Dodd-Frank Act Regulations: Implementation Could Benefit from Additional Analyses and Coordination
Published: 2011-11-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires or authorizes various federal financial regulators to issue hundreds of rules to implement reforms intended to strengthen the financial services industry. GAO is required to annually study financial services regulations. This report examines (1) the regulatory analyses, including cost-benefit analyses, financial regulators have performed to assess the impact of selected final rules issued pursuant to the Dodd-Frank Act; (2) how financial regulators consulted with each other in implementing the selected final rules to avoid duplication or conflicts; and (3) what is known about the impact of the final rules. GAO examined the 32 final Dodd-Frank Act rules in effect as of July 21, 2011; the regulatory analyses conducted for 10 of the 32 rules that allowed for some level of agency discretion; statutes and executive orders requiring agencies to perform regulatory analysis; and studies on the impact of the Dodd-Frank Act. GAO also interviewed regulators, academics, and industry representatives..
section_title: What GAO Found
paragraphs: Federal financial regulators are required to conduct a variety of regulatory analyses, but the requirements vary and none of the regulators are required to conduct benefit-cost analysis. All financial regulators must analyze the paperwork burden imposed by their rules and consider the impact of their rules on small entities as part of their rulemaking process. The Commodity Futures Trading Commission and the Securities and Exchange Commission are also required under their authorizing statutes to consider certain benefits and costs of their rules. As independent regulatory agencies, the federal financial regulators are not subject to executive orders requiring federal agencies to conduct detailed benefit-cost analysis in accordance with a guidance issued by the Office of Management and Budget (OMB). Financial regulators are not required to follow OMB's guidance, but most told GAO that they attempt to follow the guidance in principle or spirit. GAO's review of regulators' rulemaking policies and 10 final rules found inconsistencies in the extent to which OMB's guidance was reflected.
section_title: What GAO Recommends
paragraphs: GAO recommends that to the extent the regulators strive to follow OMB's guidance, they should take steps to more fully incorporate the guidance into their rulemaking policies and ensure that it is consistently followed. Although federal financial regulators have coordinated their rulemaking, they generally lacked formal policies to guide these efforts. The Dodd-Frank Act establishes interagency coordination requirements for certain agencies and for specific rules or subject matters. However, for other rules, the regulators have discretion as to whether interagency coordination should occur. The Financial Stability Oversight Council (FSOC) is tasked with facilitating coordination among member agencies but, to date, has played a limited role in doing so beyond its own rulemakings as it continues to define its role. Several regulators voluntarily coordinated with each other on some of the rules GAO reviewed. However, most of the regulators, including the Bureau of Consumer Financial Protection, lacked written protocols for interagency coordination, a leading practice that GAO has previously identified for interagency coordination. GAO recommends that FSOC work with the financial regulators to develop such protocols for Dodd-Frank Act rulemaking. Little is known about the actual impact of the final Dodd-Frank Act rules, given the short amount of time the rules have been in effect. Regulators are required to conduct reviews of existing regulations to assess their impact, but some have not yet developed plans to review their Dodd-Frank Act rules. To maximize the usefulness of these reviews, GAO recommends that the regulators identify what data will be needed to retrospectively assess the impact of the rules in the future. FSOC is also required to examine, among other things, financial market and regulatory developments and make recommendations to enhance the efficiency, competitiveness, and stability of U.S. financial markets. Although FSOC officials said that FSOC plans to include an impact analysis of the Dodd-Frank Act rules in its future reports, it has not yet begun identifying and collecting the data needed for this type of analysis. GAO recommends that FSOC direct the Office of Financial Research, an entity created to support the research needs of FSOC, to work with the regulators to identify and begin collecting data needed for future analyses. GAO is making four recommendations to the regulators and FSOC to strengthen the prospective and retrospective analyses of the impact of Dodd-Frank Act regulations on financial markets and improve coordination among financial regulators on rulemaking. Regulators and FSOC generally agreed with the report's findings but most neither agreed nor disagreed with the report's recommendations.

section_title: Letter
paragraphs: The recent U.S. financial crisis is often described as the worst since the  Great Depression, resulting in the loss of trillions of dollars in household  wealth. The crisis threatened the stability of the U.S. financial system  and the solvency of some large financial institutions, prompting the U.S.  government to take extraordinary steps to moderate the adverse  economic impacts. In response to the crisis, Congress passed the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)  in 2010, which includes numerous reforms to strengthen oversight of  financial services firms and consolidate certain consumer protection  responsibilities in the Bureau of Consumer Financial Protection (CFPB).  The Dodd-Frank Act requires or authorizes various federal agencies to  issue hundreds of regulations to implement its reforms. As agencies have  turned their attention to developing and implementing these regulations,  some industry associations and others have raised concerns about the  potential impact of the regulations, individually and cumulatively, on  financial markets and both financial and nonfinancial institutions.
Agencies can anticipate and evaluate the consequences of their  regulations through regulatory analysis. Such analysis provides a formal  way of organizing evidence that can help in understanding potential  effects of new regulations. Benefit-cost analysis, the primary tool used for  regulatory analysis, helps to identify the regulatory alternatives with the  greatest net benefits. We, along with the Office of Management and  Budget (OMB) and others, have identified benefit-cost analysis as a  useful tool that can inform decision making where agencies have  discretion to choose between regulatory alternatives, noting that the  systematic process of determining costs and benefits helps decision  makers organize and evaluate information about, and help identify trade- offs among, alternatives. Because of the merits of benefit-cost analysis,  many agencies are directed by statute or executive order to conduct such  analysis as part of rulemaking. For example, Executive Order 12866  (E.O. 12866) requires executive agencies to assess anticipated costs and  benefits not only of the proposed regulatory action but also of any  alternatives. However, this executive order does not apply to  independent regulatory agencies, including the banking, futures, and  securities regulators (i.e., federal financial regulators).
Section 1573(a) of the Department of Defense and Full-Year Continuing  Appropriations Act of 2011 amends the Dodd-Frank Act and directs GAO  to conduct an annual study of financial services regulations, including the  activities of CFPB. Specifically, we are directed to analyze (1) the impact  of regulations on the financial marketplace, including whether relevant  federal agencies are applying sound benefit-cost analysis in promulgating  rules; (2) efforts to avoid duplicative or conflicting rulemakings,  information requests, and examinations; and (3) other related matters that  we deem to be appropriate. As agreed with congressional staff, the focus  of our current review and future reviews will be limited to the financial  regulations promulgated pursuant to the Dodd-Frank Act, and for this first  report, the Dodd-Frank Act regulations that were effective as of July 21,  2011. This report examines  the regulatory analyses, including benefit-cost analyses, that federal  financial regulators have performed to assess the potential impact of  selected final rules issued pursuant to the Dodd-Frank Act;  consultation among federal financial regulators in implementing  selected final rules issued pursuant to the Dodd-Frank Act to avoid  duplication or conflicts; and available information on the impact of the final Dodd-Frank Act  regulations.
To address these objectives, we reviewed all final rules—a total of 32— that were issued pursuant to the Dodd-Frank Act and were effective as of  July 21, 2011. We selected 10 of these for further review and compared  the analyses conducted to assess them in light of the principles outlined  in OMB Circular A-4. Circular A-4 provides guidance to federal agencies  on the development of regulatory analysis and was subject to public  comment, interagency review, and peer review. We selected the rules for  further review based primarily on the amount of discretion that agency  officials were able to exercise in implementing the specific Dodd-Frank  Act provision. We interviewed agency officials and reviewed  documentation from the agencies to determine the extent to which  benefit-cost or similar analyses were conducted. We also reviewed  statutes, regulations, and other documentation to identify the analysis  federal financial regulators were required to conduct and interviewed  agency officials about their plans to analyze the effects of their Dodd- Frank Act regulations. Further, we identified requirements in the Dodd- Frank Act and other laws for agency coordination on rulemaking and  assessed the extent to which such requirements were satisfied for select  regulations that were in effect as of July 21, 2011. We collected  information from the federal financial regulators on their policies and  practices for coordinating their rulemaking activities with other regulators  and about their coordination efforts specific to the selected Dodd-Frank  Act regulations that were effective as of July 21, 2011. We selected 18  rules based primarily on our judgment of the extent to which the rules  could overlap or duplicate rules issued by other agencies. We also  reviewed past GAO work on best practices for regulatory coordination  and compared the requirements for coordination among federal financial  regulators to these practices to identify any areas of needed  improvement.
To examine what is known about the impact of the Dodd-Frank Act  regulations, we reviewed existing research and interviewed financial  regulators, industry representatives, academics, and others. We also  collected information from the regulators on the extent to which the Dodd- Frank Act rules effective as of July 21, 2011, could impact certain  variables (such as the safety and soundness of regulated entities, cost  and availability of credit, and costs of compliance with the rules) or  produce other costs and benefits. We examined the indicators and data  that federal financial regulators used, or planned to use, to assess the  impact of their regulations. We reviewed studies on the impact of the  Dodd-Frank Act regulations and assessed the strengths and weaknesses  of the impact analyses contained in these studies. Appendix I contains  additional information on our scope and methodology.
This report does not independently assess the impact of the Dodd-Frank  Act regulations because (1) most of the required regulations have not  been finalized or the effective dates of finalized rules have not been  reached or (2) for the final regulations that have reached their effective  dates, adequate time has not elapsed to assess their impacts. In addition  to conducting audit work to address the objectives in this report, we also  began constructing a framework for our independent analyses in future  reports. While the construction of the framework continues, it may include  identifying and analyzing data to develop indicators or other measures to  assess the impact of the Dodd-Frank Act regulations. Developing a  methodology to assess the impact of Dodd-Frank Act regulations will be a  long-term, iterative process, during which we will seek the input of federal  financial regulators, the industry, and other stakeholders.
We conducted this performance audit between April 2011 and November  2011, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The financial services industry—including the banking, securities, and  futures sectors—has changed significantly over the last several decades.  Today, the industry generally consists of fewer and larger firms that  provide more and varied services, offer similar products, and operate in  increasingly global markets. Despite these changes, the U.S. financial  regulatory structure has largely remained the same. It is a complex  system of multiple federal and state regulators as well as self-regulatory  organizations (SRO) that operate largely along functional lines, even as  these lines have become increasingly blurred in the industry. The U.S.  regulatory system for financial services is described as “functional” in that  financial products or activities are generally regulated according to their  function, no matter who offers the product or participates in the activity.
subsections: section_title: Depository Institution Regulators
paragraphs: In the banking industry, the specific regulatory configuration depends on  the type of charter the banking institution chooses. Depository institution  charter types include  commercial banks, which originally focused on the banking needs of  businesses but over time have broadened their services;  thrifts, which include savings banks, savings associations, and  savings and loans and were originally created to serve the needs— particularly the mortgage needs—of those not served by commercial  banks; and  credit unions, which are member-owned cooperatives run by member- elected boards with an historical emphasis on serving people of  modest means.
These charters may be obtained at the state or federal level. State  regulators charter institutions and participate in their oversight, but all  institutions that offer federal deposit insurance have a primary federal  regulator. The primary federal banking regulators—all of which may issue  regulations and take enforcement actions against industry participants  within their jurisdiction—are identified in table 1.
The securities and futures industries are regulated under a combination of  self-regulation (subject to oversight by the appropriate federal regulator)  and direct oversight by the Securities and Exchange Commission (SEC)  and the Commodity Futures Trading Commission (CFTC), respectively.  SEC regulates the securities markets, including participants such as  securities exchanges, broker-dealers, investment companies, and  investment advisers. In the securities industry, certain SROs—including  the securities exchanges and the Financial Industry Regulatory  Authority—have responsibility for overseeing the securities markets and  their members; establishing the standards under which their members  conduct business; monitoring business conduct; and bringing disciplinary  actions against members for violating applicable federal statutes, SEC’s  rules, and their own rules. SEC oversees SROs by inspecting their  operations and reviewing their rule proposals and appeals of final  disciplinary proceedings. In overseeing the SROs’ implementation and  enforcement of rules, SEC uses its statutory authority to, among other  things, review and approve SRO-proposed rule changes, approve or  disapprove proposals that are subject to SEC action before they can  become operative, or suspend for additional proceedings proposals that  were designated by an SRO for immediate effectiveness. In the futures  industry, SROs include the futures exchanges and the National Futures  Association. Futures SROs are responsible for establishing and  enforcing rules governing member conduct and trading; providing for the  prevention of market manipulation, including monitoring trading activity;  ensuring that futures industry professionals meet qualifications; and  examining members for financial strength and other regulatory purposes.  CFTC independently monitors, among other things, exchange trading  activity, large trader positions, and certain market participants’ financial  conditions.
section_title: Regulations and Federal Rulemaking
paragraphs: Regulation is one of the principal tools that the federal government uses  to implement public policy. Section 553 of the Administrative Procedure  Act (APA) contains requirements for the most common type of federal  rulemaking—”informal rulemaking” or “notice and comment” rulemaking.  Most federal rulemaking is conducted as informal rulemaking, in which  agencies publish a notice of proposed rulemaking in the Federal Register  and provide “interested persons” with an opportunity to comment on the  proposed rule, generally for a period of at least 30 days. Under the APA,  in addition to allowing for comments, an agency may choose to hold  public hearings during the comment period for informal rulemaking but is  not required to do so. After giving interested persons an opportunity to  comment on the proposed rule, and after considering the public  comments, the agency then publishes the final rule, incorporating a  general statement of the rule’s basis and purpose. The APA’s notice and  comment procedures do not apply to certain categories of rules, including  interpretative rules, general statements of policy, or rules that deal with  agency organization, procedure, or practice, or when the agency for good  cause finds that notice and public procedures thereon are impracticable,  unnecessary or contrary to the public interest. The APA has been in place  for more than 60 years, but most additional statutory requirements for  rulemaking have been imposed more recently.
As part of the rulemaking process, past and current Congresses and  Presidents have required agencies to comply with an increasing number  of procedural and analytical requirements before issuing a rule. Some  regulatory analysis requirements apply only to executive agencies, while  others also apply to independent regulatory agencies such as the federal  financial regulators. The goals of these requirements include promoting  public participation in rulemaking, reducing regulatory burdens, requiring  more rigorous regulatory analysis, and enhancing oversight of agency  rulemaking. These requirements entail a wide range of procedural,  consultative, and analytical actions on the part of the agencies and are  discussed in further detail in this report.
section_title: Dodd-Frank Act Regulations
paragraphs: Under the Dodd-Frank Act, federal financial regulatory agencies are  directed or have the authority to issue hundreds of regulations to  implement the act’s reforms. The Dodd-Frank Act directs agencies to  adopt regulations to implement the act’s provisions and in some cases  gives the agencies little or no discretion in deciding how to implement the  provisions. For instance, the Dodd-Frank Act made permanent a  temporary increase in the FDIC deposit insurance coverage amount  ($100,000 to $250,000); therefore, FDIC revised its implementing  regulation to conform to the change. However, other rulemaking  provisions in the act appear to be discretionary in nature, stating that (1)  certain agencies may issue rules to implement particular provisions or  that the agencies may issue regulations that they decide are “necessary  and appropriate,” or (2) agencies must issue regulations to implement  particular provisions but have some level of discretion as to the substance  of the regulations. As a result, the agencies may decide to promulgate  rules for all, some, or none of the provisions, and often have broad  discretion to decide what these rules will contain.
section_title: Requirements for Regulatory Analyses Vary, but Federal Financial Regulators Are Not Required to Conduct Benefit-Cost Analysis
paragraphs: As part of the rulemaking process, federal financial regulatory agencies  are required to conduct a variety of regulatory analyses, but benefit-cost  analysis is not among the requirements. Requirements include those set  out in the Paperwork Reduction Act (PRA) and the Regulatory Flexibility  Act (RFA), which impose regulatory analysis requirements on federal  agencies, including the federal financial regulators. In particular, PRA  requires agencies to justify any collection of information from the public to  minimize the paperwork burden the collection imposes and to maximize  the practical utility of the information collected. Under PRA, agencies  are required to submit all proposed information collections to OMB’s  Office of Information and Regulatory Affairs (OIRA) for review and  approval. As a result of PRA, agencies also estimate the time and  expense required to comply with the paperwork requirements contained  in the rule. RFA requires federal agencies to (1) assess the impact of their  regulation on small entities, including businesses, governmental  jurisdictions, and certain not-for-profit organizations with characteristics  set forth in the act, and (2) consider regulatory alternatives to lessen the  regulatory burden on small entities. Under RFA, federal agencies,  including federal financial regulators, generally must prepare a “regulatory  flexibility analysis” in connection with proposed and certain final rules,  unless the head of the issuing agency certifies that the proposed rule  would not have a significant economic impact upon a substantial number  of small entities. While both PRA and RFA require agencies to assess  various impacts of their rules, they do not require the agencies to formally  assess the costs and benefits of their rules through a benefit-cost or  similar analysis. See appendix II for more information about these and  other statutes.
In addition to these generic requirements, certain federal financial  regulators are required by their authorizing or other statutes to consider  specific benefits, costs, and impacts of their rulemaking. However, as  described below, these statutes require the regulators to consider certain  benefits, costs, and impacts of their regulations, but the statutes do not  prescribe a specific methodology for benefit-cost or similar analyses.
Under Section 15(a) of the Commodity Exchange Act, CFTC is  required to consider the costs and benefits of its actions before  issuing a rulemaking under the act. Section 15(a) does not require  CFTC to quantify the costs and benefits of a new regulation or  determine whether the benefits outweigh its costs; rather, it requires  CFTC to consider the costs and benefits of its actions. Section 15(a)  further specifies that costs and benefits be evaluated in light of five  broad areas of market and public concern: (1) the protection of market  participants and the public; (2) the efficiency, competitiveness, and  financial integrity of futures markets; (3) price discovery; (4) sound risk  management practices; and (5) other public interest considerations.
Under section 1022(b) of the Consumer Financial Protection Act (Title  X of the Dodd-Frank Act), CFPB must consider the potential benefits  and costs to consumers and providers of consumer financial products  and services, including any potential reduction in consumers’ access  to consumer financial products or services that might result from the  rule, as well as the impact of proposed rules on depository institutions  and credit unions with $10 billion or less in assets and consumers in  rural areas. In addition, under section 1100G(d)(1) of the Dodd- Frank Act, CFPB is required to include in its initial regulatory flexibility  analysis a description of any projected increase in the cost of credit  for small entities and any significant alternatives to the proposed rule  that accomplish the same objectives but minimize any increase in the  cost of credit for small entities.
The National Securities Market Improvement Act of 1996, which  amended the Securities Act of 1933, Securities Exchange Act of  1934, and Investment Company Act of 1940, requires SEC, when  engaged in rulemaking that requires it, to consider or determine  whether an action is necessary or appropriate to the public interest, to  consider, in addition to the protection of investors, whether the action  will promote efficiency, competition, and capital formation during the  rulemaking process. Additionally, Section 23(a)(2) of the Securities  Exchange Act requires SEC to consider the impact that any rule  promulgated under the act would have on competition. This  provision states that a rule should not be adopted if it would impose a  burden on competition that is not necessary or appropriate to the act’s  purposes.
Section 302 of the Riegle Community Development and Regulatory  Improvement Act requires federal banking regulators to consider  certain factors in determining the effective date and administrative  compliance requirements for new regulations that impose additional  reporting, disclosure, or other requirements on insured depository  institutions. These factors include any administrative burdens the  regulations would place on depository institutions, including small  depository institutions and customers of depository institutions and the  benefits of the regulations.
In addition to statutory requirements, certain executive orders, namely  E.O. 12866, require some federal agencies to assess the economic  effects of their significant rules. However, the federal financial  regulators, as independent regulatory agencies, are not subject to the  economic analysis requirements of E.O. 12866. The order contains 12  principles of regulation that direct agencies to perform specific analyses  to identify the problem to be addressed, assess its significance, assess  both the costs and benefits of the intended regulation, design the  regulation in the most cost-effective manner to achieve the regulatory  objective, and base decisions on the best reasonably obtained  information available. In 2003, OMB issued Circular A-4 to provide  guidance to federal agencies on the development of regulatory analysis  required by E.O. 12866 (now supplemented by Executive Order 13563  (E.O. 13563)). The guidance defines good regulatory analysis and  standardizes the way benefits and costs of federal regulatory actions  should be measured and reported. In particular, the guidance provides for  more systematic evaluation of qualitative and quantitative benefits and  costs, including how to monetize them (fig. 1). OMB subjected its  guidance to public comment, interagency review, and peer review.  Although federal financial regulatory agencies are not required to follow  E.O. 12866 or OMB Circular A-4, CFTC, Federal Reserve Board, FDIC,  NCUA, OCC, and SEC officials have said that their agencies follow  OMB’s guidance in spirit or principle. CFPB officials also said that the  Bureau expects to follow the spirit of OMB’s guidance.
As required by statute and internal policies, federal financial regulators  conducted a variety of regulatory analyses as part of their Dodd-Frank Act  rulemakings. We reviewed the regulators’ rulemaking policies and  procedures and found that they provided guidance consistent with their  statutory requirements, such as PRA and RFA. In this regard, our findings  are consistent with the recent findings of the Inspectors General of CFTC,  the Federal Reserve Board, the Department of Treasury (for OCC), FDIC,  and SEC. At the request of 10 members of the U.S. Senate Committee  on Banking, Housing, and Urban Affairs, these Inspectors General  reviewed the economic analyses done by their agencies for several  proposed Dodd-Frank Act rules. They found that the agencies largely  followed the statutory and other requirements applicable to their  rulemaking and related economic analysis.
Although most of the federal financial regulators told us that they tried to  follow Circular A-4 in principle or spirit, their policies and procedures did  not fully reflect OMB guidance on regulatory analysis. For example, FDIC,  the Federal Reserve Board, OCC, and NCUA all have general policies  that reflect the broad regulatory analysis principles associated with  Circular A-4—such as determining the need for a regulation and  examining alternative approaches. CFTC’s and SEC’s policies also  include examples of benefit-cost analysis that reflect statutory  requirements to consider certain types of benefits and costs. However,  the regulators’ policies generally do not fully address the information  challenges that regulators encounter as they draft regulations, as such  challenges are addressed by Circular A-4. In general, the regulators’  policies did not include the level of detail or instruction found in Circular A- 4 for carrying out regulatory analyses. As noted, these regulators are not  subject to the economic analysis requirements of E.O. 12866 or 13563  and, in turn, the OMB guidance. Importantly, the guidance serves as best  practices for conducting regulatory analysis and, thus, provides an  objective basis for identifying areas where the regulators could improve  their policies and procedures as well as the quality of their regulatory  analyses.
Federal financial regulators had limited or no discretion in connection with  the majority of the Dodd-Frank Act rules that we reviewed. Twenty-one of  the 32 final rules that were effective as of July 21, 2011, are mandatory—  that is, the Dodd-Frank Act directed the agencies to adopt regulations  containing substantive provisions specified by the statute. As a result, the  agencies were provided with little or no discretion as to whether or how to  implement these statutory provisions. For instance, the Dodd-Frank Act  eliminated the prohibition against payment of interest on demand deposit  accounts, requiring FDIC and the Federal Reserve Board to repeal  certain regulations to reflect the statutory change. Eleven of the final rules  provided the regulators with some level of discretion in implementation.  Three of the rules were identified by the regulators as “major” rules that  could have a $100 million or more annual impact on the economy and  would thus, as significant regulatory actions, be subject to formal benefit- cost analysis under E.O. 12866 if the relevant agencies were required to  follow it. See appendix III for information about the 32 Dodd-Frank Act  rules that were effective as July 21, 2011.
Through our review of the regulatory analyses conducted by federal  financial regulators for their Dodd-Frank Act regulations, we found areas  where such analyses could have been improved if the regulators had  applied OMB’s guidance more fully. We reviewed 10 of the final rules that  allowed for some level of discretion on the part of the regulator. Each of  the 10 regulations included a discussion of the regulatory analyses the  agencies performed to comply with RFA and PRA. For most of the  regulations, the regulators concluded that the regulation would not have a  “significant economic impact” on small businesses per RFA. For instance,  some regulations covered a line of business (e.g., retail foreign  exchange) in which no small entities were engaged. One RFA analysis  identified cost savings for small businesses as a result of the rule. The  regulators also identified the information collection requirements that their  rules would impose on regulated entities, per PRA. For one PRA analysis  the agency monetized the costs of providing required information and five  other analyses quantified the hours needed to provide that information. In  particular, two rules promulgated by SEC had information collection  requirements that were essential to the rule. For those rules, SEC  considered alternative requirements for regulated entities and provided  reasons for choosing the alternative selected. For an OCC rule, a  separate impact analysis was conducted to determine whether the rule  would have an annual cost of $100 million or more, in accordance with  the Unfunded Mandates Reform Act and the Congressional Review Act.  (See app. II for information about these statutory requirements.)
For each of the 10 regulations, we found that the regulators identified the  problem that the regulation was intended to address and, in 6 cases,  assessed the problem’s significance. In addition, we found that the  regulators used the statutory discretion allowed to examine reasonable  alternatives. In many instances, they requested public comments on  specific elements of the regulation and then examined alternative  regulatory approaches in the context of responding to the comments.  Most of the regulations also considered different compliance dates for  enforcement to begin. For example, one agency found that its regulation  would impact municipalities and thus provided a transition period for  compliance of over 3 years for municipal entities.
For 7 of the 10 regulations we reviewed, the agencies generally assessed  benefits and costs of the alternative chosen. Specifically, SEC and CFTC  analyzed the benefits and costs of their regulations and FDIC included  discussions of benefits and costs in response to comments about specific  elements of its regulations. As recommended by OMB’s guidance, the  analyses generally included: descriptions of the benefits and costs that accrue to U.S. citizens and descriptions of the benefits and costs measured against a baseline, descriptions of the reasons for choosing among reasonable descriptions of the benefits and costs that could not be monetized or  quantified, and  cross-references to data or studies on which the analysis was based.
While these aspects of the regulators’ benefit-cost analyses were  consistent with OMB’s guidance, other aspects of the analyses were not.  In particular, one of the seven benefit-cost analyses monetized the costs  of the regulation, but the analysis did not monetize the benefits. None of  the other analyses monetized either the benefits or costs, identified the  type and timing of them, or expressed them in constant dollars. According  to Circular A-4, monetizing allows regulators to evaluate different  regulatory options using a common measure. When it is not possible to  monetize a benefit or cost, OMB’s guidance encourages agencies to  measure it quantitatively, in terms of its physical units. Two of the seven  benefit-cost analyses quantified the benefits and costs of the regulation  that could not be monetized; the remaining five regulations that assessed  benefits and costs did not attempt to quantify either the benefits or the  costs. When it is not possible to measure benefits and costs monetarily or  quantitatively, OMB guidance instructs agencies to present qualitative  information on benefits and costs, including a discussion of the strengths  and limitations of the qualitative information. However, none of the  benefit-cost analyses of the federal financial regulators that we reviewed  either explained why benefits and costs could not be monetized or  quantified or discussed the strengths and limitations of the available  qualitative information. In addition, only two of the seven benefit-cost  analyses looked beyond direct benefits and costs and considered any  important ancillary benefits, costs, and countervailing risks, as  recommended by OMB guidance. Without monetized or quantified  benefits and costs, or an understanding of the reasons they cannot be  monetized or quantified, it is difficult for businesses and consumers to  determine if the most cost-beneficial regulatory alternative was selected  or to understand the limitations of the analysis performed. See appendix  IV for more information about the regulatory analysis, including the  benefit-cost analysis, of the 10 regulations that we reviewed.
Although federal financial regulators said that they followed OMB’s  guidance in spirit or principle, we found areas where regulators could  have improved their regulatory analyses by applying OMB’s guidance  more fully. As a result, regulators may be missing an opportunity to  enhance the rigor and improve the transparency of their analyses. The  current administration has made efforts to encourage federal financial  regulatory agencies to conduct more rigorous analysis of financial  regulations. For instance, in July 2011, the President signed E.O. 13579  to encourage independent regulatory agencies to comply with E.O. 13563  (which supplements E.O. 12866) and enhance the rigor and transparency  of their analyses. In addition, in its 2011 annual report to Congress, OMB  emphasized that better information on the benefits and costs of the rules  issued by independent regulatory agencies would help in informing the  public and obtaining a full accounting of the rules’ benefits and costs.  OMB reported that the absence of such information was a continued  obstacle to transparency and might have adverse effects on public policy.
subsections: section_title: Stakeholders Cited Weaknesses in Past and Current Regulatory Analyses but also Recognized the Challenges These Analyses Presented
paragraphs: Academics, policy analysts, and stakeholders from industry groups have  noted a number of concerns with regulatory analyses of the regulations  issued pursuant to the Dodd-Frank Act. For example, representatives  from industry and consumer associations said that the regulatory  analyses done to date for the proposed and finalized Dodd-Frank Act  regulations generally focused on measuring the costs associated with  data collection and did not provide information on the possible impact of  regulations on the behavior of businesses and consumers. While they  were critical of the analyses conducted, the representatives also  recognized that the regulators faced challenges in producing meaningful  regulatory analyses, in part because of tight time frames for issuing  regulations and the lack of available data.
Further, some academics and policy analysts have argued that benefit- cost analyses of financial regulations have not been as rigorous as those  done for other regulations. Specifically, a review of financial regulations  by one analyst led him to conclude that “the nation’s financial regulators  ha largely failed to perform the rigorous analysis required of most other  government agencies, especially those in the fields of health, safety, and  environmental regulation.” Other policy analysts concluded that  regulatory analyses by independent regulatory agencies, including some  federal financial regulators “generally do not analyze economic effects in  a manner intended to meet any identifiable standards for such analysis.”  However, an academic with whom we spoke stated that additional cost- benefit analysis requirements will provide only a marginal increase in  value; instead, according to the academic, the goal should be to  accomplish regulatory objectives at minimum cost. As we have reported,  the difficulty of reliably estimating the costs of regulations to the financial  services industry and the nation has long been recognized, and the  benefits of regulation generally are regarded as even more difficult to  measure. This situation presents challenges for regulators attempting to  estimate the anticipated costs of regulations and also for industries  seeking to substantiate claims about regulatory burdens. For example,  while compliance costs of financial regulations can usually be estimated  and measured, the economic costs of transactions foregone as the result  of regulation can be more difficult to anticipate and measure.
Other entities have also identified shortcomings in some of the regulators’  benefit-cost analyses. For example, the United States Court of Appeals  for the District of Columbia Circuit determined that SEC failed to  adequately assess the economic aspects of a regulation. In addition, in  the spring of 2011, the CFTC Inspector General found that for four rules it  examined, CFTC generally adopted a “one size fits all” approach without  giving significant regard to the deliberations addressing idiosyncratic cost  and benefit issues that were shaping each rule. CFTC has since revised  its staff guidance on cost-benefit considerations for Dodd-Frank Act  rulemakings and provided guidance to address the recommendations of  the Inspector General.
Finally, many federal financial regulators told us that it could be  challenging to obtain the best economic information available to conduct  their regulatory analyses in a timely manner. For example, a regulator  stated that much of the information is held by regulated entities and  considered proprietary, and neither the regulators nor the regulated  entities want the information made public during the public rulemaking  process. Also, some regulators note that PRA limits their ability to request  information outside of the public rulemaking process from ten or more  entities at a time unless OMB does an extensive review of and approves  the request. Furthermore, given the time constraints for performing  regulatory analysis for Dodd-Frank Act regulations, a regulator said that  the time required to complete an OMB review could preclude them from  being able to pursue information outside the rulemaking process.
section_title: Federal Financial Regulators Have Informally Coordinated Their Rulemaking Efforts but Generally Lack Policies to Guide These Efforts
paragraphs: The Dodd-Frank Act requires or authorizes the federal financial regulators  to promulgate hundreds of rulemakings. Some of these rules will be  issued jointly by multiple agencies and thus require interagency  coordination. Other rules will be issued separately by regulators but, in  some cases, cover similar subject matter, creating the potential for  overlap or duplication. For instance, authority for developing and adopting  regulations to implement Section 619, also known as the Volcker Rule, is  divided among the CFTC, FDIC, the Federal Reserve Board, OCC, and  SEC. While the Dodd-Frank Act does not require all of the regulators to  issue a joint rulemaking on the Volcker Rule, it does require that the  regulators consult and coordinate with each other, in part to ensure that  their regulations are comparable. In general, coordination among federal  agencies takes place when two or more agencies engage in joint  activities in an effort to reduce duplication or overlap in programs and  regulations. Such efforts may not only ease the burden of compliance on  industry but also reduce market participants’ uncertainty about the future  functioning of financial markets. Joint activities can range from required  interagency meetings during a joint rulemaking to voluntary informal  discussions among colleagues across different agencies engaged in  similar efforts. In sum, effective coordination could help agencies  minimize or eliminate staff and industry burden, administrative costs,  conflicting regulations, unintended consequences, and uncertainty among  consumers and markets.
subsections: section_title: Although the Dodd-Frank Act Requires Coordination, the Extent and Nature of Coordination Varies across Regulators and Rules
paragraphs: The Dodd-Frank Act includes a number of both agency-specific and rule- specific coordination and consultation requirements. For example, it  imposes specific interagency coordination and consultation requirements  and responsibilities for the Financial Stability Oversight Council (FSOC)  and CFPB.
Title I of the Dodd-Frank Act creates FSOC to, among other things,  identify potential threats to the financial stability of the United States  and make recommendations to primary functionary regulatory  agencies to apply certain supervisory standards. Title I imposes a  broad responsibility on FSOC to facilitate interagency coordination by  facilitating information sharing and coordination among its member  agencies and other federal and state agencies on the development of  financial services policy, rulemaking, examinations, reporting  requirements, and enforcement actions.
Title X of the Dodd-Frank Act requires CFPB to consult with the  appropriate prudential regulators or other federal agencies, both  before proposing a rule and during the comment process, regarding  consistency with prudential, market, or systemic objectives  administered by such agencies. CFPB must also publish any written  objections to a proposed rule by a prudential regulator when the rule  is adopted, along with an explanation of its decision to accept or reject  the objection. In addition, FSOC can set aside a final regulation  prescribed by CFPB with a two-thirds vote if it decides that the  regulation or provision would put the safety and soundness of the  banking system or the stability of the financial system at risk. While  not a specific coordination requirement, this requirement will also  serve to encourage CFPB to coordinate its rulemaking with other  regulators.
The Dodd-Frank Act does not subject any of the other federal financial  regulators to similar overarching coordination requirements, but it does  impose rule-specific coordination or consultation requirements. For  example, it requires regulators to engage in a number of joint  rulemakings, implicitly requiring them to coordinate with each other. It  also includes provisions that explicitly require the regulators to coordinate  or consult with each other when promulgating a specific rule or related  rules dealing with a particular subject matter. Examples of such  coordination and consultation requirements rules include the following:
Title I includes a number of consultation or coordination requirements.
For example, FSOC is required to consult with the primary financial  regulatory agency, if any, before designating a nonbank financial  company as systemically important. FSOC must also consult with  relevant members before imposing prudential standards or other  requirements that are likely to have a “significant impact” on a  functionally regulated subsidiary or depository institution subsidiary of  a systemically important company. Before imposing prudential  standards or other requirements likely to have a significant impact on  a subsidiary of a non-bank financial company or of certain bank  holding companies supervised by the Federal Reserve Board, the  Federal Reserve Board must consult with each FSOC member that  primarily supervises any such subsidiary with respect to such  standards or requirements. Finally, the Federal Reserve Board also is  required to consult with FSOC and FDIC on setting requirements to  provide for early remediation of financial distress of a nonbank  financial company that it supervises or a bank holding company with  total consolidated assets equal to or greater than $50 billion.
Title II of the Dodd-Frank Act requires FDIC, in consultation with  FSOC, to adopt such rules it deems necessary or appropriate to  implement the orderly liquidation authority process.
Title VII of the Dodd-Frank Act creates a regulatory regime for the  over-the-counter swaps markets. Under this title, SEC and CFTC are  required to coordinate and consult with each other and any relevant  prudential regulators before commencing rulemaking on swaps or  swap-related subjects, for the express purpose of assuring regulatory  consistency and comparability across the rules or orders.
Title VIII of the Dodd-Frank Act includes a requirement that CFTC and  SEC coordinate with FSOC and the Federal Reserve Board for any  regulations they decide to issue regarding risk management  supervision programs for designated clearing entities.
section_title: Regulators Coordinated Some of the Final Rules but Generally Lack Policies and Procedures to Guide Coordination Efforts
paragraphs: Of the 18 final rules that we reviewed to assess interagency coordination,  federal regulators told us that they coordinated with other regulators on 9  of the rulemakings. Two of the rules required interagency coordination  under the Dodd-Frank Act, but none of the other 16 rules were joint rules  or specifically required interagency coordination. Regulators told us that  the importance of coordination was established early on by their senior  leadership, who met shortly after the passage of the Dodd-Frank Act to  identify and discuss areas in which interagency coordination could be  useful and establish interagency working groups or points of contacts  where necessary. For the two rules that required interagency  coordination, SEC staff told us that they met with staff from other  agencies and provided them with rule-related materials for their review  and comment. The staff said that they did not receive any substantive  comments and noted that the rules did not potentially duplicate or conflict  with any of the other agencies’ rules. While regulators were not required  to coordinate on any of the other 16 rules that we reviewed—for example,  because the rules were administrative or fell within the exclusive purview  of a single regulator—they chose to coordinate or consult with other  regulators on seven rules for a variety of reasons. For instance, Section  343 of the Dodd-Frank Act amended the Federal Deposit Insurance Act to  provide unlimited deposit insurance for “noninterest-bearing transaction  accounts” for a 2-year period. Before issuing its rule to adopt this  requirement, FDIC staff told us they had held informal discussions with  Federal Reserve Board staff about whether certain types of payments to  depositors qualified as interest. FDIC staff told us that no other  consultation took place, given that the scope of the proposed rule was  minimal. For rules that raised some concerns about duplication or conflict,  however, coordination was broader in scope. For example, CFTC, FDIC,  and OCC issued separate rules to regulate off-exchange foreign  exchange transactions that their regulated entities entered into with retail  customers. OCC staff told us that the regulators—including CFTC,  Federal Reserve Board, FDIC, NCUA, and SEC—had voluntarily  consulted one another before issuing the rule.
In discussing the ways in which they had coordinated with other  regulators on rulemakings to date, regulators generally described informal  processes. For example, to help facilitate coordination, a number of the  regulators said that they had identified points of contact at other  regulators for specific rules. They used those points of contact to solicit  comments on draft proposed rules or obtain other information and data  through e-mail or phone calls. Similarly, CFPB staff also said that they  had informally consulted with other regulators on rulemaking through  conference calls and by sharing portions of draft rules for review.
Although federal financial regulators informally coordinated with each  other on some of the final rules that we reviewed, most of the regulators  lacked written policies and procedures to facilitate interagency  coordination. Specifically, seven of nine regulators included in our review  did not have written policies and procedures to facilitate coordination on  rulemaking. For example, CFPB is in the process of developing policies  and procedures for coordination on rulemaking, including how to resolve  jurisdictional or other disagreements in rulemaking. As noted earlier,  CFPB is required to consult with the appropriate prudential regulators or  other federal agencies both before proposing a rule and during the  comment process. According to CFPB officials, the Bureau is considering  various coordination issues and working to establish policies or  procedures to facilitate coordination. CFPB officials noted that they were  still setting up CFPB and that many decisions, including how CFPB would  coordinate with other regulators, remained to be determined. The officials  also said that CFPB was committed to fulfilling the coordination  requirements set for it in the Dodd-Frank Act.
Moreover, the written policies and procedures that do exist are limited in  their scope or applicability. FDIC and OCC are the only two of the nine  regulators that have rulemaking policies that include guidance on  developing interagency rules. For example, FDIC’s policy manual for  developing rules includes a section on developing an interagency rule or  statement of policy that describes the roles and responsibilities of the  agencies in the process. Similarly, OCC’s rulemaking procedures manual  includes guidance on interagency rulemakings and outlines, among other  things, how staff will be designated to represent OCC in such rulemakings  and the responsibilities of the designated staff. However, neither FDIC’s  nor OCC’s policies describe the process for soliciting and addressing  other regulators’ comments, including conflicting views. Other regulators  have procedures in place that could facilitate coordination, but these  procedures are also limited. For instance, FSOC has developed a  consultation framework that provides timeframes for holding initial  meetings to discuss potential approaches to regulation and circulating  term sheets and proposals to enact the regulation. However, the  framework applies only to rules for which consultation with FSOC is  required. Additionally, SEC and CFTC have a memorandum of  understanding that establishes a permanent regulatory liaison between  them and contains procedures to facilitate the discussion and  coordination of regulatory action on issues of common regulatory interest,  such as novel derivative products. Such regulatory actions can include  investigations, examinations, and individual rulemakings.
Documented policies can help ensure that adequate coordination takes  place and help to improve interagency relationships, prevent the  duplication of efforts at a time when resources are extremely limited, and  avoid the potential for disruptions across financial markets caused by  regulatory uncertainty. In prior work, we have identified the establishment  of compatible policies and procedures to allow for efficiency of operations  across agency boundaries as a best practice for sustaining and  enhancing collaborative efforts across federal regulatory agencies. As  we have previously reported, the lack of compatible standards, policies,  and procedures can hinder collaboration. Given the breadth and scope of  the Dodd-Frank Act rulemakings, having documented policies and  procedures for interagency coordination is especially important to avoid  conflicting or duplicative rules.
section_title: The Nature of FSOC’s Involvement in the Rulemaking Process Has Been Evolving
paragraphs: While FSOC continues to evolve and define its role, FSOC staff noted  that its organizational structure helps ensure coordination among its  member agencies. First, because FSOC is made up of all the federal  financial regulators and other entities, and the regulators are all voting  members, it is an interagency body by definition and takes actions on that  basis. Second, FSOC staff told us that the council has established  committees and subcommittees to help carry out its responsibilities and  authorities, further promoting interagency coordination. These groups  are comprised of staff from FSOC member agencies and can facilitate  informal coordination outside of FSOC’s explicit coordination  requirements. For example, the Systemic Risk Committee identified  mortgage servicing as a key issue that had interagency implications and  was able to get staff from the relevant agencies to work together to  prioritize this as a recommended area for regulatory action in the annual  report, according to FSOC staff. Third, as FSOC Chairperson, the  Secretary of the Treasury can also promote coordination among member  agencies. In its 2010 annual report, FSOC noted that its chairperson was  playing an active role in coordinating the agencies’ work to draft  consistent and comparable regulations to implement the proprietary  trading and the joint risk retention rules, as required under the Dodd- Frank Act.
In addition to its organizational structure, FSOC also has developed tools  to facilitate formal coordination and promote informal coordination among  its members. For example, FSOC has developed a consultation  framework for the rulemakings for which consultation with FSOC is  required. The framework establishes time frames for coordinating three  key tasks in these rulemakings: initial interagency meetings, circulation of  term sheets for interagency comments, and circulation of proposed rules  for interagency comments. In addition, in October 2010 FSOC issued an  integrated implementation roadmap for the Dodd-Frank Act that included  a comprehensive list of the rules regulators were required to promulgate,  provided a timeline for those rulemakings, and identified the agencies  responsible for each rulemaking.
Although these tools are a positive development in facilitating  coordination, they have limited usefulness. For example, although the  FSOC consultation framework specifies the time frames for completing  major milestones in rulemakings for which consultation with FSOC is  required, it does not provide any specifics about staff responsibilities or  the processes to be used to facilitate coordination, and FSOC staff told us  the framework is not intended to do so. It also applies only to coordination  between FSOC and member agencies. Also, the roadmap does not  discuss coordination among member agencies. For example, the extent  to which interagency coordination is required or what happens when  rulemakings conflict with or duplicate each other is not mentioned.  Representatives from industry associations told us that FSOC’s  coordination efforts in their view generally had not been useful and should  be strengthened. For example, according to industry representatives,  FSOC has not used its position to help agencies sequence the rules in a  logical order to give industry the ability to comment on the rules in a  meaningful way.
Another coordination body in the federal financial arena is the Federal  Financial Institutions Examination Council (FFIEC). FFIEC, established  through statute in 1978, is a formal interagency body empowered to  prescribe uniform principles, standards, and report forms for the federal  examination of financial institutions by the Federal Reserve Board, FDIC,  NCUA, OCC, and the State Liaison Committee, and to make  recommendations to promote uniformity in the supervision of these  financial institutions. The Dodd-Frank Act does not require FFIEC to  play a coordinating or consultative role in any of the act’s rulemaking  efforts. However, FFIEC has remained abreast of its member agencies’  activities relative to the Dodd-Frank Act through ongoing discussions and  interagency coordination of proposed rulemakings required by the act.
section_title: It Is Too Early to Determine the Impact of Dodd-Frank Act Regulations, but Opportunities for Future Analyses Exist
paragraphs: Federal financial regulators, industry association representatives, and  others told us that assessing the actual impact of the Dodd-Frank Act  regulations generally is premature for a number of reasons, including the  following:  Industry representatives and regulators noted that sufficient time has  not elapsed to allow for many of the Dodd-Frank Act rules to be fully  implemented and, in turn, assessed. Indeed, nearly half of the final  Dodd-Frank Act rules that were effective as of July 21, 2011, did not  take effect until after July 1, 2011, and will require time to implement.  For example, OCC and FDIC separately issued rules to allow banks  to engage in foreign-exchange transactions with retail customers that  became effective on July 15, 2011. Before engaging in such  transactions under the new rules, banks must take a number of  actions, such as obtaining permission from their regulators, modifying  systems to meet new disclosure and recordkeeping requirements, and  establishing and implementing internal rules, procedures, and controls  to comply with new trading and operational standards. Referring to the  yet-to-be-issued derivatives rules, representatives from a derivatives  association and a coalition of various national and state organizations  told us that it would take firms a significant amount of time, perhaps  years, to set up the infrastructure and develop the systems and  models needed to comply with those rules. Additionally, officials from  the Federal Reserve Board and two labor unions told us that the  impact and associated benefits and costs of the Dodd-Frank Act rules  could not be determined until the economy has gone through at least  one business cycle.
Representatives from a banking association told us that the majority  of final rules that were effective as of July 21, 2011, were not  expected to have a significant effect—both because of their scope  and the relatively small number of them. For example, some of the  Dodd-Frank Act rulemakings to date are orders, notices, or similar  actions rather than regulations that directly impact regulated  institutions and the markets. Industry representatives said that many  of the final rules that were in effect as of July 2011 are likely to have  minimal impact, but that some of the forthcoming rules would have a  significant impact, such as those involving mortgages, derivatives  trading and clearing, and consumer financial protection. In addition,  representatives from another banking association said that banks are  just beginning to understand the rules and that only a fraction of the  rules have been finalized. Moreover, Federal Reserve Board officials  said that estimating the cumulative impact of the Dodd-Frank Act rules  was not yet possible because few of the act’s provisions had taken  effect.
Some of the final rules are related to rules that are forthcoming; as a  result, the impact of these rules needs to be assessed in combination,  not in isolation. Regulators have not drafted and issued the rules in an  appropriate sequence, in part because of statutory deadlines, creating  a situation in which one rule will be affected by another rule that has  not yet been proposed. For example, the Federal Reserve Board  issued a rule to establish the period within which financial institutions  would need to bring their activities and investments into compliance  with the Volcker Rule. Authority for developing and adopting  regulations to implement the Volcker Rule is divided among the  Federal Reserve Board, OCC, FDIC, SEC, and CFTC, but these  agencies had not yet proposed such rules as of July 21, 2011. In  addition, federal financial regulators are drafting and implementing  Basel III and other non-Dodd-Frank Act rules that could have related  economic effects on regulated entities.
Likely reflecting the early stages of the implementation of the Dodd-Frank  Act, our search of several economic journal databases did not identify any  retrospective studies that analyzed the economic impact of the Dodd- Frank Act regulations. Some studies that we reviewed prospectively  analyzed the potential costs of various aspects of the Dodd-Frank Act but  did not seek to quantify the potential benefits. For example, the  Congressional Budget Office estimated that the act would increase the  federal government’s revenues and direct (or mandatory) spending by  $13.4 billion and $10.2 billion, respectively, over the 2010 through 2020  period, and those effects were projected to reduce deficits, on net, by  $3.2 billion. Other studies that we reviewed analyzed how effectively the  act, and the regulations implemented under it, might address the causes  of the recent financial crisis and, in turn, reduce the likelihood of or  mitigate future financial crises; but these potential impacts were not  quantified. In our future reviews, we will continue to search for and  review relevant research on the benefits and costs of Dodd-Frank Act  regulations.
subsections: section_title: Regulators Have Not Yet Developed Plans for Retrospective Reviews of Dodd-Frank Act Regulations
paragraphs: Federal financial regulators are required to conduct retrospective reviews  of their existing rules under various statutes and will include Dodd-Frank  Act rules in their future reviews. The Economic Growth and Regulatory  Paperwork Reduction Act of 1996 (EGRPRA) requires FFIEC and its  members (FDIC, the Federal Reserve Board, OCC, NCUA, and formerly  OTS) to review all existing regulations every 10 years and eliminate (or  recommend statutory changes that are needed to eliminate) any  regulatory requirements that are outdated, unnecessary, or unduly  burdensome. In July 2007, FFIEC reported the results of its members’  most recent EGRPRA review, which was done over a 3-year period  ending in December 2006. In conducting their review, the federal  banking regulators sought public comment on more than 130 regulations  and hosted 16 outreach sessions around the country. During the  EGRPRA process, the federal banking agencies undertook various efforts  to reduce regulatory burden on institutions that they supervised and  regulated—including regulatory changes and efforts to streamline  supervisory processes. They also identified four areas to explore further  for opportunities to revise regulations—suspicious activity reports, lending  limits, the Basel II capital framework, and consumer disclosures.
In addition to EGRPRA, Section 610 of RFA requires independent and  other regulatory agencies to review within 10 years of publication any of  their rules that have a significant economic impact on a substantial  number of small entities. The review’s purpose is to determine whether  such rules should be maintained, amended, or rescinded to minimize their  impact on small entities. Federal banking regulators have conducted  separate Section 610 reviews and, as discussed earlier, included such  reviews within their broader retrospective reviews done pursuant to  EGRPRA. Similarly, SEC has conducted Section 610 reviews. As a  matter of policy, SEC reviews all final rules that it publishes for notice and  comment to assess their utility and continued compliance with RFA.
Although subject to the RFA’s Section 610 requirement, CFPB is also  subject to its own retrospective review requirement. Specifically, Section  1022(d) of the Consumer Financial Protection Act of 2010 requires CFPB  to assess each of its significant rules to address, among other things, the  effectiveness of the rule in meeting the purposes and goals of the act and  specific agency goals. CFPB officials told us that they were considering  how to conduct their retrospective reviews and were looking at FFIEC’s  retrospective reviews as guidance.
Federal financial regulators also may review their Dodd-Frank Act  regulations in response to the recently issued E.O. 13579. The order  notes that independent regulatory agencies should consider how best to  promote retrospective analysis of rules that may be outmoded, ineffective,  insufficient, or excessively burdensome. It further notes that each agency  should develop and release to the public a plan for periodically reviewing  its existing significant regulations. Although federal financial regulators  are not required to follow E.O. 13579, CFTC and SEC are developing  plans to conduct retrospective reviews in light of the order. In a June 2011  Federal Register release, CFTC noted that it had reviewed many of its  existing regulations as part of its implementation of the Dodd-Frank Act.
After issuing its final Dodd-Frank Act rules, CFTC plans to conduct  retrospective reviews of the remainder of its regulations. CFTC asked for  public comments on, among other things, what criteria it should use to  prioritize the review of existing rules and which of the executive order’s  guidelines and principles it should voluntarily adopt. As part of its ongoing  efforts to update its regulations and in light of E.O. 13579, SEC issued a  release in September 2011, requesting public comments on the  development of a plan for retrospective review of its existing significant  rules. Specifically, SEC asked what factors it should consider in  selecting and prioritizing rules for review and how frequently it should  conduct the reviews. SEC also included questions on the availability of  data it would need and processes for gathering relevant data and  analyses.
Although federal financial regulators told us that they planned to conduct  retrospective reviews of their Dodd-Frank Act regulations in response to  statutory requirements or at their own discretion, some of the regulators  we reviewed have not developed plans for such reviews. In our prior  work, we identified procedures and practices that could be particularly  helpful in improving the effectiveness of retrospective reviews. In  particular, we noted that agencies would be better prepared to undertake  reviews if they had identified the needed data before beginning a review  and, even better, before promulgating the rule. If agencies fail to plan for  how they will measure the performance of their rules and how they will  obtain the data they need to do so, they may be limited in their ability to  accurately measure the progress or true effect of the regulations. For  example, by not engaging in advance planning, an agency may realize  too late that it lacks the necessary baseline data to assess regulations  promulgated years before. By planning ahead, such as what SEC  appears to be doing in its retrospective review release, an agency can  identify not only potential data collection challenges but also alternative  data sources or data collection strategies for conducting the reviews.
section_title: FSOC Is Working to Meet Its Multiple Reporting Requirements but Has Not Yet Taken Steps to Assess the Impact of Dodd-Frank Act Rules
paragraphs: FSOC has conducted analyses to assess the impact of various provisions  and regulations of the Dodd-Frank Act. The act identifies specific areas  for FSOC to study (including making recommendations) to help inform  rulemaking. These areas include the financial sector concentration limit  applicable to large financial firms, proprietary trading and hedge fund  activities of banks, and contingent capital for nonbank financial  companies. Issued in January 2011, the concentration limit study  concluded that the limit was unlikely to have a significant effect on the  cost and availability of credit but did not quantify the impact. Also in  January 2011, the Chairperson of FSOC issued a study on the economic  impact of possible financial services regulatory limitations intended to  reduce systemic risk. The study was based largely on existing research  and noted that the Dodd-Frank Act undoubtedly had a significant effect  but that it was too soon to attempt to quantify its aggregate impact or the  specific impact of various provisions. The Chairperson of FSOC is  required to conduct a follow-up study every 5 years and recommended  that the next study consider the experience of implementing the Dodd- Frank Act and any further original research.
FSOC also issued its first annual report in July 2011. The Dodd-Frank Act  requires FSOC to issue an annual report that addresses, among other  things, (1) significant financial market and regulatory developments; (2)  potential emerging threats to the financial stability of the United States;  and (3) recommendations to enhance the integrity, efficiency,  competitiveness, and stability of U.S. financial markets, promote market  discipline, and maintain investor confidence. The 2010 annual report  included information and analyses on the U.S. economy and financial  system, implementation of the Dodd-Frank Act, and emerging threats to  the U.S. financial stability. Consistent with its mandate, FSOC made a  series of recommendations to its member agencies and market  participants. FSOC recommended heightened risk management and  supervisory attention in specific areas, further reforms to address  structural vulnerabilities in key markets, steps to address reform of the  housing finance market, and coordination on financial regulatory reform.  According to FSOC, its recommendations collectively addressed the  identified vulnerabilities in the system and emerging threats to financial  stability.
In light of its statutory requirements, FSOC plans to assess the future  impact of significant Dodd-Frank regulations, including those that may not  have systemic risk implications. According to FSOC staff, FSOC would  not be able to make recommendations—for instance, to improve the  integrity, efficiency, competitiveness, and stability of the U.S. financial  markets—without considering the impact of the act and its regulations.  However, they also noted that was too early for such a review because  most of the Dodd-Frank Act rules were not in effect. FSOC staff also said  that the council was actively tracking efficiency and competitiveness- related issues and, in conjunction with the Office of Financial Research,  developing its research capabilities. According to FSOC staff, FSOC  has not directed the Office of Financial Research to begin identifying and  collecting the data that will be needed to help FSOC assess the Dodd- Frank Act rules. Rather, at this early stage the Office of Financial  Research is focused on ramping up its capabilities with the support of  FSOC members. FSOC staff said that they expect the Office of Financial  Research to provide more data and analytical support to FSOC in the  future.
section_title: GAO Is Developing a Framework for Future Impact Analyses
paragraphs: In response to our mandate to analyze the impact of regulations on the  financial marketplace, we have begun to construct an analytical  framework for doing so when practicable. In developing our framework,  we have consulted with regulators, academics, industry associations, and  others. These parties recognized the importance of assessing the impact  of the Dodd-Frank Act rules or provided us with suggestions on which  rules to review and approaches for analyzing such rules. At the same  time, many stated that analyzing the impact of the Dodd-Frank Act rules,  individually or cumulatively, would be challenging because of the  multitude of intervening variables, the complexity of the financial system,  data limitations, and the changing economic conditions. One academic  has also noted that measuring the costs of financial regulation is  challenging in part because the private costs of regulation are difficult to  obtain and that measuring the benefits is a more difficult and perhaps  intractable challenge. Likewise, we also have reported that measuring  the benefits and, to a lesser extent, the cost of financial services  regulations historically has posed a number of difficulties and  challenges.
Given the challenging task at hand, we plan to continue to seek input  from the financial regulators, the industry, and others as we move forward  in developing our methodology for assessing the impact of Dodd-Frank  Act regulations. As part of our framework, we plan to continue to track  rules promulgated pursuant to the Dodd-Frank Act and develop methods  to conduct preliminary analyses of their potential impact and benefits and  costs. For example, we plan to review the benefit-cost analysis, if any,  conducted for each rule by the relevant agency. To the extent feasible,  we plan to analyze not only the specific impact of selected rules but also  the overall impact of the Dodd-Frank Act, using quantitative methods  wherever possible. However, it will be difficult to quantify all of the  potential impacts, especially those that are expected to materialize over a  longer period of time or that require the forecasting of indirect causal  relationships. As a result we plan to augment any quantitative analysis we  conduct with qualitative assessments to provide information in these  areas. We also plan to monitor and report on relevant macroeconomic  indicators, some of which will be directly related to the variables  enumerated in our mandate. To that end, we are developing criteria for  selecting rules for impact analysis and identifying potential methodologies  and data sources. Given that the rules are being promulgated on an  ongoing basis, we plan to analyze our selected rules on a similar basis  once sufficient time has passed.
section_title: Conclusions
paragraphs: In the immediate future, federal financial regulators will need to craft  hundreds of regulations to implement the Dodd-Frank Act’s reforms. The  breadth of the issues and the short time frames involved present  numerous challenges, including allocating sufficient time and resources to  developing and analyzing the potential effects of the rules to identify the  regulatory alternative with the greatest net benefits. To find that  alternative, regulators would ideally monetize the anticipated benefits and  costs of regulations during rulemakings. However, anticipating,  evaluating, and measuring the potential impact of financial regulations— especially the potential benefits—historically have proven difficult. Indeed,  for the rules we reviewed, monetization of costs largely was limited to  paperwork-related costs and excluded other direct and indirect costs, and  monetization of benefits was nonexistent. These efforts, while positive,  fall short of what could be done to determine the potential costs and  benefits of the new rules.
The guidelines in OMB Circular A-4 could help in addressing the  challenges involved in analyzing the potential costs and benefits. It  recognizes that benefits and costs cannot always be monetized or  quantified and provides guidance for evaluating their significance when  they cannot be. For example, it directs agencies to disclose the strengths  and limitations of unquantified benefits and costs, including why they  cannot be quantified, and explain the rationale behind a regulatory choice  that is made using unquantified information. Although the federal financial  regulators are not required to follow this guidance, most of them told us  that they did so in spirit or principle. While some regulators had  completed some of OMB’s recommended analyses, we also found  inconsistencies in the extent to which the analyses—and some  rulemaking policies—reflected OMB’s guidance. For example, the  regulators’ analyses described the need for regulatory action and  described the qualitative benefits and costs of the chosen alternative.  However, the analyses did not explain why benefits and costs could not  be monetized or quantified and did not discuss the strengths and  limitations of the available qualitative information. By taking steps to more  fully incorporate OMB’s guidelines in their rulemaking policies and  procedures, federal financial regulators could enhance the rigor and  transparency of their regulatory analyses. By taking such action,  regulators could demonstrate the rationale behind their regulatory  decisions and ensure that the alternatives they have chosen are in fact  the most cost-beneficial options.
Throughout the implementation of the Dodd-Frank Act rules, coordination  among the federal financial regulators will be critical because of the  breadth of issues addressed and the number of regulators issuing  concurrent rules. With adequate and timely coordination, regulators may  avoid overlapping, duplicative, or conflicting rules that could create  market inefficiencies. We found that regulators had coordinated on some  of the rules that were effective as of July 2011. Such coordination is a  positive stepping stone for future coordination. However, we also found  that most of the coordination, to date, had been informal and ad hoc. We  also found that most of the federal financial regulators included in our  review, including CFPB, did not have formal policies to guide interagency  coordination. While informal and ad hoc coordination can produce the  desired results, such coordination can break down when disagreements  arise or other work becomes pressing. Formal policies can institutionalize  informal coordination practices and provide a framework for coordinating,  helping to ensure that regulators are appropriately consulted and that  their views, including conflicting viewpoints, are addressed in a consistent  and transparent fashion. Given its membership and charge to help  facilitate coordination among its member agencies, FSOC is positioned to  work with the federal financial regulatory agencies to establish compatible  policies that would guide and facilitate interagency coordination among its  members throughout the course of Dodd-Frank Act rulemakings.
After the regulations are implemented, federal financial regulators will  need to revisit their prospective analyses of Dodd-Frank Act regulations in  light of actual outcomes to help ensure that the Dodd-Frank Act  regulations are achieving their intended purpose without creating  unintended consequences that negatively impact the markets. The  regulators are required to conduct retrospective reviews of their  regulations, including rules issued pursuant to the Dodd-Frank Act in the  future. However, some of the regulators have not yet developed plans of  how to review their Dodd-Frank Act regulations after they are  implemented. The regulators are still in the early stages of their  rulemaking processes and have issued only a small number of the  required rules, but not establishing baseline data early on could  complicate later assessments. As we have found, a common challenge to  conducting effective retrospective reviews is the lack of baseline data for  assessing regulations promulgated years before. By taking steps during  the initial rulemaking to determine how to measure the effects of the  Dodd-Frank Act regulations, including determining how and when to  collect, analyze, and report needed data, federal financial regulators  could better position themselves to conduct effective retrospective  reviews.
Similarly, under the Dodd-Frank Act, FSOC is also required to conduct  periodic studies. As part of these future efforts, FSOC plans to assess  significant Dodd-Frank Act regulations, including some that may not have  systemic risk implications but could affect the stability, efficiency, or  competitiveness of the U.S. financial markets. Opportunities exist for  FSOC and its members to leverage and complement each other’s  retrospective analyses. To date, however, FSOC has not directed the  Office of Financial Research to help it identify and collect the data that will  be needed. Such planning efforts are important to help ensure that FSOC  can not only accurately measure the impact of significant Dodd-Frank Act  regulations but also efficiently coordinate with its members to leverage  their retrospective reviews.
section_title: Recommendations for Executive Action
paragraphs: While the federal financial regulators have begun to take steps to address  challenges associated with promulgating hundreds of new rules required  under the Dodd-Frank Act, we are making four recommendations aimed  at improving the efficiency and effectiveness of these efforts.
To strengthen the rigor and transparency of their regulatory analyses,  we recommend that the federal financial regulators take steps to  better ensure that the specific practices in OMB’s regulatory analysis  guidance are more fully incorporated into their rulemaking policies and  consistently applied.
To enhance interagency coordination on regulations issued pursuant  to the Dodd-Frank Act, we recommend that FSOC work with the  federal financial regulatory agencies to establish formal coordination  policies that clarify issues such as when coordination should occur,  the process that will be used to solicit and address comments, and  what role FSOC should play in facilitating coordination.
To maximize the usefulness of the required retrospective reviews, we  recommend that the federal financial regulatory agencies develop  plans that determine how they will measure the impact of Dodd-Frank  Act regulations—for example, determining how and when to collect,  analyze, and report needed data.
To effectively carry out its statutory responsibilities, we recommend  that FSOC direct the Office of Financial Research to work with its  members to identify and collect the data necessary to assess the  impact of the Dodd-Frank Act regulations on, among other things, the  stability, efficiency, and competitiveness of the U.S. financial markets.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to CFPB, CFTC, FDIC, the Federal  Reserve Board, FFIEC, FSOC, NCUA, OCC, and SEC for review and  comment. CFTC, CFPB, FDIC, the Federal Reserve Board, FSOC, OCC,  and SEC provided written comments that we have reprinted in  appendixes V through XI, respectively. All of these regulators also  provided technical comments, which we have incorporated, as  appropriate.  FFIEC and NCUA did not provide any comments on the  draft report.
In their written comments, the regulators generally agreed with our  findings and conclusions, and some agreed with the recommendations,  while others neither agreed nor disagreed but stated actions they had  taken or planned to take regarding the recommendations. For example, in  their letters, FDIC and SEC noted the challenges of analyzing the  economic impact of financial regulations, but recognized the importance  of such analysis as part of the rulemaking process.  FDIC, OCC, and SEC  also noted that they are not subject to E.O. 12866 and the accompanying  OMB guidance, although they each agreed to look for opportunities to  more fully incorporate the guidance into their rulemaking process. In  addition, CFPB noted its commitment to evidence-based rulemaking, and  the Federal Reserve Board said it will consider appropriate ways to  incorporate applicable recommendations into its rulemaking efforts. With  regard to the recommendation on developing coordination policies, FSOC  noted the importance of coordination and said it would consider the  recommendations as it continues to improve protocols and CFTC outlined  its coordination efforts. In addition, while agreeing that interagency  coordination is important, OCC and SEC also noted in their letters that  efforts to improve coordination through FSOC must be balanced with the  need to ensure that the independence of each regulator is not affected.   We agree that the independence of the regulators is vital to their work,  and we do not believe working with FSOC and the other regulators to  establish formal coordination policies will diminish the regulators’  independence.  To the contrary, establishing coordination policies would  allow the regulators and FSOC to clarify their roles, including how  coordination should take place given the independence of the regulators  and their varying missions.
We are sending copies of this report to CFPB, CFTC, FDIC, the Federal  Reserve Board, FFIEC, FSOC, NCUA, OCC, SEC, interested  congressional committees, members, and others. This report will also be  available at no charge on our Web site at http://www.gao.gov.
Should you or your staff have questions concerning this report, please  contact me at (202) 512-8678 or clowersa@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix XII.
section_title: Appendix I: Scope and Methodology
paragraphs: Our objectives in this report were to examine (1) the regulatory analyses,  including benefit-cost analyses, federal financial regulators have  performed to assess the potential impact of selected final rules issued  pursuant to the Dodd-Frank Act; (2) how federal financial regulators  consulted with each other in implementing selected final rules issued  pursuant to the Dodd-Frank Act to avoid duplication or conflicts; and (3)  what is known about the impact of the final Dodd-Frank Act regulations.
To address these objectives, we limited our analysis to the final rules  issued pursuant to the Dodd-Frank Act that were effective as of July 21,  2011, a total of 32 rules. See appendix III. To identify these rules, we  used a Web site maintained by the Federal Reserve Bank of St. Louis  that tracks Dodd-Frank Act regulations. We corroborated the data with  publicly available information on Dodd-Frank Act rulemaking compiled by  the law firm Davis Polk and Wardwell.
To address our first objective, we reviewed statutes, regulations, GAO  and inspector general studies, and other documentation to identify the  benefit-cost or similar analyses federal financial regulators are required to  conduct in conjunction with rulemaking. We selected 10 of the 32 rules for  further review, comparing the benefit-cost or similar analyses to relevant  principles outlined in the Office of Management and Budget’s (OMB)  Circular A-4. We selected the rules for further review based primarily on  the amount of discretion that agency officials were able to exercise in  implementing the specific Dodd-Frank Act provision. To determine  agency discretion, we reviewed the Federal Register notices for the  agency’s determination of the discretion it was granted. To compare  these rules to the principles in Circular A-4, we developed a checklist with  the principles and applied the checklist to all 10 rules. In conducting each  individual analysis, we reviewed the Federal Register notices and any  supplemental benefit-cost or similar data prepared by the agencies during  the course of the rulemaking. Based on each individual checklist, we  prepared a summary checklist that analyzed the extent to which the rules  as a group complied with the Circular A-4 principles. We also interviewed  officials from the Commodity Futures Trading Commission, Consumer  Financial Protection Bureau, Federal Deposit Insurance Corporation, the  Board of Governors of the Federal Reserve System, Financial Stability  Oversight Council, National Credit Union Administration, Office of the  Comptroller of the Currency, Office of Financial Research, OMB, and  Securities and Exchange Commission to determine the extent to which  benefit-cost or similar analyses were conducted and whether the  analyses were required by statute, regulation, or executive order. Finally,  we interviewed officials from the inspectors general of several federal  financial regulators; representatives from various industry and other  associations, including the American Bankers Association, Americans for  Financial Reform, Business Roundtable, Consumer Bankers Association,  Futures Industry Association, Independent Community Bankers of  America, International Swaps and Derivatives Association, Managed  Funds Association, and U.S. Chamber of Commerce; representatives  from the American Federation of Labor-Council of Industrial  Organizations and Association of Federal, State, County, and Municipal  Employees; and others, including academics and consultants, about their  views on the benefit-cost analyses being done by federal financial  regulators in their Dodd-Frank Act rulemakings.
To address our second objective, we reviewed the Dodd-Frank Act,  regulations, and studies, including GAO reports, to identify the  coordination and consultation requirements federal financial regulators  are required to conduct in conjunction with rulemaking. We selected 18  rules for further review—two of which required interagency coordination  under the Dodd-Frank Act. We selected the other rules for further review  based primarily on our judgment as to whether the rules could have  benefited from any interagency coordination or consultation. To make our  determination, we looked for regulations involving issues or subject  matters that were overseen by multiple federal financial regulators.  Among the 32 rules that were effective as of July 21, 2011, we identified  three notices and one list that had coordination or consultation  requirements. We did not include these agency releases in our review  because they are not regulations. We then sent out questionnaires for  each of the judgmentally selected rules to staff at the regulatory agencies  responsible for promulgating the rules. We compiled and reviewed the  completed questionnaires to assess how coordination and consultation  were taking place between or among the regulatory agencies. We also  interviewed officials from the federal financial regulatory agencies  identified above to determine the extent to which coordination occurred  during their Dodd-Frank Act rulemaking. We sent questionnaires to each  federal financial regulatory agency we interviewed to identify what broad  policies and procedures they have developed to facilitate interagency  coordination and consultation. In addition, we interviewed industry  representatives and others identified in objective one to obtain their views  on interagency coordination and consultation in connection with the  Dodd-Frank Act rulemakings.
To address our third objective, we conducted literature searches to  identify academic and other studies that assessed the impact of the  Dodd-Frank Act, generally, or its various provisions and regulations,  specifically. We reviewed the Federal Register releases for the 32 rules  effective as of July 21, 2011, to identify the impact or benefit-cost analysis  that the agencies conducted in connection with their rules. For 16 of the  32 rules, we sent questionnaires to the appropriate federal financial  regulators to obtain their views on how the rules could impact the six  variables enumerated in our mandate, which included the safety and  soundness of regulated entities, cost and availability of credit, and costs  of compliance with the rules. We also reviewed academic literature to  identify potential data sources and methodological approaches and  limitations. To identify statutory and other requirements imposed on the  federal financial regulators for conducting retrospective or similar reviews  of their existing regulations, we reviewed statutes, executive orders,  Federal Register releases, and GAO and other reports. Finally, we  interviewed the federal financial regulators, industry representatives, and  others identified in objective one about the possible data sources and  methodological approaches that we could use to analyze the actual  impact of the Dodd-Frank Act regulations, individually or cumulatively, in  the future and the potential challenges of conducting such analyses.
We conducted this performance audit from April 2011 to November 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Summary of Common Regulatory Analysis Requirements
paragraphs: This appendix provides information on commonly applicable requirements  for regulatory analysis established by statutes. We included those  requirements identified by the Dodd-Frank Act rules within the scope of  our review for this report and list the requirements chronologically. For  each requirement, we summarize the general purpose, applicability to  federal financial regulators, and requirements imposed by the initiatives  that were relevant to the rules we examined for this report.
The Administrative Procedure Act (APA) was enacted in 1946 and  established the basic framework of administrative law governing federal  agency action, including rulemaking. Section 553 of Title 5, United States  Code, governs “notice-and-comment” rulemaking, also referred to as  “informal” or “APA rulemaking.” Section 553 generally requires (1)  publication of a notice of proposed rulemaking, (2) opportunity for public  participation in the rulemaking by submission of written comments, and  (3) publication of a final rule and accompanying statement of basis and  purpose not less than 30 days before the rule’s effective date.  Congresses and Presidents have taken a number of actions to refine and  reform this regulatory process since the APA was enacted. APA applies  to all federal agencies, including federal financial regulators.
The Regulatory Flexibility Act (RFA) was enacted in response to concerns  about the effect that federal regulations can have on small entities. The  RFA requires independent and other regulatory agencies, including the  federal financial regulators, to assess the impact of their rules on “small  entities,” defined as including small businesses, small governmental  jurisdictions, and certain small not-for-profit organizations. Under the  RFA, an agency must prepare an initial regulatory flexibility analysis at  the time proposed rules are issued, unless the head of the agency  certifies that the proposed rule would not have a “significant economic  impact upon a substantial number of small entities.” 5 U.S.C. § 605(b).  The analysis must include a consideration of regulatory alternatives that  accomplish the stated objectives of the proposed rule and that minimize  any significant impact on such entities. However, RFA only requires  consideration of such alternatives and an explanation of why alternatives  were rejected; the act does not mandate any particular outcome in  rulemaking. After the comment period on the proposed rule is closed, the  agency must either certify a lack of impact, or prepare a final regulatory  flexibility analysis, which among other things, responds to issues raised  by public comments on the initial regulatory flexibility analysis. The  agencies must make the final analysis available to the public and publish  the analysis or a summary of it in the Federal Register. The act also  requires agencies to ensure that small entities have an opportunity to  participate in the rulemaking process and requires the Chief Counsel of  the Small Business Administration’s Office of Advocacy to monitor  agencies’ compliance. The RFA applies only to rules for which an agency  publishes a notice of proposed rulemaking (or promulgates a final  interpretative rule involving the internal revenue laws of the United  States), and it does not apply to ratemaking.
The Paperwork Reduction Act (PRA) requires agencies to justify any  collection of information from the public to minimize the paperwork burden  they impose and to maximize the practical utility of the information  collected. The act applies to independent and other regulatory agencies,  including the federal financial regulators. Under the PRA, agencies are  required to submit all proposed information collections to the Office of  Information and Regulatory Affairs (OIRA) in the Office of Management  and Budget (OMB). Information collections generally cover information  obtained from 10 or more sources. In their submissions, agencies must  establish the need and intended use of the information, estimate the  burden that the collection will impose on respondents, and show that the  collection is the least burdensome way to gather the information.  Generally, the public must be given a chance to comment on proposed  collections of information. 44 U.S.C. § 3506(c), 5 C.F.R. § 1320. At the  final rulemaking stage, no additional public notice and opportunity for  comment is required, although OMB may direct the agency to publish a  notice in the Federal Register notifying the public of OMB review.
The Unfunded Mandates Reform Act (UMRA) was enacted to address  concerns about federal statutes and regulations that require nonfederal  parties to expend resources to achieve legislative goals without being  provided funding to cover the costs. UMRA generates information about  the nature and size of potential federal mandates but does not preclude  the implementation of such mandates. UMRA applies to proposed federal  mandates in both legislation and regulations, but it does not apply to rules  published by independent regulatory agencies, such as the federal  financial regulators. With regard to the regulatory process, UMRA  generally requires federal agencies to prepare a written statement  containing a “qualitative and quantitative assessment of the anticipated  costs and benefits” for any rule that includes a federal mandate that may  result in the expenditure of $100 million or more in any 1 year by state,  local, and tribal governments in the aggregate, or by the private sector.  For such rules, agencies are to identify and consider a reasonable  number of regulatory alternatives and from those select the least costly,  most cost-effective, or least burdensome alternative that achieves the  objectives of the rule (or explain why that alternative was not selected).  UMRA also includes a consultation requirement; agencies must develop a  process to permit elected officers of state, local, and tribal governments  (or their designees) to provide input in the development of regulatory  proposals containing significant intergovernmental mandates. UMRA  applies only to rules for which an agency publishes a notice of proposed  rulemaking.
Congress amended RFA in 1996 by enacting the Small Business  Regulatory Enforcement Fairness Act (SBREFA). SBREFA included  judicial review of compliance with RFA. SBREFA requires agencies to  develop one or more compliance guides for each final rule or group of  related final rules for which the agency is required to prepare a regulatory  flexibility analysis. SBREFA also requires the Environmental Protection  Agency, the Occupational Safety and Health Administration, and the  Consumer Financial Protection Bureau to convene advocacy review  panels before publishing an initial regulatory flexibility analysis. The  federal financial regulators are subject to SBREFA.
The Congressional Review Act (CRA) was enacted as part of SBREFA in  1996 to better ensure that Congress has an opportunity to review, and  possibly reject, rules before they become effective. CRA established  expedited procedures by which members of Congress may disapprove  agencies’ rules by introducing a resolution of disapproval that, if adopted  by both Houses of Congress and signed by the President, can nullify an  agency’s rule. CRA applies to rules issued by independent and other  regulatory agencies, including the federal financial regulators. CRA  requires agencies to file final rules with both Congress and GAO before  the rules can become effective. GAO’s role under CRA is to provide  Congress with a report on each major rule (rules resulting in or likely to  result in a $100 million annual impact on the economy, a major increase  in costs or prices, or significant adverse effects on competition,  employment, investment, productivity, innovation, or the ability of U.S.- based enterprises to compete with foreign-based enterprises) including  GAO’s assessment of the issuing agency’s compliance with the  procedural steps required by various acts and executive orders governing  the rulemaking process.
section_title: Appendix III: Dodd-Frank Act Rules Effective as of July 21, 2011
paragraphs: Rulemaking  Deposit Insurance Regulations; Permanent Increase in  Standard Coverage Amount; Advertisement of  Membership; International Banking; Foreign Banks (75  Fed. Reg. 49363)
Display of Official Sign; Permanent Increase in  Standard Maximum Share (75 Fed. Reg. 53841)
Internal Controls over Financial Reporting in Exchange  Act Periodic Reports (75 Fed. Reg. 57385)
Commission Guidance Regarding Auditing, Attestation,  and Related Professional Practice Standards Related  to Brokers and Dealers (75 Fed. Reg. 60616)
Removal from Regulation FD of the Exemption for  Credit Rating Agencies (75 Fed. Reg. 61050)
Regulation of Off-Exchange Retail Foreign Exchange  Transactions and Intermediaries (75 Fed. Reg. 55410)
Deposit Insurance Regulations: Unlimited Coverage for  Noninterest-Bearing Transaction Accounts (75 Fed.  Reg. 69577)
Designated Reserve Ratio (75 Fed. Reg. 79286)
Rules of Practice – Handling of Proposed Rule  Changes Submitted by Self-Regulatory Organizations  (76 Fed. Reg. 4066)
Deposit Insurance Regulations; Unlimited Coverage for  Noninterest-Bearing Transaction Accounts; Inclusion of  Interest on Lawyers Trust Accounts (76 Fed. Reg.  4813)
Issuer Review of Assets in Offerings of Asset-Back  Securities (76 Fed. Reg. 4231)
Disclosure for Asset-Backed Securities Required by  Section 943 of the Dodd-Frank Wall Street Reform and  Consumer Protection Act (76 Fed. Reg. 4489)
Conformance Period for Entities Engaged in Prohibited  Proprietary Trading or Private Equity Fund or Hedge  Fund Activities (76 Fed. Reg. 8265)
Assessments, Large Bank Pricing (76 Fed. Reg.  10672)
Higher Rate Threshold for Escrow Requirements (76  Fed. Reg. 11319)
Shareholder Approval of Executive Compensation and  Golden Parachute Compensation (76 Fed. Reg. 6010)
Establishment of the FDIC Systemic Resolution  Advisory Committee (76 Fed. Reg. 25352)
Rulemaking  Order Directing Funding for the Governmental  Accounting Standards Board (76 Fed. Reg. 28247)
Share Insurance and Appendix (76 Fed. Reg. 30250)
Modification of Treasury Regulations Pursuant to  Section 939A of the Dodd- Frank Wall Street Reform  and Consumer Protection Act (76 Fed. Reg. 39278)
Retail Foreign Exchange Transactions (76 Fed. Reg.  40779)
Retail Foreign Exchange Transactions (76 Fed. Reg.  41375)
Beneficial Ownership Reporting Requirements and  Security-Based Swaps (76 Fed. Reg. 34579)
Prohibition Against Payment of Interest on Demand  Deposits (76 Fed. Reg. 42015)
List of OTS Regulations to be Enforced by the OCC  and FDIC Pursuant to the Dodd-Frank Act (76 Fed.  Reg. 39246)
Office of Thrift Supervision Integration; Dodd-Frank Act  Implementation (76 Fed. Reg. 43549)
Exemptions for Advisers to Venture Capital Funds,  Private Fund Advisers with Less Than $150 Million in  Assets under Management, and Foreign Private  Advisers (76 Fed. Reg. 39646)
Consumer Transfer Protection Date (75 Fed. Reg.  57252)
Identification of Enforceable Rules and Orders (76 Fed.  Reg. 43569)
Consumer Leasing – Exempt Consumer Credit under  Regulation M (75 Fed. Reg. 18349)
Truth in Lending – Exempt Consumer Credit under  Regulation Z (76 Fed. Reg. 18354)
Interest on Deposits; Deposit Insurance Coverage (76  Fed. Reg. 41392)
No  This rule was implemented at the discretion of SEC but was not included among the 10 rules in our  regulatory analysis study. We omitted the rule from our study because SEC stated that it readopted  existing rules without change in order to preserve the regulatory status quo while agency staff  continues to develop proposals to modernize reporting requirements under Exchange Act sections  13(d) and 13(g).
section_title: Appendix IV: Case Studies of 10 Selected Rules
paragraphs: This appendix provides case studies on 10 final rules issued pursuant to  the Dodd-Frank Act that were effective as of July 21, 2011, and reviewed  for this report. At the beginning of each case study is the official rule title  as published in the Federal Register. The body of each case study  includes a synopsis of the rule; a discussion of the key aspects of the  regulatory analysis, including the assessment of the benefits and costs,  addressed in the proposed and final rules; the number, nature, and  disposition of public comments regarding the regulatory analysis; and  identifying information.
Rule Synopsis. Provides summary information about the substance and  effects of the rule, such as the intent or purpose of the rule, a brief  discussion of the rule’s origin, rulemaking history, or regulatory authority  upon which the rule was created.
Key Aspects of Regulatory Analysis. Identifies generally-applicable  rulemaking requirements discussed by the agency in the proposed and  final rules as published in the Federal Register. These requirements  include identification of the problem addressed by the rule, consideration  of alternatives reflecting the range of statutory discretion, the Paperwork  Reduction Act (PRA), the Regulatory Flexibility Act (RFA), benefit-cost  analysis, and agency-specific statutory requirements.
Public Comments. Identifies the total number of public comments  received by the agency with respect to the rule and the number, nature,  and disposition of public comments regarding the agency’s regulatory  analysis.
Identifying Information. Identifies the responsible federal agency,  citation in the Federal Register of the final rule, and date of the proposed  rule and final rule.
subsections: section_title: Regulation of Off- Exchange Retail Foreign Exchange Transactions and Intermediaries
subsections: section_title: Rule Synopsis
paragraphs: The Commodity Futures Trading Commission (CFTC) issued the rule to  implement provisions of the Dodd-Frank Act, specifically Section 742, and  the CFTC Reauthorization Act of 2008 with respect to off-exchange  transactions in foreign currency with members of the retail public. The  Rule was proposed in January 2010 prior to the enactment of the Dodd- Frank Act, but in final form also implements Section 742 which requires  that specified federal regulatory agencies, including CFTC, promulgate  rules regarding retail forex transactions. The regulations establish  requirements for, among other things, registration, disclosure,  recordkeeping, financial reporting, minimum capital, and other operational  standards.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: In addition to  regulations expressly called for by the Dodd-Frank Act and CFTC  Reauthorization Act, CFTC included additional regulatory  requirements prompted both by the essential differences between on- exchange transactions and retail forex transactions, and by the history  of fraudulent practices in the retail forex market.
Consideration of alternatives reflecting the range of statutory
Based on the comments received, CFTC adopted a revised  security deposit requirement for futures commission merchants  (FCM) and retail foreign exchange dealers (RFED), which, in part,  permits security deposit levels within set parameters and provides  a mechanism for setting security deposit levels anchored in, and  adaptable to, market conditions.
CFTC determined that FCMs and RFEDs must provide  information regarding profitable or not profitable accounts for the  four most recent quarters, and upon request, provide historical  quarterly performance for the five most recent years. In response  to commenter suggestions, CFTC clarified the definition of “not  profitable” to clearly include accounts that break even.
While initially proposing that any introducing broker (IB) must  enter into a guarantee agreement with an FCM or an RFED, upon  reviewing comments, CFTC’s final rule states that IBs who  register in order to transact retail forex business can choose  between entering into a guarantee agreement with an FCM or  RFED, or maintaining the existing IB minimum net capital  requirement.
CFTC’s final rule implements a $20 million minimum net capital  requirement for FCMs engaging in retail forex transactions and for  RFEDs, and additional requirements to the extent that an FCM’s  or RFED’s total retail forex obligation to its customers exceed $10  million. The rule was adopted without the commenter’s proposed  straight-through processing exemption because the proposed  additional capital requirement was intended to provide a capital  requirement that directly relates to the size of the firm’s liability to  retail forex customers and some firms offering retail forex  transactions have liabilities to retail customers exceeding $10  million.
While some commenters argued a personal responsibility  requirement would discourage any individual from taking the  position, CFTC’s final rule requires each retail forex counterparty  to designate a chief compliance officer.
CFTC’s final rule prohibits the making of guarantees against loss  to retail foreign exchanges customers by FCMs, RFEDs,and IBs,  even though some commenters argued some guarantees should  be permissible.
While one commenter found the requirement unnecessary,  CFTC’s final rule states that RFEDs and FCMs engaging in off- exchange retail forex transactions must close out offsetting long  and short positions in a retail forex customer’s account, regardless  of whether the customer instructs otherwise.
After reviewing comments, the CFTC’s final rule, just as the  proposed rule did, created a prohibition against providing a  customer a new bid (or asked) price that is higher (or lower) than  a previous price without providing a new asked (or bid) price that  is higher (or lower) as well.
CFTC’s final rule enforces its authority to regulate retail “futures  look-alike” forex contracts, as CFTC disagreed with one  commenter’s position that such a regulation was not statutorily  permissible.
After reviewing comments arguing confusion was created by the  wording, CFTC’s final rule maintained the definition of retail forex  transactions.
While some commenters argue such rules are anticompetitive,  CFTC’s final rules differ from those applicable to entities engaged  in futures transaction on designated contract markets in ways that  reflect meaningful differences in the market structure of retail forex  transactions.
PRA: CFTC determined that this final rule contains information  collection requirements within the meaning of the act, which it  submitted to the Office of Management and Budget (OMB). CFTC  estimated that the total estimated reporting burden for regulated  entities subject to the regulation would be approximately 222,000  hours.
RFA: CFTC determined that the regulation would not have a  significant impact on a substantial number of small entities.
Benefits or  costs monetized?
Estimated  impacts  (in millions)
Qualitative  description of the  benefits or costs?
Benefits  Enhance protection of market participants and  the public.
Comparable regulatory regimes for FCMs and  RFEDs.
Comparable regulatory regime to on-exchange  forex transactions.
Requires sound risk management practices.
Oversight of forex counterparties and  intermediaries.  Costs  Preparing and filing required disclosures.
N/A = not applicable.
section_title: Public Comments
section_title: Designated Reserve Ratio
subsections: section_title: Rule Synopsis
paragraphs: The Dodd-Frank Act provides the Federal Deposit Insurance Corporation  (FDIC) with greater authority to manage the Deposit Insurance Fund  (DIF), including where to set the designated reserve ratio (DRR). Section  334 of the act sets the minimum DRR at 1.35 percent (from the former of  1.15 percent) and removes the previous upper limit, which was set at 1.5  percent. Section 334 of the act also requires the DRR to reach 1.35  percent by September 30, 2020, and Section 332 removes the  requirement of FDIC to pay dividends when the ratio is between 1.35  percent and 1.5 percent. Pursuant to the requirements and authority  within the Dodd-Frank Act, FDIC is adopting a DRR of 2 percent.  Ultimately, FDIC will maintain at least 2 percent in the fund, as the 2  percent fund goal is a long-range, minimum target. FDIC also will adopt a  progressively lower assessment rate schedule when the reserve ratio  exceeds 2 percent and 2.5 percent. The progressively lower rates will  essentially serve the function of dividend payments.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: FDIC is increasing  the DRR to ensure DIF is able to keep a positive balance during a  future crisis of the magnitude of the 2007-2009 financial crisis.  Additionally, it sets rate schedules that are consistent and moderate  throughout economic and credit cycles.
Consideration of alternatives reflecting the range of statutory
FDIC considered commenter positions encouraging a lower DRR  but determined a 2 percent DRR at a minimum would allow the  fund to survive the crisis of an economic downturn.
PRA: FDIC did not conduct a PRA analysis because no collection of  information is required for this rule.
RFA: FDIC conducted an analysis and concluded that DRR has no  significant economic impact on small entities for purposes of RFA.
Were the benefits  or costs  monetized?
Estimated  impacts  (in millions)
Qualitative  description of the  benefits or costs?
Benefits  Prevent DIF from becoming negative during a  future financial crisis.
Reduce procyclicality in the existing risk-based  assessment rates.
Costs  Loss of funds that could be used by the banking  system.
Increased competitive imbalances between  banking entities and credit unions.
N/A = not applicable.
section_title: Public Comments
paragraphs: Number of days to comment: 30
Number of comments received: 4
Comments regarding regulatory analysis:
Commenters expressed concerns that FDIC’s analysis ignored  historical over-reserving, to which FDIC responded that its  analysis encompassed reported contingent loss reserves, and  emphasized the importance of public confidence as a reason that  the fund be significantly positive and not just not negative.
One commenter argued that the analysis failed to account for  interest income from the reserve. FDIC responded that interest  income was included along with an explanation of the cyclical  nature of stable times interrupted by periods of high loss which  significantly decrease the fund.
section_title: Identifying Information
section_title: Issuer Review of Assets in Offerings of Asset-Backed Securities
subsections: section_title: Rule Synopsis
paragraphs: Section 945 of the Dodd-Frank Act mandated that the Securities and  Exchange Commission (SEC) issue a rule relating to the registration  statement required by issuers of asset-backed securities (“ABS”). The  rule must require issuers of asset-backed securities to perform a review  of the assets underlying the asset-backed security and disclose the  nature of the review. To implement Section 945 of the Dodd-Frank Act,  SEC adopted a new rule under the Securities Act of 1933 and  amendments to Regulation AB. The rule requires an issuer of registered  offerings of asset-backed securities to perform a review of the assets  underlying the securities that “must be designed and effected to provide  reasonable assurances that the disclosure regarding the pool assets in  the prospectus is accurate in all material respects.” The Regulation  requires disclosure regarding: “he nature of the review of assets  conducted by an  issuer”; “he findings and conclusions of a review  of assets conducted by an  issuer or third party”; “isclosure  regarding assets in the pool that do not meet the underwriting standards”;  and “isclosure regarding which entity determined that the assets should  be included in the pool….”
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: Section 945 of the  Dodd-Frank Act reflects the testimony provided to Congress that due  diligence practices in ABS offerings had eroded significantly.
Consideration of alternatives reflecting the range of statutory
SEC considered the entity which must conduct a review, and upon  reviewing comments, determined that the asset review must be  conducted by the issuer of the asset-backed security. However,  the review only applies to issuers of asset-backed securities in  registered offerings, and excludes those in unregistered offerings.
Upon review of alternative review standards, SEC adopted  minimum review standards based on flexible, principles-based  standards that “would be workable across a wide variety of asset  classes and issuers.” However, the particular type of review the  issuer must perform is not specified.
SEC reviewed comments regarding the applicability and impact of  third parties conducting reviews. Ultimately, SEC determined an  issuer may, but is not required, to rely on a third-party to conduct  the review. However, if the issuer attributes the review’s findings  and conclusion to the third party, the third party must be named in  the registration statement and be treated as an expert. But the  issuer can use the same findings and attribute the findings and  conclusions to the issuer to avoid needing to obtain the third  party’s consent to be named an expert.
SEC requires the issuer to (i) disclose the nature of the review  including if it is conducted by a third party, the scope of the review;  (ii) disclose the findings and conclusions; and (iii) disclose how the  assets in the pool deviate from the disclosed criteria and name the  entity that made the decision to include the exception loans in the  pool.
PRA: SEC determined that this final rule contains information  collection requirements within the meaning of the act, which it  submitted to OMB. The requirements are entitled “Form S-1” (OMB  Control Number 3235-0065), “Regulation S-K” (OMB Control Number  3235-0071), and “Rule S-3” (OMB Control Number 3235-0073). SEC  estimates an increase in burden hours with Form S-1 and S-3 of  about 7,000 hours and $8.4 million. Form S-K will not impose any  separate burden.
RFA: The Commission certified in the proposing release that the  regulation would not have a significant impact on a substantial  number of small entities. The Commission requested written comment  regarding the certification, but no commenter responded to the  request.
Were  the benefits or  costs monetized?
Estimated  impacts  (in millions)
Alternative  description of the  benefits or costs?
Reduce the cost of information asymmetry.
Allow investors to more accurately price a  securitization of the asset pool.
Allow investors to better understand the credit  risk of the asset pool.
More loan pools that conform to the disclosures.  No  Assist rating agencies in assigning more   informed credit ratings.
The third party expert liability could increase the  quality of the review.  Costs  Some issuers may incur additional costs to  perform more extensive reviews.
Some issuers, who otherwise may have  performed a more thorough review, may choose  to accomplish no more than the minimum  required review.
Expert liability may increase the cost of due  diligence, which could render securitizations non- economic for some issuers.
Some asset classes may not have third party due  diligence providers.
Third party review firms are not registered with  the SEC and some are not subject to professional  standards.
Incremental professional costs of the collection of  information through forms S-1 and S-3.
N/A = not applicable.
Burden on Competition and Promotion of Efficiency, Competition, and  Capital: According to SEC, the regulation and amendments are  designed to improve investor protection, the quality of the assets  underlying an ABS, and increase transparency to market participants.  SEC also states that the amendments would improve investors’  confidence in ABS and help recovery in the ABS market with  attendant positive effects on efficiency, competition and capital  formation.
section_title: Public Comments
paragraphs: Number of days to comment: 33 days
Number of comments received: Over 50
Comments regarding regulatory analysis:
Some commenters suggested including unregistered offering  within the requirement to prevent abuses from migrating to those  offerings. Others argued that the rules should apply only to  registered ABS offerings.
Some commenters stated that there are incentives not to conduct  adequate due diligence, which supports the need for a minimum  standard requirement by law.
One commenter predicted that requiring third parties to be named  in the registration statement as experts will materially impact the  cost of due diligence services which will likely render  securitizations non-economic for issuers.
Some commenters stated that it is possible that third parties  engaged by issuers to perform the review may be unwilling to  consent to being named in the registration statement as experts.
section_title: Identifying Information
section_title: Disclosure for Asset- Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
subsections: section_title: Rule Synopsis
paragraphs: Section 943 of the Dodd-Frank Act requires SEC to prescribe regulations  on the use of representations and warranties in the market for asset- backed securities (ABS). The rule requires ABS securitizers to disclose  fulfilled and unfulfilled repurchase requests. Specifically, ABS securitizers  must disclose demand, repurchase and replacement history for an initial  3-year look back period ending December 31, 2011, and going forward on  a quarterly basis. Further, ABS issuers must disclose demand,  repurchase and replacement history for the same 3-year look back period  in the body of the prospectus, and in periodic reports filed going forward.  The rule also requires nationally recognized statistical rating  organizations (NRSRO) to include information regarding the  representations, warranties and enforcement mechanisms available to  investors in an ABS offering in any report accompanying a credit rating  issued in connection with such offering, including a preliminary credit  rating.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: According to SEC,  the effectiveness of the contractual provisions related to  representations and warranties has been questioned and lack of  responsiveness by sponsors to potential breaches of the  representations and warranties relating to the pool assets has been  the subject of investor complaint.
Consideration of alternatives reflecting the range of statutory
Upon reviewing comments detailing impacts of duplicative filing,  SEC required all securitizers to complete the transaction file Form  ABS-15G, unless they are affiliated securitizers.
While some commenters discouraged inclusion of municipal  securitizers, the final rules applies to municipal securitizers but  provides delayed compliance to permit municipal securitizers time  to observe how the rule operates for other securitizers and to  better prepare for implementation of the rule.
SEC finalized disclosure form requirements including several  changes from the proposed forms based on comments including  one commenter’s suggestion to insert a column to disclose the  number of outstanding principal balance and percentage of  principal balance of the assets originated by each originator in the  pool.
SEC finalized a 3-year historical look back time frame by  balancing commenter suggestions regarding the hardships of  collecting data for a more lengthy historical period against the  benefit to investors. Additionally, SEC adopted a quarterly  reporting time frame for filing requirements instead of the  proposed monthly time frame based on comments.
SEC amended the Regulation AB transaction disclosure  requirements and included phasing in periods for inclusion in the  prospectus.
Upon reviewing commenters’ reasons for a standard, SEC’s final  rule permitted the NRSROs to determine what similar securities  should be used in the disclosure comparison. Similarly, SEC  reviewed comments with regard to other NRSRO disclosure  requirements.
PRA: SEC determined that this final rule contains information  collection requirements within the meaning of the act, which it  submitted to OMB. The requirements are entitled “Form ABS-15G” (a  new information collection requirement), “Regulation S-K” (OMB  Control Number 3235-0071), and “Rule 17g-7” (a new information  collection requirement). SEC estimates the total internal burden hours  associated with Form ABS-15G will be 189,068 and the total external  costs will be $25,209,000. SEC determined that Regulation S-K will  not impose any separate burden. SEC estimates that it will take a total  of 90,948 hours annually to comply with the Rule 17g-7 requirements,  but no professional costs were associated.
RFA: The Commission certified in the proposing release that the  regulation would not have a significant impact on a substantial  number of small entities. The Commission requested written comment  regarding the certification, but no commenter responded to the  request.
Benefits or  costs monetized?
Estimated  impacts  (in millions)
Qualitative  description of the  benefits or costs?
Benefits  Provide demand, repurchase, and replacement  information that is easy to use and compare  across securitizers.
Initial 3-year look back period should allow  investors to identify originators with underwriting  deficiencies.
Quarterly report includes information for current  quarter only so investors will have flexibility to  track activity over periods of their choosing.
Securitizer may suspend quarterly obligation if it  has no reportable activity.
Cross-affiliates need not file same disclosures for  a particular transaction.
Disclosures filed on EDGAR or EMMA create  centralized repository.
One-year transition period for securitizers, and  additional 3-year transition for municipal  securitizers, to better prepare.
Disclosures in prospectus and periodic reports  under Regulation AB will facilitate investor use of  information.
Disclosures about representations by NRSROs  will provide information before investment  decision.
Costs  External professional costs for preparing and  filing required disclosures.
Transition periods will delay availability of current  information to investors.
Data collection for initial 3-year look back period  may be costly.
Investors wanting cumulative data will need to  make additional efforts to compile it.
Investors wanting information about affiliated  transactions will need to compile it.
N/A = not applicable.
Burden on Competition and Promotion of Efficiency, Competition, and  Capital: SEC determined that the ultimate effect of the regulation  would be that of better allocative efficiency and improved capital  formation. Because the rules generally apply equally to all  securitizers, and ABS transactions, SEC did not believe the rules  would have an impact on competition.
section_title: Public comments
paragraphs: Number of days to comment: 42
Number of comments received: over 40
Comments regarding regulatory analysis:
Commenters provided suggestions for the transition time frame  varying from 6 months to 2 years from the effective date of the  rule.
One commenter argued that the PRA estimate for Rule 17g-7  underestimated the time needed to gather required information,  but SEC found that the commenter overlooked additional agency  analysis of the time requirements and thus made no change.
section_title: Identifying Information
section_title: Conformance Period for Entities Engaged in Prohibited Proprietary Trading or Private Equity Fund or Hedge Fund Activities
subsections: section_title: Rule Synopsis
paragraphs: Section 619(c)(2) of the Dodd-Frank Act generally requires banking  entities and nonbank financial holding companies supervised by the  Board of Governors of the Federal Reserve System (Board) to conform  their activities and investments to the restrictions of Section 619 (Volcker  Rule) within 2 years of the effective date of the Volcker Rule’s  requirements. The Volcker Rule generally prohibits banking entities from  engaging in proprietary trading or from investing in, sponsoring or having  certain relationship with a hedge fund or private equity fund. The final rule  details the provisions and requirements a banking entity or nonbank  financial company supervised by the Board must follow to request an  extension of time to conform its activities to the Volcker Rule.
section_title: Key Aspects of Regulatory Analyses
section_title: Public comments:
paragraphs: Number of days to comment: 45
Number of comments received: 12
Comments regarding regulatory analysis:
Some commenters argued that the PRA estimate underestimated  the time needed to prepare a request for an extension and  relevant supporting information. One commenter specifically noted  that a banking entity could potentially have to submit up to four  extension requests with respect to a single illiquid fund. In light of  those comments, the Board revised its initial request from 1 to 3  hours and estimates that each of the 720 banking entities that are  estimated to file an extension will file, on average, 10 requests, for  a total estimated annual burden of 21,600 hours. This is in  contrast to the initial estimate amount of annual burden of 720  hours.
section_title: Identifying Information
section_title: Assessments, Large Bank Pricing
subsections: section_title: Rule Synopsis
paragraphs: FDIC charges insured depository institutions an amount for deposit  insurance equal to the deposit insurance assessment base multiplied by a  risk-based assessment rate. The Dodd-Frank Act directs FDIC to amend  its regulations to define the assessment base used for calculating deposit  insurance assessments. The Dodd-Frank Act requires that the  assessment base be defined as an institution’s “average consolidated  total assets” minus “average tangible equity.” The rule defines the  methodology for calculating these amounts, determines the basis for  reporting the amounts, and defines “tangible equity.” The Dodd-Frank Act  also requires that FDIC determine whether and to what extent  adjustments to the assessment base are appropriate for banker’s banks  and custodial banks. The rule outlines these adjustments and provides a  definition of “custodial bank.” Due to the change in the assessment base,  FDIC also defines certain adjustments to the assessment calculation that  were added to better account for risks among insured depository  institutions (IDI) based on their funding sources. The required change in  the assessment base prompted FDIC to modify its assessment rate  system and assessment rate schedule. The Dodd-Frank Act also  continued FDIC authority to declare dividends when the reserve ratio of  the deposit insurance fund (DIF) is at least 1.5 percent and granted FDIC  authority to suspend or limit dividends from the DIF. The rule provides  that dividends be suspended indefinitely when the DIF reserve ratio  exceeds 1.5 percent. The rule also amends the assessment system  applicable to large insured depository institutions.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: According to FDIC,  the purpose of the regulation is to address requirements under the  Dodd-Frank Act and to provide a revised assessment rate schedule.  The overall FDIC goal is increasing the designated reserve ratio  (DRR) to ensure DIF maintains a positive balance during a future  crisis of the magnitude of the 2007-2009 financial crisis. Additionally,  the goal is to set rate schedules that are consistent and moderate  throughout economic and credit cycles.
Consideration of alternatives reflecting the range of statutory
FDIC determined that goodwill and intangibles should not be  deducted in determining average consolidated total assets.
FDIC considered comments addressing the timing of requirements  for IDI reporting of consolidated total equity and average tangible  equity and imposed more frequent reporting requirements on  larger institutions.
FDIC determined that transactions between affiliated banks  should not be excluded from the assessment base.
FDIC considered and rejected comments concerning the  deductions from the assessment base for banker’s banks and  amended the calculation of the assessment base adjustment for  custodial banks.
FDIC considered comments on adjustments to the rate base  based on the amount of unsecured debt and the amount of  brokered deposits held by the institution.  In the proposed rule, FDIC had proposed suspending dividends  from the DIF “permanently.” The final rule modified the proposal  by suspending dividends “indefinitely” and noted that the rule is  not intended to, and could not, abrogate the authority of future  FDIC Boards of Directors to adopt a different rule governing  dividends.
FDIC considered comments concerning the appropriateness of  the changes to the assessment rate schedule and the speed at  which these rates would restore the DIF to the desired level. The  FDIC also considered comments on future rate schedules and  their effect on the DIF.
The regulation amends the assessment system applicable to large  IDIs by using scorecards designed to assess the risk that a large  IDI poses to the DIF by measuring its financial performance and  its ability to withstand stress and the relative magnitude of  potential losses to the FDIC in the event of a large institutional  failure. The scorecard combines CAMELS ratings and certain  financial measures into two scorecards—one for most large IDIs  and another for highly complex IDIs. Commenters questioned the  structure and the complexity of the large bank assessment  system. FDIC also received and considered a number of  comments related to scorecard measures and assumptions.
FDIC retains the ability to adjust the scorecard results for large  and highly complex institutions based on significant risk factors  not captured in the scorecards. Commenters questioned the scale  and the need for this adjustment.
PRA: FDIC did not conduct a PRA analysis because no collection of  information is required for this rule.
RFA: FDIC determined that the rule would not be subject to the RFA  requirements under the exclusion for rules of particular applicability  relating to rates or corporate or financial structures, or practices  relating to such rates or structures. FDIC noted that the final rule  relates to the rates imposed on insured depository institutions for  deposit insurance, to the risk-based assessment system components  that measure risk and weigh risk in determining an insured depository  institution’s assessment rate and to the assessment base on which  rates are charged and concluded that a regulatory flexibility analysis is  not required. However, FDIC still conducted an analysis and  concluded that the new assessment base and rates would reduce the  quarterly assessment on 99 percent of small institutions by an  average of $10,320 and would reduce the percentage of assessments  borne by small institutions.
Were  the benefits or  costs monetized?
Estimated  impacts  (in millions)
Qualitative  description of  the benefits or  costs?
Benefits  Prevent the DIF from becoming negative during a future  crisis of a similar magnitude of the 2007-2009 financial  crisis.
Reduce procyclicality in the existing risk-based  assessment rates.
Costs  Initial cost for large institutions to transition their  systems in order to report the information necessary.
Initial transaction cost to all IDIs to calculate new  assessment base.
N/A = not applicable.
section_title: Public Comments:
paragraphs: Number of days to comment: 47
Number of comments received: 55
Comments regarding regulatory analysis:
Several commentators questioned the validity of the statistical  analysis of the rule because it was calibrated using data on small  bank failures and would reflect the risks or behaviors of large  institutions. FDIC responded that it did not use small bank data,  but used statistical techniques to acquire data from large  institutions.
One commentator expressed concern that the analysis focused on  historical information, and may not be relevant to future events. In  response, FDIC recognized that any statistical analysis is  backward-looking but that historical data provides the best means  for analyzing future risk.
A few commentators suggested errors in FDIC’s analysis. FDIC  stated that their analysis has proven accurate in predicting failures  from 2006 through 2009.
section_title: Identifying Information
section_title: Shareholder Approval of Executive Compensation and Golden Parachute Compensation
subsections: section_title: Rule Synopsis
paragraphs: Section 951 of the Dodd-Frank Act amends the Securities Exchange Act  of 1934, requiring publicly traded companies to conduct a separate  shareholder advisory vote on compensation for executives at least every  three years and a vote on the frequency of these votes at least every six  years. The amendment also requires a shareholder advisory vote on  whether to approve certain so-called ‘‘golden parachute’’ compensation  arrangements in connection with a business combination. Section 951  provides that SEC may exempt an issuer from the advisory voting  requirements. In determining whether to make an exemption, SEC is to  take into account, among other considerations, whether the requirements  disproportionately burden small issuers. The rule requires a separate  shareholder vote on compensation of executives and a vote on the  frequency of these votes for the first annual or other meeting of  shareholders occurring on or after January 21, 2011.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: The proposed and  final rules do not state the problem being addressed beyond stating  that the rule is designed to implement the requirements of Section 951  of the Dodd-Frank Act.
Consideration of alternatives reflecting the range of statutory
The rule does not provide any specific language or resolution  format for the advisory vote on executive compensation, but the  rules provide that the proposal must include language indicating  that the vote is on compensation paid to named executive officers  and include a non-exclusive example of a resolution that satisfies  the requirements.
Companies may solicit shareholder votes on a range of  compensation matters to obtain specific feedback on the  company’s compensation policies and programs.
Results of the advisory votes on executive compensation and the  vote frequency must be disclosed within four business days after  the meeting at which the vote is held.
The rule clarifies that the advisory vote on executive  compensation is required only at shareholders meetings at which  proxies will be solicited for the election of directors, or a special  meeting in lieu of such meeting, and the vote is required not less  frequently than every 3 calendar years. The vote on frequency is  required not less than every 6 calendar years.
SEC determined not to exempt smaller reporting companies from  the advisory votes, but companies with a public float of less than  $75 million are not required to comply with the advisory votes on  executive compensation or frequency of such votes until January  21, 2013. The exemption does not apply to the rules applicable to  golden parachute packages.
Companies must disclose decisions regarding how frequently they  will conduct the executive compensation advisory votes in light of  the results of the vote on frequency.
Companies must disclose whether and, if so, how they have  considered the most recent vote and how that consideration has  affected their executive compensation policies and decisions.
The rule generally requires disclosure of executive officers’ golden  parachute arrangements in proxy or consent solicitations seeking  shareholder approval in connection with an acquisition, merger,  consolidation, or proposed sale or other disposition of all or  substantially all of the assets. Golden parachute arrangements  between the acquiring company and the named executive officers  of the target company are not required to be subject to a vote.
Disclosure of golden parachute arrangements related to the  transaction must be in both tabular and narrative format. The  regulation specified the content of the disclosures, including  identification of types of compensation and that disclosure is  required only for amounts payable in connection with the  transaction subject to shareholder approval.
The rule requires disclosure of golden parachute compensation in  connection with certain going-private transactions, tender offers  and certain other transactions.
The rule requires issuers to conduct a separate shareholder  advisory vote on golden parachute compensation required to be  disclosed in connection with mergers and similar transactions.  Issuers will not be required to include in the merger proxy a  separate shareholder vote if the compensation has previously  been included in the company’s disclosures that were subject to a  prior advisory vote.
A shareholder vote to approve executive compensation for  companies that received financial assistance under the Troubled  Asset Relief Program satisfies the requirement to conduct a  shareholder advisory vote on executive compensation.
PRA: SEC determined that this final rule contains information  collection requirements within the meaning of the act, which it  submitted to OMB. The title for the collection of information is: “Form  8-K,” “Form 10,” “Regulation 14A and Schedule 14A,” “Regulation  14C and Schedule 14C,” “Reg. S-K,” “Form S-1,” “Form S-4,” “Form  S-11,” “Schedule TO,” “Form F-4,” “Schedule 14D-9,” “Schedule 13E- 3,” and “Form N-2.” The new rules will increase existing disclosure  burdens for proxy statements, registration statements,  solicitation/recommendation statements, and going-private schedules.  The new rules also will increase disclosure burdens for current reports  on Form 8-K. SEC estimates the total internal burden hours  associated with reporting required for the executive compensation  advisory vote, and the vote for the frequency of executive  compensation votes will be 20,713 and the total external costs will be  $2,766,800. SEC estimates that the internal hours required to report  on advisory votes for “golden parachute” compensation is estimated  at 4,229 and total external costs will be $5,074,400.
RFA: SEC decided to provide a 2-year exemption period for smaller  reporting companies, generally defined as issuers with public float of  less than $75 million. This exemption does not apply to “golden  parachute” advisory votes. SEC determined that the rule would affect  some companies that are small entities.
Were the  benefits or costs  monetized?
Estimated  impacts  (in millions)
Qualitative  description of the  benefits or costs?
Benefits  Provide timely information to shareholders about  issuer’s plans for future shareholder advisory  votes.
Provide potentially useful information for voting  and investment decisions.
Reduces confusion and burden for issuers with  outstanding TARP indebtedness by specifying that  two separate annual shareholder votes are not  required.
Benefit smaller reporting companies by providing  them a 2-year delayed compliance date.
Reduce confusion among shareholders and  issuers regarding advisory votes and preserve the  ability of shareholders to make proposals on  executive compensation.
Provide more detailed, useful and comprehensive  information to shareholders regarding golden  parachute compensation.
Disclosure of golden parachute compensation will  allow timely and more accurate assessment of the  combination transaction and evaluation of the  compensation.
Eliminate uncertainty among issuers and other  market participants regarding what is necessary to  under the SEC proxy rules when conducting a  required shareholder vote.
Costs  Reporting costs of new disclosure requirements.
Indirect costs related to obtaining compensation  information.
Possible increased costs for companies in  connection with going-private transactions or as  targets in third-party tender offers.
Additional costs for private companies to takeover  public companies.
Increased cost associated with drafting disclosure  of results of shareholder votes and any effect on  compensation policies.
N/A = not applicable.
Burden on Competition and Promotion of Efficiency, Competition, and  Capital: According to SEC, the increased transparency will allow  investors to make informed voting and investment decisions, leading  to increased efficiency and competitiveness in U.S. capital markets.  SEC states that the reporting rules will be applied consistently across  different types of transactions, thus ensuring competition.
section_title: Public Comments
paragraphs: Number of days to comment: 31
Number of comments received: 66
Comments regarding regulatory analysis:
One commenter argued that SEC left out potential costs  associated with the rule, specifically costs associated with proxy  advisory firms, the potential for companies to retain additional  consulting services relating to their compensation decisions and  say-on-pay votes, additional costs associated with submitting no- action letter requests under Rule 14a–8, and increased costs due  to increased demand for proxy solicitation and other shareholder  communications services. SEC decided these additional costs will  not arise as a result of the rule, but instead as a result of  requirements under new Section 14A of the Exchange Act.
section_title: Identifying Information
section_title: Retail Foreign Exchange Transactions
subsections: section_title: Rule Synopsis
paragraphs: The final rule imposes requirements for foreign currency futures, options  on futures, and options that an insured depository institution supervised  by FDIC engages in with retail customers. The final rule also imposes  requirements on other foreign currency transactions that are functionally  or economically similar, including so-called ‘‘rolling spot’’ transactions that  an individual enters into with insured depository institution, usually  through the Internet or other electronic platform, to transact in foreign  currency. The regulations do not apply to traditional foreign currency  forwards, spots, or swap transactions that an insured depository  institution engages in with business customers to hedge foreign exchange  risk. Institutions must seek approval before engaging in a retail forex  business by providing FDIC with written notice and obtaining FDIC’s  written consent. The institution must comply with capital and operational  standards and have in place policies and procedures to prevent unfair  trade practices and ensure fair settlement practices. FDIC’s rule is  modeled on CFTC’s similar rule for retail foreign exchange transactions  and is substantially similar to retail forex rules adopted by OCC and  proposed by the Federal Reserve.
section_title: Key Aspects of Regulatory Analyses
section_title: Public Comments:
section_title: Identifying Information
section_title: Retail Foreign Exchange Transactions
subsections: section_title: Rule Synopsis
paragraphs: This rule authorizes national banks, federal branches and agencies of  foreign banks, and their operating subsidiaries to engage in off-exchange  transactions in foreign currency with retail customers. The rule also  describes various requirements with which national banks, federal  branches and agencies of foreign banks, and their operating subsidiaries  must comply to conduct such transactions. The rule is modeled on  CFTC’s similar rule for retail foreign exchange transactions and is similar  to FDIC’s rule.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: The Dodd-Frank Act  provided that a U.S. financial institution for which there is a federal  financial regulator shall not enter into an off-exchange foreign  exchange transaction with a retail customer except pursuant to a rule  or regulation of a relevant federal regulatory agency allowing the  transaction. This rule details the appropriate requirements with  regards to disclosure, recordkeeping, capital and margin, reporting,  business conduct, and documentation requirements that the Office of  the Comptroller of the Currency (OCC) determined were necessary to  protect retail customers from fraudulent practices.
Consideration of alternatives reflecting the range of statutory
Nature of disclosure, recordkeeping, capital and margin reporting,  business conduct, and documentation requirements
OCC determined that the Interagency Statement on Retail Sales  of Nondeposit Investment Products applied to retail forex  transactions.
OCC determined that the retail forex rule should not apply to  national banks’ foreign branches conducting retail forex  transactions abroad because they are subject to any applicable  disclosure, recordkeeping, capital, margin, reporting, and other  requirements of applicable foreign law.
OCC determined that leveraged, margined, or bank-financed forex  forwards (including rolling spot forex transactions) should be  regulated as retail forex transactions and included a provision in  the final rule that allows OCC to exempt specific transactions or  kinds of transactions from the definition of “retail forex  transaction.”
A leveraged, margined or bank-financed forex forward is a retail  forex transaction unless it creates an enforceable obligation to  deliver between a seller and a buyer that have the ability to deliver  and accept delivery, respectively, in connection with their line of  business.
OCC determined that a national bank is required to close out  offsetting long and short positions in a retail forex account, but that  a customer should be able to offset retail forex transaction in a  particular manner, if he or she so chooses.  Identified banking products are excluded from the definition of  “retail forex transaction.”
OCC required disclosure of the percentage of profitable retail  forex accounts and requires that the risk disclosure statement  include a disclosure that when a retail customer loses money  trading, the dealer makes money.
OCC considered comments on required margin and permitted a  national bank to place margin collected from retail forex customers  into an omnibus or commingled account and required that the  margin account be marked to market daily.
OCC agreed with a commenter that monthly statements may be  provide electronically.
OCC agreed with a commenter and allowed customer  authorization to effect a particular trade to be provided in writing or  orally.
National banks must establish reasonable policies, procedures,  and controls to address front running. Effective firewalls and  information barriers are reasonable policies, procedures, and  controls.
OCC determined that rather than allow requoting a national bank  may reject orders and request that a customer submit a new  order.
PRA: OCC determined that this final rule contains information  collection requirements within the meaning of the act, and therefore  submitted the rule to OMB for review. The requirements are broken  down into information collection requirements in Sections 48.4-48.7,  48.9-48.10, 48.13, and 48.15-48.16, reporting requirements under  Section 48.4, disclosure requirements under Sections 48.5, 48.6,  48.10, 48.13(b), 48.13(c), 48.13(d), 48.15, and 48.16, and  recordkeeping requirements under Sections 48.7, 48.13(a), and 48.9.  OCC estimated the total reporting burden of the rule to be 672 hours,  the total disclosure burden to be 54,166 hours, the total recordkeeping  burden to be 12,416 hours, and the total annual burden to be 67,254  hours.
RFA: OCC determined that the regulation would not have a significant  impact on a substantial number of small entities. Therefore, a RFA  was not required and not completed.
Were the benefits or  costs monetized?
Estimated  impacts  (in millions)
Qualitative  description of the  benefits or costs?
Costs  Provide the OCC with prior notice and obtain a  written no-objection letter.
Modify retail forex agreements to include the  required customer dispute disclosure.
Modify systems to enable the bank to disclose  the ratio of profitable accounts.
Establish or modify policies and procedures  for customer due diligence and recordkeeping.
Modify account statements to comply with the  customer reporting requirements in §48.10.
Establish and implement internal rules,  procedures, and controls to comply with  trading and operational standards in §48.13.
Modify systems to comply with trading and  operational standards.
Establish or modify systems and policies and  procedures to comply with the margin  requirements in §48.9.
N/A = not applicable.
Unfunded Mandates Reform Act of 1995: OCC determined that the  rule will not result in expenditures by state, local, and tribal  governments, or by the private sector, of $100 million or more in any 1  year. Accordingly, the rule is not subject to Section 202 of the  Unfunded Mandates Act.
Congressional Review Act (CRA): OCC determined that the regulation  did not and was not likely to result in a $100 million or more annual  economic effect and, therefore, was not a “major rule” under the CRA.
section_title: Public Comments:
section_title: Identifying Information
section_title: Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets Under Management, and Foreign Private Advisers
subsections: section_title: Rule Synopsis
paragraphs: Prior to enactment of the Dodd-Frank Act, many investment advisers  relied on an exemption to registration under the Advisers Act for “private  advisers” who had fewer than 15 clients and met other criteria. The Dodd- Frank Act eliminated this exemption, which will result in additional  investment advisers registering with SEC. The repeal of the exemption  was primarily designed to require advisers to “private funds” to register  with SEC. Private funds include hedge funds, private equity funds and  certain other types of privately offered pooled investment vehicles that are  excluded from the definition of “investment company” under the  Investment Company Act of 1940.
The Dodd-Frank Act provides a registration exemption for an investment  adviser that solely advises “venture capital funds” and directs SEC to  define “venture capital fund.” Additionally, the Dodd-Frank Act directs  SEC to provide an exemption from registration for any investment adviser  that solely advises private funds if the adviser has assets under  management in the United States of less than $150 million. The Dodd- Frank Act requires that SEC require advisers relying on these two  exemptions to maintain records and make reports “as the Commission  determines necessary or appropriate in the public interest or for the  protection of investors.” SEC adopted reporting requirements for  advisers relying on these exemptions in a separate rulemaking.
The Dodd-Frank Act also provides an exemption for foreign private  advisers, which are defined in the Advisers Act as investment advisers  that, among other things, have no place of business in the United States,  have fewer than 15 clients in the United States and investors in the  United States in private funds advised by the adviser, and have less than  $25 million in aggregate assets under management from such clients and  investors.
SEC adopted three rules to address the exemptions. The first rule  implements the venture capital exemption by defining a venture capital  fund generally as a private fund that: (1) holds no more than 20 percent of  the fund’s capital commitments in non-qualifying investments (other than  short-term holdings); (2) with limited exceptions does not borrow or  otherwise incur leverage except on a short-term basis; (3) generally does  not offer its investors redemption or other similar liquidity rights; (4)  represents itself as pursuing a venture capital strategy to investors; and  (5) is not registered under the Investment Company Act. Pre-existing  funds can also rely on the grandfathering provision if they represent  themselves as pursuing a venture capital strategy and have issued all  fund interests by July 21, 2011.
The second rule provides the exemption for advisers that solely advise  private funds and have assets under management in the United States of  less than $150 million. Under the rule, this exemption applies to U.S.  advisers with less than $150 million in total assets under management in  “private funds,” so long as all of the adviser’s clients, U.S. or non-U.S.,  are private funds. An adviser with a place of business outside of the U.S.  will qualify for the exemption if all of its U.S. clients are private funds, and  the assets the adviser manages at any U.S. place of business are solely  private fund assets with a total value of less that $150 million. Both U.S.  and non-U.S. advisers must calculate the value of their assets under  management according to instructions in Form ADV, as revised in a  separate rulemaking.
Finally, the third rule implements the foreign private adviser exemption by  defining terms used in the new statutory exemption and otherwise  clarifying its operation.
section_title: Key Aspects of Regulatory Analyses
paragraphs: Identified problem to be addressed by regulation: Adopting rules to  implement the three new exemptions from registration under the  Advisers Act. Providing rules, definitions, and clarifications for new  exemptions enacted under the Dodd-Frank Act.
Consideration of alternatives reflecting the range of statutory
Definition of Venture Capital Fund
SEC’s definition of venture capital fund was designed to  distinguish venture capital funds from other types of private  funds, such as hedge funds, private equity funds, and to  address concerns expressed by Congress regarding the  potential for system risk. SEC did not define a venture capital  fund by reference to investments in small businesses or  companies or by reference to the California definition of  “venture capital fund,” as some commenters suggested, but  did adopt an approach suggested by several other  commenters that defines a venture capital fund to include a  fund that invests a portion of its capital commitments in  investments that would not otherwise meet the requirements of  the rule. SEC capped the amount of nonconforming  investments at 20 percent of the fund’s capital commitments,  after considering this and other amounts suggested by  commenters. This change from the proposal provides venture  capital funds greater investment flexibility.
SEC defined a venture capital fund as a private fund that  generally holds equity securities of qualifying portfolio  companies that are directly acquired by the private fund. SEC  also allowed acquisition of equity securities that are (i) issued  in exchange for directly acquired equity securities or (ii) issued  by companies that own or merge with qualifying portfolio  companies.
SEC considered the definition of qualifying portfolio company,  leverage limitations applicable to venture capital funds, and  whether venture capital funds can issue securities that provide  investors with withdrawal or redemption rights.
SEC considered comments concerning the scope of  permissible short-term holdings and ultimately determined to  include money market fund shares in this category.
SEC considered comments and ultimately determined not to  adopt a proposed managerial assistance requirement.
SEC considered comments and determined that a venture  capital fund must represent that it pursues a venture capital  strategy, but need not necessarily call itself a “venture capital  fund.”
SEC grandfathered advisers to existing private funds that do  not meet all of the requirements but represented to investors  at the time the fund issued its shares that it pursed a venture  capital strategy, among other requirements.
Exemption for Investment Advisers Solely to Private Funds with  Less Than $150 Million in Assets under Management
The Dodd-Frank Act specifies that SEC is to exempt from  registration under the Advisers Act any investment adviser  solely to private funds having less than $150 million in assets  under management in the United States. SEC determined that  an adviser based in the United States must aggregate the  value of all assets of private funds it manages to determine if  the adviser is below the $150 million threshold.
SEC determined to require advisers to calculate their private  fund assets using a new method for calculating regulatory  assets under management that was adopted in a separate  rulemaking. This method requires advisers to use fair value  but does not specify a particular fair value standard to mitigate  costs associated with the requirement.
SEC originally proposed to require advisers relying on the  exemption to calculate their private fund assets each quarter  to determine if they remain eligible. Commenters persuaded  SEC that requiring advisers to calculate private fund assets  annually would be more appropriate because it would result in  the same number of advisers becoming registered each year  while reducing costs.  If a non-U.S. adviser relying on the exemption has a place of  business in the United States, all of the clients whose assets  are managed at that place of business must be private funds  and the assets must have a total value of less than $150  million. A non-U.S. adviser may not rely on the exemption if it  has any client that is a U.S. person other than a private fund.
SEC incorporated the definition of a U.S. person in Regulation  S under the Securities Act.
Whether a non-U.S. adviser has a place of business in the  United States depends on the facts and circumstances.  Whether the exemption is available, however, frequently will  turn on whether the non-U.S. adviser manages assets at a  U.S. place of business, rather than whether an adviser has  such an office in the first instance.
SEC defined the term “qualifying private fund” to permit  advisers to rely on the exemption if their funds qualified for an  Investment Company Act exclusion in addition to those  provided by section 3(c)(1) or 3(c)(7) of that act.
SEC defined certain terms for use by advisers seeking to avail  themselves of the foreign private adviser exemption, including  “investor,” “in the United States,” “place of business,” and  “assets under management.” SEC generally defined these  terms by reference to existing definitions and concepts that  should be familiar to non-U.S. advisers.
PRA: The rules do not contain a collection of information requirement  and thus no PRA analysis was required.
RFA: SEC certified in the proposing release that the regulation would  not have a significant impact on a substantial number of small entities.  SEC requested written comment regarding the certification, but no  commenter responded to the request.
SEC noted that as a result of the Dodd-Frank Act’s repeal of  the private adviser exemption advisers that previously were  able to rely on that exemption will have to register under the  Advisers Act unless they are eligible for an exemption. SEC  further notes that the benefits and costs associated with  registration for advisers that are not eligible for an exemption  are attributable to the Dodd-Frank Act. Similarly, the benefits  and costs of being an exempt reporting adviser, relative to  being a registered adviser or an exempt adviser, are  specifically attributable to the Dodd-Frank Act. SEC discusses  the benefits and costs of its rules to implement the three  exemptions under the Advisers Act.
Benefits or  costs monetized?
Qualitative  description of the  benefits or costs?
Definition of Venture Capital Fund  Benefits  Modifications to final rule better describe the  existing venture capital industry.
Greater flexibility to the venture capital industry to  accommodate current and future business  practices and investment opportunities.
Criteria under final venture capital rule facilitate  transition to new exemption by minimizing the need  to alter existing business practices.
Allowing qualifying funds limited investments in  non-qualifying investments could facilitate access  to capital and flexibility to structure investments.
Final rule definition permitting non-qualifying  investments has several benefits, including  predictability, ease of compliance.
Definition of qualifying investment allows venture  capital funds to participate in reorganization of  capital structure of portfolio company, provides  opportunity to take profits from investments.
Final rule provision that allows a venture capital  fund adviser to treat as a private fund a non-U.S.  fund managed by the adviser facilitates capital  formation and competition.
Exclusion of guarantees of portfolio company  indebtedness from the 120-day limit facilitates  portfolio company ability to obtain credit.
Restricts a portfolio company’s ability to incur debt  that may implicate Congressional concerns  regarding the use of leverage and distinguishes  exempt venture capital funds from non-exempt  leveraged buyout equity funds.
Final rule contains several characteristics that  provide additional flexibility to venture capital  advisers and their funds, including grandfathering  provision.
To the extent that additional advisers are required  to register this may facilitate SEC’s mandate to  protect investors and benefits investing public.  Costs  Confirmation of grandfathered status.
Cost of registration with SEC if exemption  unavailable.
New registrant establishing compliance  infrastructure (one-time cost) if required to register  with SEC.
Annual ongoing compliance costs if required to  register with SEC.
Costs to determine how to structure new funds and  meet elements of SEC definition.
Adviser choice to structure funds to comply with  definitions or not to form new funds could result in  less competition and capital formation.  Exemption for Investment Advisers Solely to  Private Funds with Less than $150 Million in  Assets under Management in the United States  Benefits  Permitting advisers to calculate their private fund  assets annually, rather than quarterly, and to use  the method of calculation required for regulatory  purposes generally, reduces burdens on advisers.  Annual calculations, together with separate  amendments to Form ADV, also provide a  transition period for certain advisers that are no  longer eligible for the exemption.
Definition of “United States person” based  generally on Regulation S provides a well- developed body of law that appropriately  addresses many of the questions that will arise  under the new exemption  Definition of “qualifying private fund” permits  advisers to additional types of funds to rely on the  exemption  Costs  Non-U.S. adviser internal review cost to determine  whether they have assets under management in  U.S.
Cost of registration if exemption unavailable.
N/A = not applicable.
section_title: Public comments
paragraphs: Number of days to comment: 66
Number of comments received: 117
Comments regarding regulatory analysis:
SEC’s compliance infrastructure and annual compliance cost  estimates were too low. SEC acknowledged that the costs of  compliance for new registrants can vary widely depending on their  size, activities, and the sophistication of their existing  infrastructure.
SEC did not receive any other comments concerning its specific  cost estimates.
section_title: Identifying Information
section_title: Appendix V: Comments from the Commodity Futures Trading Commission
section_title: Appendix VI: Comments from the Consumer Financial Protection Bureau
section_title: Appendix VII: Comments from the Federal Deposit Insurance Corporation
section_title: Appendix VIII: Comments from the Board of Governors of the Federal Reserve System
section_title: Appendix IX: Comments from the Financial Stability Oversight Council
section_title: Appendix X: Comments from the Office of the Comptroller of the Currency
section_title: Appendix XI: Comments from the Securities and Exchange Commission
section_title: Appendix XII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Richard Tsuhara (Assistant  Director), Holland Avery, Timothy Bober, Emily Chalmers, William R.  Chatlos, Philip Curtin, Rachel DeMarcus, Lawrance Evans, Denise  Fantone, Timothy Guinane, Thomas McCool, Jon Menaster, Patricia  Moye, Robert Pollard, Jessica Sandler, Andrew Stavisky, and Eva Yikui  Su made key contributions to this report.