Source: https://www.apks.com/en/perspectives/publications/2017/05/house-fin-srvcs-cmmte-approves-revised-choice
Timestamp: 2017-11-22 16:27:02
Document Index: 255167148

Matched Legal Cases: ['§ 5381', '§ 343', '§ 5302', '§ 5611', '§ 161', '§ 5361', '§ 5331', '§ 5325', '§ 5365', '§ 1851', '§ 80', '§ 1815', '§ 1075', '§ 1693', '§ 1', '§ 78', '§ 5518', '§ 5516', '§ 5581', '§ 5531', '§ 45', '§ 1818', '§ 725', '§ 731', '§ 731', '§ 5512', '§ 1601', '§ 1602', '§ 5365', '§ 77', '§ 1851', '§ 371', '§ 1851', '§ 78', '§ 5491', '§ 712', '§ 1022', '§ 5512', '§ 717', '§ 1021', '§ 5511', '§5493', '§ 806', '§ 78', '§ 807', '§ 78', '§ 808', '§ 979', '§ 78', '§ 810', '§ 78', '§ 820', '§ 1001', '§ 351', '§ 1812', '§ 4512', '§ 461', '§ 476', '§ 77', '§ 498', '§ 171', '§ 5371', 'art 227', '§78', '§ 43', '§ 246', '§ 267', '§ 43', '§ 246']

House Financial Services Committee Approves Revised 'Financial CHOICE Act' | Publications and Presentations | APKS
House Financial Services Committee Approves Revised 'Financial CHOICE Act'
By David F. Freeman, Jr. L. Charles Landgraf Christopher L. Allen Robert C. Azarow Robert E. Holton Ellen Kaye Fleishhacker Michael A. Mancusi Brian C. McCormally Henry G. Morriello A. Patrick Doyle George M. Williams, Jr. Howard L. Hyde Douglas S. Pelley Nancy L. Perkins Andrew Joseph Shipe Helen Mayer Clark Robert B. Fischbeck Paul A. Howard Anthony Raglani
The bill, numbered H.R. 10, would make major, comprehensive changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA),2 as well as other financial regulatory laws. The bill has been praised in general terms by the Trump Administration, but it remains to be seen how similar the bill will be to the Treasury Department's recommendations on financial regulatory reform, expected to be issued in early June, pursuant to an executive order signed by President Trump in February.
Repeal of Orderly Liquidation Authority. Sections 111 through 123 of the FCA would repeal Title II of the DFA, "Orderly Liquidation Authority" (12 U.S.C. §§ 5381 et seq.), in its entirety and replace those resolution processes (generally managed by the Federal Deposit Insurance Corporation (FDIC)) with a new subchapter of the Bankruptcy Code specifically designed for the failure of large, complex financial institutions. In the new process, regulators could appear and be heard at proceedings, but the process would be administered by a bankruptcy court.
Limits on Emergency Lending Authority. Section 1008 of the FCA would add new limits on the Federal Reserve's authority to lend on an emergency basis through programs of broad-based eligibility under Section 13(3) of the Federal Reserve Act beyond those imposed by Section 1101 of the DFA (12 U.S.C. § 343). Under the FCA, among other process-related changes, such programs would require a determination that the circumstances, in addition to being unusual and exigent, pose a threat to the financial stability of the United States. The Federal Reserve also would be required to adopt rules tightening collateral standards and penalty rates. These changes are discussed in additional detail in the section below on "Agency Structural Changes."
Limits on Use of Emergency Stabilization Fund. Section 133 of the FCA would prohibit use of Treasury's Emergency Stabilization Fund to aid financial institutions or their creditors, thus building upon the prohibition currently in place for money market funds (31 U.S.C. § 5302). Sections 131 and 132 of the FCA also would repeal entirely the FDIC's current authority under Sections 1104 through 1106 of the DFA to create widely available programs to guarantee obligations of financial institutions during periods of severe economic distress (12 U.S.C. § 5611–5613).
Repeal of FSOC SIFI and SIFMU Designation Authority. Sections 141 and 151 of the FCA would repeal FSOC's authority to designate non-bank financial institutions or financial market utilities as SIFIs or SIFMUs and would rescind previous designations of such entities, thereby substantially restricting the Federal Reserve's authority over these entities (DFA §§ 161, 162, 164, 166–168, 170, 172, Title VIII (12 U.S.C. §§ 5361, 5362, 5364, 5366–5368, 5370, 5372, 5461 et seq.)).
Repeal of FSOC "Mitigatory" Action and Other Authorities. Section 151 of the FCA also would repeal FSOC's authority under Section 121 of the DFA to direct the Federal Reserve to require large bank holding companies and designated nonbanks to take certain "mitigatory" actions, such as acquiring or divesting of specific entities or to cease offering a specific product or service (12 U.S.C. § 5331). Section 151 also would repeal FSOC's authority under Section 115 of the DFA to issue recommendations to the primary federal financial regulators regarding heightened standards and safeguards for bank holding companies (12 U.S.C. § 5325).
Strongly Capitalized Institutions and Well-Capitalized Banks. Title VI of the FCA would implement Representative Hensarling's proposed "regulatory off-ramp" for strongly capitalized institutions by permitting banks and depository institution holding companies, as well as foreign banking organizations treated as bank holding companies under the International Banking Act and the intermediate holding companies of such organizations, with an average "quarterly leverage ratio" of at least 10 percent3 to elect "qualifying banking organization" status. This status would entitle them to exemption from the following requirements and restrictions under Section 602 of the FCA:
Capital or liquidity requirements or standards, including those embedded in limitations on acquisitions.4
Section 165 of the DFA (12 U.S.C. § 5365) enhanced supervision and prudential rules.5
Repeal of the Volcker Rule. Section 901 of the FCA would repeal the "Volcker Rule" that was enacted as Section 619 of the DFA (12 U.S.C. § 1851), as well as related provisions in Section 620 of the DFA that required a banking agency study of banking entities' investment activities. Section 901 thus would remove the statutory authority for the interagency rules that implement the Volcker Rule.6 The Volcker Rule, subject to certain exceptions, currently prohibits proprietary short-term trading by banks and their affiliates in most types of securities, as well as "sponsorship" by banks and their affiliates of or investment as principal in, "covered funds." Covered funds subject to the Rule's prohibition are private investment funds that rely on either Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (the 1940 Act) for exemption7 from registration as "investment companies" (15 U.S.C. § 80a-3(c)(1), (c)(7)), certain private commodities pools that rely on Commodities Futures Trading Commission (CFTC) Rule 4.7 exemptions from commodity pool operator requirements, as well as some private offshore funds. The interagency rules that implement the Volcker Rule also impose extensive compliance, recordkeeping, and reporting program requirements for documentation of compliance with the Volcker Rule. These Volcker Rule and related compliance program provisions are extremely complex in practice and pose an expensive burden not only on large trading banks, but also on mid-sized and smaller banks and banks that manage client investment portfolios or that securitize assets or invest in loan securitizations.
Repeal of Moratorium on ILC Charters. Section 901 of the FCA would also repeal Section 603 of the DFA (12 U.S.C. § 1815 note), which imposed a moratorium on the approval by the FDIC of any application for deposit insurance or change-in-control notice submitted after November 23, 2009 for any industrial bank, credit card bank, or trust bank that was directly or indirectly controlled by a commercial firm (collectively, ILCs).8 Although this moratorium expired in 2013, the repeal of Section 603 of the DFA would evidence congressional support for the chartering of commercially owned banking entities. Prior to the enactment of the DFA, the FDIC twice imposed short-term moratoria on deposit insurance applications and change-in-control notices submitted regarding proposed or existing ILCs, and the federal banking agencies have been challenged for several years by the supervisory and policy questions posed by the entry of commercial firms into the business of banking through an ILC charter. The FDIC has recently expressed tacit support for the de novo formation of ILCs, but the FDIC's approach to ILC charters remains somewhat uncertain. It is unclear if the FDIC will issue guidance or take a more definitive stance on ILC charters when the term of outgoing FDIC Chairman Martin Gruenberg expires in November 2017.
Repeal of the Durbin Amendment. Section 735 of the FCA would repeal the "Durbin Amendment" (DFA § 1075 (12 U.S.C. § 1693o-2)), which restricts the permitted charges to merchants for debit card transactions, with an exception for small issuers, and prohibits exclusive network processing requirements for debit cards (the so-called duality requirement). The Durbin Amendment amended the Electronic Fund Transfer Act and was implemented by Federal Reserve Regulation II.9 Regulation II caps debit card interchange fees at 21 cents per transaction plus 0.05 percent of the value of the transaction, plus a 1-cent fraud-prevention adjustment per transaction. The theory behind the Durbin Amendment was that fee reductions would be passed on by merchants to consumers through lower prices. Economic studies have indicated, however, that merchants are retaining the fee savings for themselves and that banks are charging debit card holders more for basic services to make up for the lost revenues. Repeal of the Durbin Amendment reportedly has been controversial within the Republican caucus because it pits the interests of two Republican support bases—retailers and banks—against one another.
Repeal of Prohibition on Mandatory Pre-Dispute Arbitration Clauses. Pursuant to the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.), securities firms and banks have long included mandatory arbitration clauses in standard forms of customer agreements. The Federal Arbitration Act was drafted at the request of the federal judicial branch to reduce the case load burden on the court system. The inclusion of these mandatory pre-dispute arbitration clauses in customer securities brokerage contracts has been upheld repeatedly by the US Supreme Court. Sections 921 (15 U.S.C. §§ 78o(o), 80b-5(f)) and 1028 (12 U.S.C. § 5518) of the DFA provided authority to the SEC and the CFPB to adopt rules restricting the use of these arbitration clauses, but Sections 738 and 857 would repeal this authority for the CFPB and the SEC, respectively. The CFPB conducted a study in 2015 and issued a proposed rule in 201610 to require a carve-out from arbitration clauses to allow customers to participate in class action lawsuits and require reporting to the CFPB on arbitration, but due to delays and the recent change in administrations, the proposed rule is on hold. The SEC has not used its DFA authority to propose limits on customer arbitration clauses, although FINRA has long imposed disclosure provisions and restrictions on the use of the clauses in certain contexts.
In addition to the structural changes discussed elsewhere in this Advisory, the CFPB—which would be renamed the "Consumer Law Enforcement Agency" (CLEA)—would see its powers significantly scaled back or eliminated in key areas. These proposed changes respond to a number of criticisms that have been leveled at the CFPB by the financial services industry and the business community more generally. Although certain important core powers, such as rulemaking authority for various federal consumer protection statutes, would remain with the CFPB, the FCA, if enacted in its current form, would likely render the bureau a much smaller, and potentially less influential, body.
Loss of Supervision Authority. Perhaps the most significant restriction on the CFPB sought by the FCA is the proposed elimination of its supervision authority over financial institutions. With this change, not only would the CFPB lose its ability to supervise and examine bank and nonbank companies, including the segments of the mortgage, student loan, and payday loan industries over which it currently has examination and supervision authority, but Section 727 of the FCA would also appear to strip the CFPB of its enforcement authority over all insured depository institutions, regardless of size. While this outcome is not mentioned in the Committee Staff's summary of the FCA, the revised Sections 1026 (12 U.S.C. § 5516) and 1061 (12 U.S.C. § 5581) of the DFA would give exclusive enforcement authority for federal consumer financial protection laws to the appropriate prudential federal bank regulator for such institutions. Thus, except for its rulemaking and data-collection powers, the CFPB would become a much less significant presence for large banks, savings associations, and credit unions.
Loss of UDAAP Authority. Another significant proposed loss of authority for the CFPB is of its power to take action against unfair, deceptive, and abusive acts and practices (UDAAPs), a broad enforcement weapon that has been one of the CFPB's primary—and often criticized—tools. Section 736 of the FCA would repeal the DFA's prohibition on UDAAPs and the CFPB's accompanying UDAAP enforcement powers (12 U.S.C. §§ 5531, 5536). Simultaneously, Section 737 would direct the prudential bank regulators to promulgate regulations under Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45), which similarly prohibits unfair and deceptive acts and practices (UDAPs). While the Federal Reserve, FDIC, and OCC have for many years applied Section 5's UDAP prohibition to banks using the agencies' general enforcement authority under Section 8 of the Federal Deposit Insurance Act (12 U.S.C. § 1818), Section 5 had not been the subject of a formal rulemaking setting forth comprehensive compliance expectations for depository institutions.11
Reduced Access to Information. Other areas of the CFPB's activities would similarly be subject to new restrictions. The CFPB's consumer complaint database, which is publicly searchable and has been the subject of considerable industry criticism, would no longer be available to the public (FCA § 725). The CFPB also would be required to obtain consent from consumers before collecting their non-public personal information (FCA § 731). Furthermore, the FCA expands the DFA's existing limitations on the CFPB's authority to take actions related to employee benefit plans, employee compensation plans, and persons already regulated by the SEC or the CFTC (FCA § 731).
Certain Remaining Powers Restrained. Even the powers that the CFPB would retain would be circumscribed in many instances. Private-party respondents in CFPB-initiated administrative proceedings would effectively be able to move such proceedings into district court, as Section 715 of the FCA would allow private parties to compel termination of a CFPB administrative proceeding, which the CFPB could then re-commence as a civil action. Section 716, responding to frequent complaints that CFPB civil investigative demands (CIDs) were unreasonable in both scope and timing and were subject to an arbitrary appeals process, would introduce a CID meet-and-confer requirement and would allow for judicial appeal of CIDs, replacing the current process in which appeals are heard and decided by the CFPB itself in the first instance. Finally, while the FCA would introduce a formal advisory opinion process for requesting agency guidance on specific fact patterns, the FCA would also eliminate any judicial deference for the CFPB's interpretation that is currently required under Section 1022 of the DFA (12 U.S.C. § 5512(b)(4)(B)).
Manufactured Housing. Sections 501 and 502 of the FCA would exclude most retailers of manufactured housing (and their employees) from the definition of "mortgage originator" in the Truth in Lending Act (TILA) and would increase the thresholds for determining whether loans for manufactured housing are "high-cost mortgages" for purposes of TILA (15 U.S.C. §§ 1601 et seq.). This latter change would likely increase the number of manufactured housing loans that could be sold into the secondary market, as many would-be purchasers of such loans avoid purchasing "high-cost mortgages" because of the heightened compliance and liability risks that they carry.
Treatment of Certain Origination-Related Services Provided by Affiliates. Section 506 of the FCA would modify Section 103 of TILA (15 U.S.C. § 1602) to exclude from the definition of "points and fees" (when determining whether a loan is a "high-cost mortgage") amounts paid to an affiliate of the creditor for title examination, title insurance, or a similar service. Currently, such fees are excluded only if paid to an unaffiliated third party.
Limiting Risk Retention to Asset-Backed Securities Collateralized by Residential Mortgages. Section 842(a) of the FCA would eliminate the risk-retention requirement under Section 941 of the DFA for all asset-backed securities (ABS) other than those "comprised wholly of residential mortgages."12 This change would provide significant additional flexibility to market participants in structuring other types of ABS—including, in particular, collateralized loan obligation (CLO) transactions. As the FCA does not amend the original rulemaking directives with respect to risk retention in the DFA, the question remains open as to whether the FCA is intended to change the level of retention required for residential mortgage‑backed securities (RMBS) or the exclusion from risk retention, as previously adopted by the various regulatory agencies, pursuant to such directives, with respect to certain high-quality "qualified residential mortgages."
The use of the phrase "comprised wholly of residential mortgages" in Section 842(a), if adopted in its current form, would be expected to provide helpful clarity that entities holding multiple asset classes—including, in particular, asset-backed commercial paper conduits—would not be subject to the risk retention requirements. However, the specific extent to which the inclusion of non‑mortgage assets (or ancillary collateral, such as an interest-rate hedge or external credit support) would result in a transaction falling outside of the risk retention requirement is not yet clear.
Relief from the Single Counterparty Credit Limit. Section 165(e) of the DFA (12 U.S.C. § 5365(e)) requires the application of counterparty credit limits (equal to 25 percent of capital stock and surplus) to banking organizations with $50 billion or more in total consolidated assets and to non-bank financial companies supervised by the Federal Reserve.13 These limits were intended to address a concern that regulators and institutions needed to limit a broader range of exposures than those captured under traditional lending limits. In addition to extensions of credit, the counterparty limits would reflect repurchase and reverse repurchase agreements, guarantees, letters of credit, securities issued by the counterparty, and derivatives. Section 602 of the FCA would exempt qualifying strongly capitalized banks from this provision and thus would simplify tracking requirements at the affected institutions and reduce the chance that organizations routinely providing multiple services of this kind to repeat customers would find themselves precluded from providing these services to their regular clients.
Valid When Made. By codifying the "valid-when-made" principle for bank‑originated loans, Section 581 of the FCA would directly address some of the uncertainty in secondary loan markets that has arisen from the Second Circuit's controversial 2015 decision in Madden v. Midland Funding, LLC.14 Specifically, Section 581 would provide that a loan made by a national bank, an FDIC-insured state bank or savings association or a federal credit union that is "valid when made as to its maximum rate of interest" would "remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary."
Note that Section 581 only addresses the availability of state-law usury defenses against a secondary‑market non‑bank loan purchaser and would not invalidate rulings on other issues, such as challenges to the status of a banking institution as the "true lender" or claims under other federal or state consumer protection laws.
Conflicts of Interest. With some exceptions for hedging, market-making and the satisfaction of undertakings to provide liquidity, Section 27B of the Securities Act of 1933 (the 1933 Act), which was added by Section 621 of the DFA (15 U.S.C. § 77z-2a), prohibits "[a]n underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity, of an asset-backed security" from engaging in transactions during the year after the sale of asset-backed securities that would result in a material conflict of interest with an investor in that transaction. The SEC's proposed Rule 127B would have implemented this requirement,15 The themes of which are also partially reflected in Section __.15 of the interagency rules implementing the Volcker Rule, which provides a definition of "material conflict of interest" and several ways of resolving potential conflicts. Section 901 of the FCA's elimination of Section 27B and of the Volcker Rule would allow the structuring and operation of securitizations without consideration of whether there might be a way in which the acts of an entity subject to the provision could potentially be viewed as materially adverse to the interests of an investor.
The elimination of these provisions would reduce regulatory complexity for lending transactions in a number of ways. For example, determining available exemptions from registration under the 1940 Act would become simpler for fund sponsors; the strict affiliate transaction rules under so-called "Super 23A" (12 U.S.C. § 1851(f)(1), which applies 12 U.S.C. § 371c to transactions with Volcker Rule "covered funds") would no longer apply; there would be greater freedom to vary the types of assets held by issuers of ABS; and providing written legal advice about ABS transactions would become less complicated. Eliminating the special treatment of covered funds would also reduce the regulatory distance between the US and the EU in that regard.
As discussed above, Section 901 of the FCA would repeal the Volcker Rule that was enacted as Section 619 of the DFA (12 U.S.C. § 1851) and, effectively, also would repeal the interagency rules that implement the Volcker Rule.16 The repeal of the Volcker Rule would directly affect the opportunities available to banks and their affiliates and the potential investors eligible to invest in private investment funds operated by any fund manager.
Derivatives. The DFA created a comprehensive statutory scheme for the regulation of derivatives, subjecting swaps to regulation by the CFTC and security-based swaps to regulation by the SEC. The FCA would leave the new regulatory structure in place, with one significant change. Specifically, the FCA would exempt certain swaps between affiliated entities from CFTC and/or SEC regulation, subject to certain trade-reporting and risk-management standards.17 More significant reform in this area may come from pending CFTC reauthorization legislation (H.R. 238, the Commodity End-User Relief Act). Title III of that bill would provide exemptions from mandatory swap clearing requirements for finance companies and smaller bank holding companies, as well as producers, processors, merchants, and commercial users of agricultural and hard commodities. However, the FCA and H.R. 238 are proceeding on separate tracks through the congressional process, and it remains to be seen whether and how any significant changes to derivatives regulation would be reflected in final legislation.
Repeal the Department of Labor's Fiduciary Rule. Section 841 of the FCA would repeal the Department of Labor's (DOL) highly controversial "fiduciary rule" in its entirety and prohibit DOL from reissuing a new "fiduciary rule" until the SEC issues a final rule "relating to the standards of conduct" for broker-dealers as authorized by Section 913(g)(1) of the DFA (15 U.S.C. § 78o(k)), as it would be modified by Section 841(d) of the FCA. After the SEC issues such a rule (if it chose to do so after reporting on its proposal to Congress) on the conduct of broker-dealers, any new fiduciary rule promulgated by DOL would have to be "substantially identical" to the SEC's rule with respect to (i) what conduct constitutes fiduciary investment advice and (ii) the standard of care applicable to broker-dealers and investment advisers, under Section 913(g)(1) of the DFA. While the repeal of the fiduciary rule would be welcomed by most financial institutions, the adoption of new, uniform standards by the SEC is not necessarily all good news. If the FCA passes in its current form and the SEC were to move forward with harmonizing the fiduciary standards for broker-dealers and investment advisers, there is a risk that the SEC may set standards that are higher than those presently imposed on broker-dealers and investment advisers and potentially could result in the adoption, for all accounts—not just IRA/retirement plan accounts—of some of the onerous requirements in DOL's fiduciary rule.
As noted, Section 711 of the FCA would amend Section 1011 of the DFA (12 U.S.C. § 5491) to change the name of the CFPB to the CLEA and to provide that the CLEA Deputy Director would be appointed by the President. It also eliminates the restriction that the CLEA Director can only be removed by the President "for cause." Other significant structural changes, generally intended to limit the CLEA's authority and autonomy, include:
Providing that the Office of Information and Regulatory Affairs (the US Government's central authority for the review of Executive Branch Regulations) has the same duties and authorities regarding the CLEA as it does for any other non-independent regulatory agency (FCA § 712; DFA § 1022(e) (12. U.S.C. § 5512(e))).
Amending the Consumer Financial Protection Act to expand the CLEA's purpose to include strengthening consumer participation in financial markets, increasing competition, and enhancing consumer choices and creating an Office of Economic Analysis within the CLEA to review and assess regulations and administrative enforcement and civil actions (FCA § 717; DFA §§ 1021(a) (12 U.S.C. § 5511(a)), 1013(h) (12 U.S.C. §5493(h))).
Directing the SEC to finish implementing recommendations contained in a consultant's report to the SEC required by Section 967 of the DFA and issued on March 10, 2011 (FCA § 806).18 The report recommended reprioritizing regulatory activities; reshaping organizational structure; investing in infrastructure (including technology); and enhancing the SEC's role as an overseer of, and co-regulation with, self-regulatory organizations. At the same time, Section 803 of the FCA would eliminate the SEC Reserve Fund, a fund created by the DFA to support SEC operations and used primarily to pay for information technology enhancements (15 U.S.C. § 78d(i)).
Placing both the Office of Credit Ratings (FCA § 807; 15 U.S.C. § 78o-7(p)(1)) and the Office of Municipal Securities (FCA § 808; DFA § 979 (15 U.S.C. § 78o-4a)) within the SEC's Division of Trading and Markets.
Requiring the SEC's Investor Advisory Committee to consult with the Small Business Capital Formation Advisory Committee in submitting findings and recommendations to the SEC; requiring the Investor Advisory Committee to include a member of the Small Business Capital Formation Advisory Committee as a non-voting member, and setting term lengths for members of the Investor Advisory Committee (FCA § 810; 15 U.S.C. § 78pp).
Directing the SEC to establish an advisory committee to analyze and make recommendations regarding the SEC's enforcement policies and practices (FCA § 820).
Requiring the Federal Reserve to adopt a "directive policy rule" for open market operations and directing the GAO to monitor compliance with the rule and report instances of non-compliance to the House Financial Services and Senate Banking Committees. The FCA also authorizes the Committee Chairs to request the Federal Reserve Chair to testify about compliance failures (FCA § 1001).
FDIC: The FDIC's Board of Directors would consist of five members appointed by the President with the advice and consent of the Senate. One of the Directors would have to have state bank supervisory experience (FCA § 351; 12 U.S.C. § 1812).
Federal Housing Finance Agency (FHFA): Section 352 of the FCA provides the President with the authority to terminate the Director of the FHFA before the end of the Director's appointed term, with or without cause (12 U.S.C. § 4512).
The FCA also would add an exemption from the requirement to register offerings of securities for "Micro-Offerings" of securities to fewer than 35 purchasers who all have "substantive pre-existing relationships" with an officer, director, or ten-percent shareholder of the issuer (FCA § 461); revise the crowdfunding provisions of the 1933 Act by creating broader exemptions from securities and broker-dealer registration requirements (FCA § 476); and increase the aggregate amount of securities that may be offered and sold pursuant to the exemption provided by Section 3(b) of the 1933 Act (15 U.S.C. § 77c(b)) from $50 million to $75 million within a twelve month period, as adjusted for inflation every two years (FCA § 498). Further, Section 452 of the FCA would direct the SEC to revise its Regulation D to clarify that presentations or communications at events sponsored by institutions of higher education, nonprofit organizations, angel investor groups, venture forums, venture capital associations, trade associations, or other groups determined by the SEC would not run afoul of the rule's prohibition against general solicitation or advertising.
P.L. No. 111-203 (2010).
This ratio would be calculated by dividing an organization's "tangible equity" (i.e., its common equity tier 1 capital, pre-FCA additional tier 1 capital instruments, and Collins Amendment-grandfathered trust preferred securities under DFA § 171 (12 U.S.C. § 5371)) by its total leverage exposure (as calculated under the applicable Basel III capital rules).
Qualifying banking organizations also would receive automatic "well capitalized" treatment where applicable.
Section 165 of the DFA and its implementing rules (12 C.F.R. pt. 252) impose prudential standards; concentration, short-term-debt, and leverage limits; and resolution-planning and government-run-stress-testing requirements on US bank holding companies with $50 billion or more in total consolidated assets and on certain foreign banking organizations, as well as self-stress-testing and risk-management requirements on bank holding companies with $10 billion or more in total consolidated assets.
12 C.F.R. pts. 44, 248 & 351; 17 C.F.R. pts. 75 & 255.
Section 3(c)(1) of the 1940 Act is available to privately offered investment funds whose securities other than short-term paper are beneficially owned by not more than 100 persons; Section 3(c)(7) is available to privately offered investment funds whose securities, other than short-term paper, are owned exclusively by institutional and high-net worth "qualified purchasers."
The DFA also required the Government Accountability Office (GAO) to conduct a study on the adequacy of the supervision of ILCs, credit card banks, trust banks, and other entities that are exempt from the requirements of the Bank Holding Company Act, but eligible to obtain deposit insurance. The GAO's study was released in January 2012.
12 C.F.R. pt. 235.
Proposed 12 C.F.R. pt. 1040.
The Federal Reserve adopted an Unfair or Deceptive Acts or Practices rule, Regulation AA (12 C.F.R. Part 227), in 1985, but it addressed only certain specific practices. Regulation AA was repealed last year as a result of Section 1092(2) of the DFA's repeal of its authorizing statutory provision.
15 U.S.C. §78o-11; 12 C.F.R. §§ 43, 244, 373, 1234; 17 C.F.R. § 246; 24 C.F.R. § 267.
Implemented by 12 C.F.R. §§ 43, 244; 17 C.F.R. § 246.
786 F.3d 246 (2nd Cir. 2015), cert. denied, 136 S. Ct. 2505 (Jun. 27, 2016).
76 Fed. Reg. 60,320 (Sept. 28, 2011).
12 C.F.R. pts. 44, 248, and 351; 17 C.F.R. pts. 75 and 255.
Section 871 of the FCA would also direct the SEC and CFTC to review the swap regulations, orders, and interpretations under Title VII of the DFA and to harmonize any that are inconsistent. However, this should not be expected to result in regulatory relief, since the two agencies generally coordinated on such matters prior to adopting their rules for swaps, and they are likely to determine that any inconsistencies are a product of differences in the relevant instruments rather than in regulatory philosophies.
Bos. Consulting Grp., U.S. Securities and Exchange Commission Organizational Study and Reform (Mar. 10, 2011).
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