011 memorandum to clients entitled “SEC Adopts Rules Under the Dodd-Frank Act Implementing Amendments to the Investment Advisers Act and Extends Deadline for Compliance: New Rules and Forms Will Implement the Dodd-Frank Act’s Registration Requirements for: Advisers to Private Funds; Mid-Sized Advisers; Exemptions for Advisers to Venture Capital Funds, Certain Private Fund Advisers and Foreign Private Advisers; the New Exclusion for Family Offices; and Reporting Requirements for Registered Advisers and Certain Exempted Advisers” (available at http://www.sullcrom.com/SEC-Adopts-Rules-Under-the-Dodd-Frank-Act-Implementing-Amendments-to-the-Investment-Advisers-Act). Please also refer to our November 24, 2010 memorandum to clients, entitled “Proposed Rules Under the Investment Advisers Act: SEC Proposes Rules to Implement Dodd-Frank Act Registration Requirements for Advisers to Private Funds; Registration Exemptions for Venture Capital Funds, Certain Private Fund Advisers and Foreign Private Advisers; and Reporting Requirements for Registered Advisers and Certain Exempted Advisers” (available at http://www.sullcrom.com/Proposed-Rules-Under-the-Investment-Advisers-Act).

27 “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, among other things, extending and brokering credit and leases that are the functional equivalent of credit; real estate settlement and appraisals; taking deposits; transmitting funds; acting as a custodian of funds or of any financial instrument for consumers; 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” expressly excludes the “business of insurance,” which is defined as the writing of insurance or the reinsuring of risks, including acts necessary to such writing or reinsuring, and related activities conducted on behalf of an insurer.

“Federal consumer financial law” includes the CFPA and other enumerated statutes, such as, among others, the Truth in Lending Act, the Equal Credit Opportunity Act, the 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 and enforcing compliance with this act will remain with the federal banking agencies.

28 76 Fed. Reg. 22,662 (April 22, 2011). However, a bill has been introduced in the House of Representatives to postpone any further transfer of powers until the later of the following: (i) July 21, 2011 or (ii) the date on which the Director of the CFPB is confirmed by the Senate. H.R. 1667 (House Report 112-93) (available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt93/html/CRPT-112hrpt93.htm). Nonetheless, we do not expect any action on this bill prior to July 21, 2011.

29 U.S. Treasury Department Office of Public Affairs, Consumer Financial Protection Bureau Outlines Bank Supervision Approach (July 12, 2011) (available at http://www.treasury.gov/press-center/press-releases/Pages/tg1236.aspx).

30 The CFPB will post on its website the initial phase of its Examination Manual, which will be the field guide for examiners supervising both banks and other consumer financial services companies. The manual’s publication will be accompanied by a general invitation for feedback

(. . . continued)


ENDNOTES (CONTINUED)

and suggestions for improvements from the banking industry, nonbank financial services companies, federal and state agencies, consumer and community groups and the general public.

31 Subtitle H of Title X of the Act amends a number of existing statutes to add the CFPB as a federal banking agency (for example, the Equal Credit Opportunity Act). Most of these amendments (which are contained in Section 1081 through Section 1100G of the Act) automatically become effective July 21, 2011.

32 76 Fed. Reg. 18,352 (April 4, 2011); 76 Fed. Reg. 18,354 (April 4, 2011). 33 For the final rule, see FRB, 12 C.F.R. Part 235, Regulation II; Docket No. R-1404, Debit Card

Interchange Fees and Routing (not yet published in the Federal Register) (available at http:// federalreserve.gov/newsevents/press/bcreg/bcreg20110629b1.pdf). For issuers of certain health-related and other benefits cards and general-use prepaid cards, the effective date is delayed to April 1, 2013.

34 For example, the Dodd-Frank Act repeals Sections 2(d) (regarding transactions in excluded commodities, such as rates and currencies), 2(e) (regarding electronic trading facilities for exempted transactions), 2(g) (regarding individually negotiated swap transactions) and 2(h) (regarding transactions in exempt commodities, such as energy and other non-agricultural, non-excluded commodities) of the CEA.

35 The CFTC posted lists of the Category One provisions on its website (available at http:// cftc.gov/ucm/groups/public/@newsroom/documents/file/cat1requiredrulemakings061411.pdf). See also Staff Working Draft, Staff No-Action Relief: Application of Certain CEA Provisions after July 16, 2011 – the General Effective Date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (June 14, 2011) (available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/noaction061411.pdf).

36 The CFTC posted lists of the Category Four provisions on its website. Category 4: Self-Effectuating Title VII Provisions That Are Not Subject to CFTC Proposed Temporary Relief Re: Effective Date (available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/ cat4requiredrulemakings061411.pdf).

37 In a joint meeting with the SEC, the CFTC stated that it would use a phased-in approach for implementation that would weigh many factors in determining when entities must comply. Joint CFTC-SEC Staff Roundtable on Implementation Phasing for Final Rules for Swaps and Security-Based Swaps under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (May 2, 2011) (available at http://www.sec.gov/news/press/2011/2011-90-transcript.pdf). For additional information about the Final Order and actions taken by the CFTC, please refer to our June 20, 2011 memorandum to clients entitled “ CFTC Exemptive Relief Upon Effective Date of Title VII of Dodd-Frank: CFTC Issues Proposed Order to Provide Relief from Certain Provisions of Title VII That Would Be Effective on July 16, 2011” (available at http://www.sullcrom.com/CFTC-Exemptive-Relief-Upon-Effective-Date-of-Title-VII-of-Dodd-Frank-06-20-2011).

38 Staff No-Action Relief: Application of Certain CEA Provisions after July 16, 2011 – the General Effective Date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (July 14, 2011).

39 76 Fed. Reg. 39, 927 (July 7, 2011). For further information on the interim final rules, please refer to our July 8, 2011 memorandum to clients entitled “SEC Exemptive Relief in Connection with Effective Date of Title VII of Dodd-Frank: SEC Issues Interim Final Rules and Order to Provide Relief from Certain Provisions That Would Be Effective on July 16, 2011” (available at http://www.sullcrom.com/SEC-Exemptive-Relief-07-08-2011).

40 For further information, please refer to our June 22, 2011 memorandum to clients entitled “SEC Exemptive Relief in Connection with Effective Date of Title VII of Dodd-Frank: SEC Issues Order to Provide Relief from Certain Provisions of Title VII That Would Be Effective on July 16, 2011”

(. . . continued)

http://cftc.gov/ucm/groups/public/@newsroom/documents/file/cat1requiredrulemakings061411.pdf

http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/cat4requiredrulemakings061411.pdf

http://www.sullcrom.com/CFTC-Exemptive-Relief-Upon-Effective-Date-of-Title-VII-of-Dodd-Frank-06-20-2011


ENDNOTES (CONTINUED)

(available at http://www.sullcrom.com/SEC-Exemptive-Relief-in-Connection-with-Effective-Date-of-Title-VII-of-Dodd-Frank-06-22-2011).

41 Credit ratings are widely used for a variety of purposes in many agencies’ regulations. For example, the OCC’s regulations concerning the permissibility of particular investments securities for national banks make extensive use of credit ratings. See 12 C.F.R. Part 1.


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-28- The Dodd-Frank Act July 17, 2011 SC1:3071589.9A

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ANNEX A

Status of Rulemaking Required under the Dodd-Frank Act to be Finalized by July 21, 2011 by Federal Regulatory Agencies

(as of July 15, 2011)

Agency Description of the Rulemaking Dodd-Frank Act Section Status

CFTC, SEC

The 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 CEA.

406 On February 11, 2011, the SEC and CFTC issued a joint proposed rule on reporting by investment advisers to private funds and certain commodity pool operators and commodity trading advisers. The comment period ended on April 12, 2011. (76 Fed. Reg. 8,068 (Feb. 11, 2011) (to be codified at 17 C.F.R. pts. 4, 275 and 279).)

Also on February 11, 2011, the CFTC issued a notice of proposed rulemaking amending compliance obligations for commodity pool operators and commodity trading advisers in connection with Section 406 of the Act. The comment period ended on April 12, 2011. (76 Fed. Reg. 7,976 (Feb. 11, 2011) (to be codified at 17 C.F.R. pts. 4, 145 and 147).)

SEC For “qualified client” standard, the SEC must adjust any dollar amount test by inflation.

418 On July 12, 2011, the SEC issued an order raising the performance fee rule dollar limit to adjust for inflation. The order will take effect on September 19, 2011. (Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 under the Investment Advisers Act of 1940, Investment Advisers Act Release No. 3236 (Jul. 12, 2011), available at http://www.sec.gov/rules/other/2011/ia-3236.pdf.)

CFTC The 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) On December 23, 2010, the CFTC issued a proposed rule on the end-user exemption from the mandatory clearing requirement. The comment period (after being extended) ended on June 3, 2011. (75 Fed. Reg. 80,747 (Dec. 23, 2010) (to be codified at 17 C.F.R. pt. 39).)

On November 2, 2010, the CFTC issued a notice of proposed rulemaking on the process for reviewing swaps for mandatory clearing. The comment period (after being extended) ended on June 3, 2011. (75 Fed. Reg. 67,277 (Nov. 2, 2010) (to be published at 17 C.F.R. pts. 39 and 140).)

On January 7, 2011, the CFTC issued a notice of proposed rulemaking establishing core principles and other requirements for swap execution facilities. The comment period (after being extended) ended on June 3, 2011. (76 Fed. Reg. 1,214 (Jan. 7, 2011) (to be codified at 17 C.F.R. pt. 37).)

CFTC The CFTC must establish rules for the registration of swap dealers and MSPs.

731 On November 23, 2010, the CFTC issued a notice of proposed rulemaking on registration of swap dealers and MSPs. The comment period (after being extended) ended on June 3, 2011. (75 Fed. Reg. 71,379 (Nov. 23, 2010) (to be codified at 17 C.F.R. pts. 3, 23 and 170).)

A-2


CFTC The CFTC must promulgate rules prohibiting the use of manipulative or deceptive practices in connection with any swap or contract of sale of a commodity or future.

753 On July 14, 2011, the CFTC issued the final rule prohibiting the use of deceptive or manipulative devices or price manipulation. The rule will take effect on August 15, 2011. (76 Fed. Reg. 41,398 (Jul. 14, 2011) (to be codified at 17 C.F.R. pt. 180).)

SEC The SEC must adopt rules for clearing agency’s submission for approval of any security-based swap, or a group, category, type or class of security-based swaps that the clearing agency seeks to accept for clearing.

763(a) On December 30, 2010, the SEC issued a proposed rule on the process for submissions for review of security-based swaps for mandatory clearing and notice of filing requirements for clearing agencies. The comment period ended on February 14, 2011. (75 Fed. Reg. 82,490 (Dec. 30, 2010) (to be codified at 17 C.F.R. pts. 240 and 249).)

The SEC lists this rule as one of its initiatives planned for the period from August to December 2011. (Securities and Exchange Commission, Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act — Upcoming Activity, SEC (Jun. 29, 2011), available at http://www.sec.gov/spotlight/dodd-frank/dfactivity-upcoming.shtml#08-12-11.)

SEC The SEC may prescribe rules to prevent the abuse of the exceptions from the mandatory clearing requirements.

763(a) On December 21, 2010, the SEC issued a proposed rule on the end-user exception to mandatory clearing of security-based swaps. The comment period ended on February 4, 2011. (75 Fed. Reg. 79,992 (Dec. 21, 2010) (to be codified at 17 C.F.R. pt. 240).)

On June 15, 2011, the SEC issued a proposed rule on exemptions for security-based swaps issued by certain clearing agencies. The comment period ends on July 25, 2011. (76 Fed. Reg. 34,920 (Jun. 15, 2011) (to be codified at 17 C.F.R. pts. 230, 240 and 260).)


SEC The SEC must adopt rules for the registration of security-based swap dealers and major security-based swap participants.

764 The SEC lists this rule as one of its initiatives planned for the period from August to December 2011. (Securities and Exchange Commission, Implementing Dodd-Frank Wall Street Reform and Consumer Protection Act — Upcoming Activity, SEC (Jun. 29, 2011), available at http://www.sec.gov/spotlight/dodd-frank/dfactivity-upcoming.shtml#08-12-11.)

A-3


SEC The SEC must promulgate “bad actor” rules to disqualify certain persons from offerings and sales under Regulation D.

926 On June 1, 2011, the SEC issued a proposed rule on disqualification of felons and other “bad actors” from Rule 506 offerings. The comment period ended on July 14, 2011. (76 Fed. Reg. 31,518 (Jun. 1, 2011) (to be codified at 17 C.F.R. pts. 230 and 239).)


SEC The SEC must revise its regulations on transfer agents’ obligation to search for lost securityholders.

929W On March 25, 2011, the SEC issued a proposed rule extending obligation to search for lost securityholders to brokers and dealers and creating paying agents’ obligation to search for missing securityholders. The comment period ended on May 9, 2011. (76 Fed. Reg. 16,707 (Mar. 25, 2011) (to be codified at 17 C.F.R. 240).)


SEC The SEC must promulgate rules setting forth fines and penalties for NRSROs violating applicable laws and SEC rules.

932

On June 8, 2011, the SEC issued proposed rules for NRSROs regarding the various aspects of their business. The comment period ends on August 8, 2011. (76 Fed. Reg. 33,420 (Jun. 8, 2011) (to be codified at 17 C.F.R. pts. 232, 240, 249 and 249b).)


SEC The 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.

SEC The 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.

SEC The SEC must promulgate rules requiring NRSROs to publicly disclose information on ratings histories for each type of rated issuer, security and money market instrument.

A-4


SEC The SEC must promulgate rules intended to prevent sales and marketing considerations from influencing NRSRO ratings.

SEC The SEC must promulgate rules with respect to procedures and methodologies used by NRSROs.

SEC The SEC must promulgate rules requiring each NRSRO to submit annual internal control reports to the SEC.

SEC The SEC must establish an Office of Credit Ratings. 932 The SEC is deferring implementation due to budget uncertainty. Rulemaking functions remain with staff within the Division of Trading and Markets, with examination functions continuing to be performed by the existing Office of Compliance Inspections & Examination. (Securities and Exchange Commission, Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act — Dates to Be Determined, SEC (Apr. 19, 2011), available at http://www.sec.gov/spotlight/dodd-frank/dates_to_be_ determined.shtml.)

SEC The SEC must promulgate rules to establish NRSRO credit rating analyst standards of training, experience, competence and testing.

936 On June 8, 2011, the SEC issued proposed rules for NRSROs regarding the various aspects of their business. The comment period ends on August 8, 2011. (76 Fed. Reg. 33,420 (Jun. 8, 2011) (to be codified at 17 C.F.R. pts. 232, 240, 249 and 249b).)


SEC The 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.

938 On June 8, 2011, the SEC issued proposed rules for NRSROs regarding the various aspects of their business. The comment period ends on August 8, 2011. (76 Fed. Reg. 33,420 (Jun. 8, 2011) (to be codified at 17 C.F.R. pts. 232, 240, 249 and 249b).)


SEC The SEC must promulgate such rules as may be necessary to ensure that NRSROs and other credit

933(a)

http://www.sec.gov/spotlight/dodd-frank/dates_to_be_determined.shtml

A-5


rating agencies are subject to certain enforcement and penalty provisions of the Exchange Act.

Various Each federal agency must review any regulation issued by such agency that requires the use of an assessment of creditworthiness of a security or money market instrument and substitute an appropriate standard of creditworthiness in place of references to credit ratings.

939A Joint action –

On August 25, 2010, the OCC, FRB, FDIC and OTS issued a joint advance notice of proposed rulemaking (“ANPR”) on alternatives to the use of credit ratings in the risk-based capital guidelines of the federal banking agencies. The comment period ended on October 25, 2010. (75 Fed. Reg. 52,283 (Aug. 25, 2010) (to be codified at 12 C.F.R. pts. 3, 208, 225, 325 and 567).)

On January 31, 2011, the FHFB, FHFA and OFHEO issued a joint ANPR on alternatives to the use of credit ratings governing Fannie Mae, Freddie Mac and Federal Home Loan Banks. The comment period ended on March 17, 2011. (76 Fed. Reg. 5,292 (Jan. 31, 2011) (to be codified at 12 C.F.R. pts. 932, 955, 956 and 966).)

OCC — On August 13, 2010, the OCC issued a separate ANPR on alternatives to the use of external credit ratings in OCC regulations. The comment period ended on October 12, 2010. (75 Fed. Reg. 49,423 (Aug. 13, 2010) (to be codified at 12 C.F.R. pts. 1, 16 and 28).)

OTS — On October 14, 2010, the OTS issued a separate ANPR on alternatives to the use of external credit ratings in the OTS regulations. The comment period ended on November 15, 2010. (75 Fed. Reg. 63,107 (Oct. 14, 2010) (to be codified at 12 C.F.R. pt. 560).)

FRB — The FRB lists this rule as one of its initiatives planned for the period from October to December 2011. (Federal Reserve Board, Initiatives Planned: July to September 2011, Fed. Reserve (Jun. 21, 2011), available at http://www.federalreserve.gov/newsevents/reform_milestones201110.htm.)

SEC —

On February 16, 2011, the SEC issued a proposed rule on removing references to credit ratings in rules and forms promulgated under the Securities Act and the Exchange Act. The comment period ended on March 28, 2011. (76 Fed. Reg. 8,946 (Feb. 16, 2011) (to be codified at 17 C.F.R. pts. 200, 229, 230, 232, 239, 240 and 249).)

On March 9, 2011, the SEC issued a proposed rule on amending certain rules and forms promulgated under the Securities Act and the Investment Company Act containing references to credit ratings. The comment period ended on April 25, 2011. (76 Fed. Reg. 12,896 (Mar. 9, 2011) (to be codified at 17 C.F.R. pts. 239, 270 and 274).)


A-6


On May 6, 2011, the SEC issued a proposed rule on amending certain rules and forms promulgated under the Securities Exchange Act containing references to credit ratings. The comment period ended on July 5, 2011. (76 Fed. Reg. 26,550 (May 6, 2011) (to be codified at 17 C.F.R. pts. 240, 242 and 249).)

CFTC — On November 2, 2010, the CFTC issued a notice of proposed rulemaking on removing any reference to or reliance on credit ratings in CFTC regulations and proposing alternatives to the use of credit ratings. The comment period ended on December 2, 2010. (75 Fed. Reg. 67,254 (Nov. 2, 2010) (to be codified at 17 C.F.R. pts. 1 and 4).)

NCUA — On March 1, 2011, the NCUA issued a notice of proposed rulemaking to replace or remove references to credit ratings. The comment period ended on May 2, 2011. (76 Fed. Reg. 11,164 (Mar. 1, 2011) (to be codified at 12 C.F.R. pts. 703, 704, 709 and 742).)

FCA — On June 16, 2011, the FCA issued an ANPR on use of credit ratings in the Farmer Mac Risk-Based Capital Stress Test. The comment period ends on August 15, 2011. (76 Fed. Reg. 35,138 (Jun. 16, 2011) (to be codified at 12 C.F.R. pt. 652).)

IRS — On July 6, 2011, the IRS issued a notice of proposed rulemaking and a set of final and temporary regulations to remove references to credit ratings in IRS regulations. The comment period ends on August 30, 2011. (76 Fed. Reg. 39,341 (Jul. 6, 2011) (to be codified at 26 C.F.R. pt. 1); 76 Fed. Reg. 39,278 (Jul. 6, 2011) (to be codified at 26 C.F.R. pts. 1 and 48).)

SEC The SEC must promulgate rules requiring national securities exchanges to prohibit the listing of securities of an issuer not in compliance with the requirements relating to compensation consultants, legal counsel and other advisers to compensation committees (including identification of factors affecting the independence of such advisers).

952 On April 6, 2011, the SEC issued a proposed rule on listing standards for exchanges with regard to compensation committees. The comment period (after being extended) ended on May 19, 2011. (76 Fed. Reg. 18,966 (Apr. 6, 2011) (to be codified at 17 C.F.R. pts. 229 and 240).)


SEC The SEC must promulgate rules requiring national securities exchanges to prohibit the listing of equity securities, with certain exceptions, of any issuer whose board does not have an independent compensation committee.

952

CFPB/ FRB

The CFPB must establish rules regarding collection of data on loan applications by women- or minority-owned small businesses.

1071; 1029 On April 11, 2011, the CFPB issued a letter stating that the data-collection obligations of financial institutions will not go into effect until the effective date of the relevant rules to be issued by the CFPB.. (Consumer Financial Protection Bureau, A Letter to Chief Executive Officers of Financial Institutions Under Section 1071 of the Dodd-Frank Act (Apr. 11, 2011),

A-7


available at http://www.consumerfinance.gov/wp-content/uploads/2011/04/GC-letter-re-1071.pdf.)

On June 23, 2011, the FRB issued a proposed rule to temporarily exempt certain motor vehicle dealers remaining within its jurisdiction from the data-collection requirements until the effective date of relevant rules to be issued by the FRB. The comment period for the proposed rule ends on July 29, 2011. (76 Fed. Reg. 36,885 (Jun. 23, 2011) (to be codified at 12 C.F.R. pt. 202).)

CFPB The CFPB must develop a system for registering employees of depository institutions, their subsidiaries and institutions regulated by a federal banking agency or the Farm Credit Administration as loan originators with the National Mortgage Licensing System and Registry.

1100

Copyright © Sullivan & Cromwell LLP 2011 SC1:3070844.8A

ANNEX B

Status of Studies Required under the Dodd-Frank Act to be Completed by July 21, 2011 by Federal Agencies

(As of July 15, 2011)

Agency Description of the Study Dodd-Frank Act Section Status

REQUIRED STUDIES THAT HAVE BEEN COMPLETED

GAO The GAO must conduct a study on the implementation of prompt corrective action by federal banking agencies.

202(g) On June 23, 2011, the GAO published a study in which it identified provisions in the Prompt Corrective Action framework that limit the framework’s ability to promptly address bank problems. The GAO recommended that the bank regulators consider additional triggers that would require earlier and more forceful regulatory action to address unsafe banking practices.

(U.S. Gov’t Accountability Office, GAO-11-612, Bank Regulation: Modified Prompt Corrective Action Framework Would Improve Effectiveness (2011).)

GAO The GAO must conduct a study on the feasibility of forming a Self-Regulatory Organization to oversee private funds and submit a report to the Congressional Banking Committees.

416 On July 11, 2011, the GAO published a study in which it found that, while a Self-Regulatory Organization is feasible, and could supplement SEC oversight of private funds, there are significant disadvantages to the proposal, including logistical challenges and the potential for regulatory gaps, duplication and inconsistencies.

(U.S. Gov’t Accountability Office, GAO-11-623, Private Fund Advisers: Although a Self-Regulatory Organization Could Supplement SEC Oversight, It Would Present Challenges and Trade-offs (2011).)

GAO The GAO must conduct a study and report to the Congressional Banking Committees on “revolving door” issues at the SEC.

968 On July 12, 2011, the GAO published a study in which it found that, while the SEC has a number of standard controls for managing post-employment and conflict-of-interest issues, it lacks documentation standards for ethics advice given to departing employees. The GAO recommended that the SEC adopt such standards.

(U.S. Gov’t Accountability Office, GAO-11-654, Securities and Exchange Commission: Existing Post-Employment Controls Could Be Further Strengthened (2011).)

GAO The GAO must conduct a study of person-to-person lending to determine the optimal regulatory structure and submit a report with its findings to the Congressional Banking Committees.

989F On July 7, 2011, the GAO published a study in which it identified advantages and disadvantages for two options for regulating person-to-person lending — maintaining the status quo or consolidating borrower and lender protections under a single federal regulator.

(U.S. Gov’t Accountability Office, GAO-11-613, Person-To-Person Lending:

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New Regulatory Challenges Could Emerge as the Industry Grows (2011).)

GAO The GAO must conduct a study on financial literacy programs and report its results to Congress.

1013(d)(7) On June 28, 2011, the GAO published a study in which it found that financial literacy programs are typically expensive, time-consuming and methodologically challenging, and that there is a lack of consensus on which strategies and approaches would be most effective. GAO also noted that financial education and other alternatives may provide the most effective approach to improving consumer knowledge and behavior.

(U.S. Gov’t Accountability Office, GAO-11-614, Financial Literacy: A Federal Certification Process for Providers Would Pose Challenges (2011).)

GAO The GAO must conduct a study for the Congressional Banking Committees on the effectiveness and impact of appraisal methods, appraisal valuation models, appraisal distribution channels, the Home Valuation Code of Conduct and the Appraisal Subcommittee of the Federal Financial Institutions Examination Council’s functions.

1476(a) On July 13, 2011, the GAO published a study in which it recommended that the relevant regulators consider addressing several key issues, such as criteria for selecting appraisers, in exercising their rulemaking authority under the Dodd-Frank Act.

(U.S. Gov’t Accountability Office, GAO-11-653, Residential Appraisals: Opportunities to Enhance Oversight of an Evolving Industry (2011).)

GAO The GAO must submit a report to Congress providing an assessment of sexual-based and gender-based violence in the Democratic Republic of the Congo and adjoining countries.

1502(d) On July 13, 2011, the GAO published a study providing data on sexual violence in the eastern Democratic Republic of the Congo and adjoining countries. The report made no recommendations.

(U.S. Gov’t Accountability Office, GAO-11-702, The Democratic Republic of the Congo: Information on the Rate of Sexual Violence in War-Torn Eastern DRC and Adjoining Countries (2011).)

FDIC The FDIC must conduct a study evaluating the definition of core deposits in relation to that of brokered deposits and the implications of changing the former definition, and submit a report to the Congressional Banking Committees with legislative recommendations, if any.

1506 On July 8, 2011, the FDIC published a study in which it concluded that the existing brokered deposit statute is sufficiently flexible to allow the FDIC to treat deposits, including new forms of brokered deposits, appropriately. The FDIC recommended that Congress not amend or repeal the statute.

(Federal Deposit Insurance Corporation, Study on Core Deposits and Brokered Deposits (2011).)

REQUIRED STUDIES NOT YET COMPLETED

GAO, AOUSC The Administrative Office of the U.S. Courts (“AOUSC”) and GAO must conduct separate studies regarding the bankruptcy and orderly liquidation process for financial companies under the Bankruptcy Code.

202(e)

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GAO The GAO must conduct a study on international coordination relating to the orderly liquidation of financial companies.

202(f)

FSOC The Financial Stability Oversight Council must conduct a study evaluating the importance of maximizing United States taxpayer protections and promoting market discipline with respect to the treatment of fully secured creditors in the utilization of the orderly liquidation authority authorized by the Dodd-Frank Act.

215

FRB, AOUSC Under Section 216 of the Dodd-Frank Act, the FRB is required to conduct a study, in consultation with the AOUSC, regarding the resolution of financial companies under Chapter 7 or Chapter 11 of the Bankruptcy Code.

Under Section 217 of the Act, also in consultation with the AOUSC, the FRB is required to conduct a study regarding international coordination relating to the resolution of systemic financial companies under the Bankruptcy Code and applicable foreign law.

216-217 The FRB requested information to conduct these studies through public comment. The comments were due on May 31, 2011.

(Federal Reserve Board, Request for Information Relating to Studies Regarding the Resolution of Financial Companies Under the Bankruptcy Code, 76 Fed. Reg. 24,024 (Apr. 29, 2011).)

The FRB also lists these studies as initiatives planned for the period from July to September 2011.

(Federal Reserve Board, Initiatives Planned: July to September 2011 (as of Jul. 14, 2011), available at http://www.federalreserve.gov/newsevents/reform_milestones201107.htm.)

FDIC, OCC The OCC and the FDIC are required to submit a study to Congress describing and demonstrating the procedures and safeguards adopted by the agencies to ensure that they meet the requirements of section 322(k), relating to the transfer of OTS employees.

322(k)(4)

SEC Under Section 417 of the Dodd-Frank Act, the SEC must study the feasibility, benefits and costs of real-time reporting of short sale positions of publicly listed securities, either publicly or only to the SEC and the Financial Industry Regulatory Authority. The SEC must also study the feasibility, benefits and costs of conducting a voluntary pilot program in which trades in public companies’ shares are designated by type and reported as such in real time on the Consolidated Tape.

417 The SEC requested information to conduct these studies through public comment. The comments were due on June 23, 2011.

(Securities and Exchange Commission, Short Sale Reporting Study Required by Dodd-Frank Act Section 417(a)(2), 76 Fed. Reg. 26,787 (May 9, 2011).)


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FRB, CFTC, SEC

The CFTC, SEC and FRB must submit a joint report to the Senate Committee on Banking, Housing, and Urban Affairs and the Committee on Agriculture, Nutrition, and Forestry and the House Committee on Financial Services and the Committee on Agriculture containing recommendations for improving consistency in the designated clearing entity oversight programs of the SEC and CFTC, promoting robust risk management by clearing entities and oversight by regulators, and improving regulators’ ability to monitor the potential effects of clearing entity risk management on the stability of the financial system.

813 The FRB lists this study as an initiative planned for the period from July to September 2011.


GAO The GAO must study and report to Congress its findings with respect to private rights of action for aiding and abetting liability.

929Z The GAO posed six questions regarding a private right of action for aiding and abetting liability to the Securities Industry and Financial Markets Association (SIFMA) on September 28, 2010. SIFMA responded in a letter dated December 2, 2010.

(U.S. Gov’t Accountability Office, Financial Markets and Community Investment, Letter from Securities Industry and Financial Markets Association to Patrick Dynes (Dec. 2, 2010).)

SEC The 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.

939 The SEC requested information to conduct these studies through public comment. The comments are due on September 13, 2011, indicating that the study will not be completed by the due date of July 21, 2011.

(Securities and Exchange Commission, Solicitation of Comment To Assist In Study on Assigned Credit Ratings, 76 Fed. Reg. 28,265 (May 16, 2011).)

The SEC had previously requested public comments on the same study, to be submitted by Feb. 7, 2011.

(Securities and Exchange Commission, Credit Rating Standardization Study, 75 Fed. Reg. 80, 866 (Dec. 23, 2010).)

FRB The FRB must report to Congress on the status of the Automated Clearing House expansion for remittance transfers to foreign countries and its progress in complying with the requirement of Section 1078 of the Dodd-Frank Act that it be expanded to permit its use for remittance transfers.

1073(b) The FRB lists this study as an initiative planned for the period from July to September 2011.




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CFPB The CFPB must conduct a study and report to Congress on reverse mortgage transactions.

1076

CFPB The CFPB must conduct a study and report to Congress on variations between credit scores sold to creditors and those sold to consumers by consumer reporting agencies.

1078 The Department of the Treasury, on behalf of itself and the CFPB, indicated that it planned to collect data for the study, described its methodology, and requested information to conduct these studies through public comment. The comments were due on May 5, 2011.

(Department of the Treasury, Submission for OMB Review; Comment Request, 76 Fed. Reg. 18,827 (Apr. 5, 2011).)

GAO GAO audits required for (i) programs and facilities established by the FRB between December 1, 2007 and July 21, 2010, to address the financial crisis, including the Term Auction Facility, and (ii) FRB governance.

1109

GAO The GAO must conduct a study and report to Congress on the effects the enactment of the Dodd-Frank Act will have on the availability and affordability of credit for consumers, small businesses, home buyers and mortgage lending.

1421(a)

GAO The GAO must report to Congress on its analysis of the effect on the capital reserves and funding of lenders of credit risk retention provisions for non-qualified mortgages, including an analysis of the exceptions and adjustments authorized in Section 129C(l)(3)(A) of the Truth in Lending Act and a recommendation on whether a uniform standard is needed.

1421(b), (c)

GAO The GAO must report to Congress on whether the credit risk retention provisions have significantly reduced the risks to the larger credit market of the repackaging and selling of securitized loans and must provide recommendations on adjustments that should be made, or additional measures that should be undertaken.

1421(b), (d)

HUD The Secretary of the HUD must conduct a study and report to Congress on the root causes of default and foreclosure of home loans, and examine the role of escrow accounts in helping prime and nonprime

1446

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borrowers to avoid defaults and foreclosures, as well as the role of computer registries of mortgages, including those used for trading mortgage loans.

GAO The GAO must conduct an examination of the Appraisal Subcommittee of the Federal Financial Institutions Examination Council’s ability to monitor and enforce state and federal certification requirements and standards; whether existing federal financial institutions regulatory agency exemptions on appraisals for federally related transactions need to be revised; and whether new means of data collection would benefit the Subcommittee’s ability to perform its functions.

1476(d)

GAO The GAO must provide to Congress a report on inspectors general and the effects of the reforms made by the Dodd-Frank Act on the independence of the inspectors general.

1505

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