Dodd-Frank Resource Center
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the most sweeping financial regulatory reform legislation since the Great Depression. Nearly four years later, Dodd-Frank continues to have reverberations across the financial services industry. To help you stay informed of key developments under Dodd-Frank, Simpson Thacher offers timely, practical commentary on a wide array of areas, from capital developments and consumer protection matters to derivatives and systemic risk determinations.
As part of the resource center, Simpson Thacher has published “Reflections on Dodd-Frank: A Look Back and a Look Forward,” a compendium of articles that review and analyze key rulemaking developments during the first year of enactment. To download a copy of this publication, please click here.
We have also prepared a collection of other materials and memoranda that relate to the significant legal and regulatory developments under Dodd-Frank, which you can access below.
Please contact a member of our Financial Institutions Practice with any questions.
Congress Disapproves the SEC's Resource Extraction Rule
The U.S. House of Representatives and U.S. Senate recently passed a joint resolution disapproving the “resource extraction rule” of the Securities and Exchange Commission (“SEC”). The final rule, adopted by the SEC on June 27, 2016, implemented the Dodd-Frank requirement that issuers that engage in the commercial development of oil, natural gas, or minerals (“resource extraction issuers”) disclose annually payments made to the U.S. federal government or any foreign government for the purpose of the commercial development of oil, natural gas, or minerals by such resource extraction issuers, their subsidiaries and other entities under their control. Under the final rule, resource extraction issuers would have been required to comply with the rule commencing with their fiscal year ending on or after September 30, 2018. Read more.
President Trump Issuer Executive Order on Financial Regulatory Reform
On February 3, President Trump signed an executive order calling for his administration to review existing U.S. financial laws and regulations, including the Dodd-Frank Act, in order to determine their consistency with a set of “core principles” of financial policy identified in the order. Read more.
Federal Reserve Recommends Legislative Repeal of Merchant Banking Authority and Exemptions for ILCs and Grandfathered Thrifts
The Federal Reserve has issued a set of sweeping and surprising recommendations to Congress that, if enacted, would dramatically limit the authority of banking institutions subject to the Bank Holding Company Act of 1956 to engage in certain non-banking activities and investments. The Federal Reserve also proposed eliminating the current exemptions for owners of industrial loan companies and “grandfathered” thrifts. The recommendations were contained in a report issued yesterday to Congress and the Financial Stability Oversight Council.
Although the prospects for legislative passage are low, at least in the near term, the recommendations (and related commentary) constitute a significant public statement of the Federal Reserve’s views on longstanding statutory authorities that it has administered. Read more.
MetLife Wins Court Ruling Removing FSOC's “Too-Big-to-Fail” Designation
On March 30, Judge Rosemary Collyer of the U.S. District Court for the District of Columbia invalidated the Financial Stability Oversight Council’s (“FSOC”) designation of MetLife as a systemically important financial institution (“SIFI”). Although the court found that MetLife may be deemed “predominantly engaged” in “financial” activities and therefore eligible for designation as a SIFI, the court found “fundamental violations of administrative law” and a designation process that was “fatally flawed.” In particular, the court determined that FSOC did not follow its own published standards for SIFI-designation: it did not assess MetLife’s likelihood of failure, but simply assumed that a failure would occur, and never attempted to quantify or estimate the actual consequences of a failure to the financial system. In addition, FSOC failed to consider the costs associated with designating MetLife as a SIFI. Accordingly, the court determined that FSOC’s decision was “arbitrary and capricious,” and granted MetLife’s motion for summary judgment to rescind its SIFI designation.
Although the case was determined largely on procedural grounds, it highlights the continuing challenges regulators face in defining systemic risk on an empirically clear basis. Read more.
SEC Issues Interpretation Regarding Definition of “Whistleblower” Under the Dodd-Frank Act’s Anti-Retaliation Provision
On August 4, 2015, the Securities and Exchange Commission (“SEC”) issued an interpretive release to clarify its reading of the whistleblower rules it promulgated in 2011 under Section 21F of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The release expressed the SEC’s view that the employment retaliation protection accorded by the Dodd-Frank Act and codified in Section 21F is available to individuals who report the suspected securities law violation internally, rather than to the SEC. Read more.
SEC Proposes Executive Compensation Clawback Rule
On July 1, 2015, the Securities and Exchange Commission (“SEC”) proposed a rule requiring that national securities exchanges and national securities associations prohibit the listing of any security of an issuer that is not in compliance with Dodd-Frank’s requirements for disclosure of the issuer’s “policy on incentive-based compensation and recovery of incentive-based compensation that is received in excess of what would have been received under an accounting restatement” (commonly referred to as a “clawback policy”). The proposed rule would direct the exchanges to establish listing standards requiring issuers to:Adopt and comply with policies that provide for clawback of incentive-based pay that is based on financial information reported under the securities laws.The policies would need to apply to the listed issuers’ executive officers; and Disclose those recovery policies as an exhibit to their annual reports.
Issuers may be subject to delisting if they do not comply with these standards.
Proposed Rule 10D-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) would codify “the listing requirements that exchanges would be directed to establish pursuant to Section 10D of the Exchange Act,” which was added by Section 954 of the Dodd-Frank Act. Read more.
SEC Proposes Pay-Versus-Performance Rule
On April 29, 2015, the Securities and Exchange Commission (“SEC”) issued proposed rules to implement the Dodd-Frank Act requirement that issuers disclose in any annual proxy or consent solicitation the relationship between executive compensation actually paid and the financial performance of the issuer, “taking into account any change in the value of the shares of stock and dividends of the registrant and any distributions.” In the SEC’s view, this disclosure requirement is “intended to provide shareholders with information that will help them assess a registrant’s executive compensation when they are exercising their rights to cast advisory votes on executive compensation.” Read more.
SEC Awards Maximum Allowable Whistleblower Payment In Its First Case Involving Alleged Retaliation Against A Whistleblower
On April 28, 2015, the Securities and Exchange Commission (“SEC”) announced that it awarded the maximum allowable award to a whistleblower under the Dodd-Frank whistleblower program in its first case involving alleged retaliation by an employer against an employee who reported suspected misconduct to the SEC. This award of 30 percent of the amount collected by the SEC in In the Matter of Paradigm Capital Management, Inc. and Candace King Weir equaled a payment of more than $600,000 to the employee who, according to the SEC, provided “key original information that led to the successful SEC enforcement action.” Read more.
Volcker Rule Update: Investments by Foreign Banking Entities in Private Equity Funds
On Friday, the Federal Reserve Board and other agencies with authority under the Volcker Rule issued guidance confirming that the marketing restriction under the so-called SOTUS (“solely outside of the United States”) exemption applies only to the activities of foreign banking entities, not to the activities of third parties generally. In short, this means that a foreign bank investing in a private equity fund pursuant to the SOTUS exemption may continue to rely on the exemption even if ownership interests in the fund are offered or sold to U.S. persons by an unaffiliated sponsor or another unaffiliated third party. This should generally allow foreign banks to invest directly in funds sponsored by U.S. private equity firms, without the need for separate offshore parallel funds. However, if a foreign bank participates in an offer or sale of fund interests to a U.S. person, it cannot rely on the SOTUS exemption.
The recent guidance represents a significant development for foreign banks and private equity sponsors. Read more.
Volcker Rule Update: Extension Granted for Legacy Funds
Yesterday, the Federal Reserve Board made a much-welcomed announcement: the deadline for divesting or conforming investments and relationships with so-called “legacy covered funds” has been extended by one year to July 21, 2016. In addition, the Federal Reserve Board indicated that it intends to grant another one-year extension next year, which would bring the deadline for these funds to July 21, 2017, for a two-year additional extension. Read more.
Financial Sector M&A Update: Federal Reserve Adopts Concentration Limit Rules for Financial Companies
The Federal Reserve has approved final rules implementing the “concentration limit” under Section 622 of the Dodd-Frank Act. This statutory limit restricts financial companies from engaging in certain acquisitions if the total consolidated liabilities of the acquirer would, on a pro forma basis, exceed 10% of the aggregate consolidated financial sector liabilities (a figure that would be published by the Federal Reserve by July 1 of each year). Read more.
Securitization After Dodd-Frank: A Summary of the Final Credit Risk Retention Rules
Last month, six federal agencies adopted a final rule implementing the credit risk retention requirement mandated by Section 941 of the Dodd-Frank Act for certain securitization transactions. Specifically, Section 941 of the Dodd-Frank Act added new Section 15G to the Securities Exchange Act of 1934 that directed the agencies to adopt rules requiring sponsors of asset-backed securities to retain at least 5% of the credit risk relating to the assets that underlie such asset-backed securities. This so-called “skin in the game” requirement is intended to provide sponsors with a meaningful incentive to monitor and control the quality of securitized assets and align the interests of the sponsor with those of investors.
The risk retention requirement will become effective one year after the date on which the final rules are published in the Federal Register for securitization transactions collateralized by residential mortgages, and two years after the date on which the final rules are published in the Federal Register for any other securitization transaction. Securitizations created before the applicable effective date do not need to comply with the risk retention requirement. Read more.
Federal Reserve and Justice Department Release FAQs on Antitrust Review of Bank Mergers
The Federal Reserve Board and the Antitrust Division of the Justice Department have jointly developed a set of frequently asked questions and answers relating to antitrust reviews of bank mergers. The FAQs generally reflect longstanding administrative policies and practices of the two agencies and are a useful compilation of their respective views, including areas where the approaches taken by the two agencies diverge. The FAQs indicate that a common analytical approach will be used for all types of banking organization merger applications, including those filed under the Bank Holding Company Act, the Bank Merger Act, and the Home Owners’ Loan Act. Read more.
Federal Banking Agencies Adopt Final Liquidity Coverage Ratio Regulations
The federal banking agencies recently approved a final rule that establishes, for the first time, a quantitative minimum liquidity coverage ratio for large, internationally active banking organizations, as well as a modified, less stringent liquidity coverage ratio for depository institution holding companies that are not internationally active, but have at least $50 billion in total consolidated assets. By requiring banking organizations to hold a stock of high quality liquid assets sufficient to survive a sustained acute liquidity stress scenario, the final rule aims to avoid the liquidity squeeze and subsequent deterioration of financial markets experienced during the 2007-2008 financial crisis. Read more.
OCC Releases Guidelines for "Heightened Expectations" for Bank Risk Governance
The Office of the Comptroller of the Currency recently issued final guidelines establishing risk management standards for large national banks, insured federal savings associations, and insured federal branches of foreign banks. The guidelines formalize and make enforceable five “heightened expectations” that the OCC developed and began communicating to large banks informally following the financial crisis. Among other things, the guidelines will require banks to adopt a written risk governance framework to manage their risks in compliance with various substantive, procedural, and organizational structure requirements, and also impose certain standards on their boards, including a requirement that two directors be independent of both the bank and its holding company. The guidelines are part of a larger trend by U.S. federal banking regulators to scrutinize the risk management practices and procedures of large banking organizations. Read more.
Conflict Minerals Update: Court of Appeals Denies Motion to Stay Rule
Yesterday, the United States Court of Appeals for the District of Columbia Circuit denied the emergency motion filed by the National Association of Manufacturers and other business organizations to stay the SEC’s conflict minerals rule in its entirety, pending the resolution of the litigation regarding the rule. Read more.
Supplementary Leverage Ratio Standards: An Update
Federal banking agencies recently issued rules related to the supplementary leverage ratio, a key component of bank capital standards. In a series of separate rulemakings, the agencies finalized an “enhanced” supplementary leverage ratio for the largest U.S. top-tier bank holding companies and their insured depository institution subsidiaries, and proposed modifications to the definitions of “total leverage exposure” (the denominator of the supplementary leverage ratio) and “eligible guarantee” under the advanced approaches risk-based capital rules. Read more.
Enhanced Prudential Standards for Large U.S. Bank Holding Companies
The Federal Reserve recently issued final rules that apply enhanced prudential standards to large U.S. bank holding companies exceeding certain asset thresholds. The final rules implement portions of the Dodd-Frank Act relating to risk management, capital and leverage, liquidity, stress testing and debt-to-equity limits. Other enhanced prudential standards, such as single-counterparty credit limits and an early remediation framework, remain under development by the Federal Reserve. Read more.
Federal Reserve Issues Final Regulations on Enhanced Prudential Standards for Foreign Banking Organizations
The Federal Reserve recently approved final rules that apply enhanced prudential standards to foreign banking organizations exceeding certain asset thresholds, constituting a significant overhaul to existing foreign bank supervision in the United States. The final rules implement a number of new requirements, including enhanced risk-based capital and leverage capital requirements, liquidity, risk management and stress testing requirements, a requirement to establish a U.S. intermediate holding company and a U.S. risk committee for certain FBOs, and a requirement to comply with a debt-to-equity limit for FBOs that have been determined to pose a grave threat to the financial stability of the United States. Read more.
Federal Insurance Office Issues Recommendations for the Modernization and Improvement of Insurance Regulation
On December 12, 2013, the Federal Insurance Office of the U.S. Department of the Treasury released a report required by Dodd-Frank on the modernization and improvement of insurance regulation. The report recommends two types of improvements for the near term: (1) direct federal involvement in limited areas of insurance regulation, including the licensing of insurance agents and brokers and the regulation of mortgage insurance and (2) greater harmonization of state regulations. Read more.
The Volcker Rule and Private Funds: Final Regulations Are Out
More than three years after the enactment of the Dodd-Frank Act, regulators have reached an important milestone: the implementation of the so-called “Volcker Rule,” arguably one of the most controversial features of the financial overhaul law. On December 10, five U.S. financial regulators, including the Federal Reserve and the SEC, approved final rules to prohibit banking entities from engaging in proprietary trading and from investing in or sponsoring private equity funds and hedge funds. In conjunction with the release of the final rules, the Federal Reserve issued an order providing a blanket one-year extension to the deadline to comply with the Volcker Rule. As a result, banking entities have until July 21, 2015 to conform their activities to the Volcker Rule.
This memorandum focuses on the portion of the final rules relating to banking entities’ activities with private funds. Read more.
OCC Updates Guidance on Third-Party Risk Management
The OCC recently issued updated guidance to national banks and federal savings associations on assessing and managing risks associated with third-party relationships. The new guidance introduces a “life cycle” approach to third-party risk management, requiring comprehensive oversight throughout each phase of a bank’s business arrangement with third-party service providers, and instructs banks to adopt risk management processes commensurate with the level of risk and complexity of its third-party relationships. The OCC’s new guidance follows other recent regulatory pronouncements on the need to effectively monitor and assess the activities of outside vendors, indicating that third-party risk management practices will become an increasingly important focus of examination and enforcement. Read more.
New Quantitative Liquidity Requirements Proposed
The Federal Reserve recently issued a proposed rule that would establish, for the first time, a standardized quantitative minimum liquidity requirement for large, internationally active banking organizations, as well as for certain systemically important nonbank financial companies designated by the Financial Stability Oversight Council for Federal Reserve supervision. The liquidity proposal is based on a standard agreed to by the Basel Committee on Banking Supervision, but is more stringent in several respects than what is required under Basel III. Read more.
Federal Agencies Revise Proposed Securitization Risk Retention Rules
Five federal banking and housing agencies and the SEC have released a proposed rule implementing the credit risk retention requirement mandated by Dodd-Frank for certain securitization transactions. Section 941 of Dodd-Frank added a new Section 15G to the Securities Exchange Act of 1934, which directs regulators to adopt rules that generally require sponsors of asset-backed securities to retain at least 5% of the credit risk relating to the assets that underlie such asset-backed securities. The proposed rule revises and re-issues proposed rules originally issued by the Agencies on March 29, 2011, and makes several key revisions to the original proposal. Most importantly, it broadens the exemption for securitizations of qualified residential mortgages by adopting the CFPB’s definition of “qualified mortgage,” which unlike the original definition, does not have a 20% down payment requirement, a loan-to-value ratio requirement or underwriting standards related to a borrower’s credit history. The proposed rule also introduces sunset provisions to allow sponsors of asset-backed securities to transfer or hedge their retained interests after certain milestone dates, among other changes. Read more.
SEC Adopts Rules to Permit General Solicitation and Advertising in Certain Private Securities Offerings, Adopts the "Bad Actor" Disqualification and Proposes New Private Offering Filing and Disclosure
On July 10, 2013, the Securities and Exchange Commission adopted (i) amendments to Rule 144A under the Securities Act of 1933, as amended and Rule 506 of Regulation D under the Securities Act to permit use of general solicitations and general advertising in private securities offerings made pursuant to such rules, subject to the satisfaction of certain conditions, and (ii) amendments to Rule 506 to disqualify certain “bad actors” from conducting private placements in reliance upon such rule. In addition to the final approval of these new rules, in response to concerns relating to possible abuse of the offering flexibility afforded by the elimination of the prohibition on general solicitation and general advertising for certain private placements, the SEC proposed amendments to Rule 506 that, if adopted, would impose new filing and disclosure requirements on private offerings made in reliance upon such rule. Read more.
Federal Reserve Adopts Final U.S. Bank Capital Standards Under Basel III
The Federal Reserve has approved a final rule implementing the revised capital standards under the international capital framework known as “Basel III.” The final rule represents the most significant development in U.S. bank capital regulation since the adoption of Basel I in 1989 and is clearly among the most important rulemakings since the passage of Dodd-Frank three years ago. It replaces the general risk-based capital rules of the different banking agencies that currently apply to banking organizations with a single integrated regulatory capital framework that emphasizes not only higher capital cushions for banks to absorb losses but also more stringent criteria for what qualifies as regulatory capital. Read more.
Federal Reserve Finalizes Key Definition to Be Used in Making “SIFI” Designations
The Federal Reserve recently issued a final rule defining what it means for a nonbank company to be “predominantly engaged in financial activities.” The term is a necessary analytical component to the Financial Stability Oversight Council’s designation of nonbank companies as “systemically important” under the Dodd-Frank Act. The term is also relevant to filers of Form PF, a relatively new form that requires certain advisors to private funds to provide information regarding controlled portfolio companies that are predominately engaged in financial activities. Read more. CFTC Issues Last-Minute Deadline Extension for Derivatives End-Users with Respect to Dodd-Frank Swap Reporting Rules and No-Action Relief from Certain Inter-Affiliate Swap Reporting Requirements
The CFTC recently issued two no-action letters that provide last-minute relief for many derivative end-users with respect to trade reporting requirements under the Dodd-Frank Act. Most notably, the CFTC delayed the April 10, 2013 deadline for persons who are not swap dealers or major swap participants to report required information relating to most categories of “swaps” as defined under the Dodd-Frank Act. In addition, the CFTC provided relief from certain reporting requirements relating to Dodd-Frank swaps between affiliates. Read more.
Federal Banking Agencies Revamp Guidance on Leveraged Lending
The federal banking agencies have jointly issued guidance on leveraged lending activities by financial institutions. The new guidance updates and replaces guidance from more than a decade ago in light of changes in market practices and growth in the volume of leveraged credit. The guidance outlines “minimum expectations” for financial institutions with substantial exposures to leveraged lending activities, focusing on several key areas, including underwriting and valuation standards and guidelines for evaluating the financial support of deal sponsors. Guidelines for the purchase of participations involving leveraged loans also are included. Read more.
Mortgage Reform Update: CFPB Issues Final Rule on Residential Mortgage Lending Requirements
Earlier this month, the Consumer Financial Protection Bureau issued a final rule that prohibits all creditors (and not just banks) from making residential mortgage loans without regard to a borrower’s ability to repay and subjects noncompliant creditors to unprecedented liability, including foregone interest on the loans they made. The final rule sets forth the specific income verification requirements, product features, and underwriting criteria—including a 43% debt-to-income ratio cap—that creditors must follow for residential mortgage loans to be treated as “qualified mortgages” and, therefore, subject to certain protections from liability.
The final rule takes effect in 2014 and sets the stage for another important rule that may be finalized this year: Dodd-Frank’s 5% credit risk retention requirement. Read more.
Bank Liquidity Requirements: Basel Oversight Committee Endorses Revised Liquidity Standards and Extends Fully Phased-In Compliance to 2019
On January 6, the Group of Central Bank Governors and Heads of Supervision, the oversight body for the Basel Committee on Bank Supervision, endorsed a revised formulation of the new minimum liquidity standard, known as the liquidity coverage ratio (“LCR”), one of two quantitative liquidity measures approved in December 2010 as part of Basel III. Recognizing the need to continue to support the worldwide economic recovery, while ensuring that global banks maintain liquid assets sufficient to meet their short-term cash needs during times of stress, members of this Basel oversight group supported a package that, among other things, extends the timetable for full phase-in of the LCR from 2015 to 2019. Read more.
New Regulatory Framework for Foreign Banks with U.S. Operations
On December 14, 2012, the Federal Reserve issued a notice of proposed rulemaking to apply enhanced prudential standards and an early remediation framework to foreign banking organizations with $50 billion or more in total global consolidated assets. The proposed rules implement Sections 165 and 166 of the Dodd-Frank Act and, together with other rulemakings, would result in the most dramatic regulatory change in more than a decade for foreign banks with a U.S. presence. Read more.
Global Accounting Firms Caught in the Crossfire as SEC Fails to Reach Agreement with Chinese Regulators on Document Sharing
The China affiliates of the biggest accounting firms in the world have been placed in real jeopardy due to the stalled negotiations between U.S. and Chinese regulators over document sharing. On December 3, the U.S. Securities and Exchange Commission brought an administrative proceeding against BDO China Dahua CPA Co., Ltd., Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen (Special General Partnership), and PricewaterhouseCoopers Zhong Tian CPAs Limited based on their refusal to produce audit work papers and other documents relating to Chinese companies under investigation by the SEC. The accounting firms claim that their hands are tied because their Chinese regulators have refused to authorize the document production. A decision in favor of the SEC could result in these Chinese affiliates being denied the ability to appear and practice before the Commission, rendering it difficult for Chinese companies who rely on their services to list on American exchanges, and ultimately hindering the competitiveness of U.S. markets. Read more
SEC Adopts Final Rule Pursuant to the Dodd-Frank Act for Disclosing the Use of Conflict Minerals
On August 22, 2012, the Securities and Exchange Commission adopted a new rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring public companies to make disclosures of “conflict minerals” in their products. The rule is designed to reduce the funding of armed groups engaged in conflict in the Democratic Republic of Congo (“DRC”) by mandating additional disclosure requirements on the use and source of certain minerals whose exploitation and trade Congress believed are contributing to significant human rights abuses in the DRC. Read more
SEC Adopts Rules Requiring Payment Disclosures by Resource Extraction Issuers
On August 22, 2012, the Securities and Exchange Commission (“SEC”) adopted Rule 13q-1 under the Securities and Exchange Act of 1934 (“Exchange Act”), implementing the extractive issuer disclosure provisions of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which added Section 13(q) to the Exchange Act and directed the SEC to issue rules requiring that a resource extraction issuer disclose payments to a foreign government or the federal government for the purpose of the commercial development of oil, natural gas or minerals. Section 13(q) supports the federal government’s commitment to international transparency promotion efforts relating to the commercial development of oil, natural gas or minerals, such as the Extraction Industries Transparency Initiative (“EITI”). Read more.
The CFTC Further Clarifies End-User Exception to the Mandatory Clearing Requirement for Swaps
The Dodd-Frank Act imposes a mandatory clearing requirement on certain swaps to be designated by the CFTC. To mitigate the burden of this requirement, Dodd-Frank provides an exception to such clearing requirement for certain non-financial end-users. In a final rule, released on July 11, 2012, the CFTC outlines the requirements that must be met in order for a person to elect the so-called “end-user exception” to the mandatory clearing requirement. This memo discusses the final rule published by the CFTC, outlines which parties are eligible to take advantage of the end-user exception, and summarizes the procedures for making such election. Read more.
Live Webcast: “The Impact of Dodd-Frank Act on Executive Compensation: A 2012 Perspective”
On July 23, 2012, Simpson Thacher litigation partner Paul Gluckow and Executive Compensation and Employee Benefits associate Paul Koppel will participate in the Knowledge Congress seminar, “The Impact of Dodd-Frank Act on Executive Compensation: A 2012 Perspective.” The two-hour live webcast, will provide an in-depth discussion of Dodd-Frank provisions that impact executive compensation. The panel will review existing rules on say-on-pay, golden parachutes and clawbacks; voting guidelines under the ISS; compensation arrangements; developing effective compensation strategies, risk assessments and benchmarking practices; and preparing for Dodd-Frank executive compensation provisions to take effect in 2013. The program will also feature a Q&A session where attendees will be invited to ask the panel of speakers questions related to the program. For more information and to register for this webcast, please click here.
SEC and CFTC Finalize Key Swap Product Definitions Under Dodd-Frank, Triggering the Effectiveness or Phase-In of Many Dodd-Frank Derivatives Regulatory Provisions
The SEC and CFTC recently approved joint final rules further defining the terms “swap,” “security-based swap,” “mixed swap,” and “security-based swap agreement” pursuant to the Dodd-Frank Act. These rules determine which derivative products will be subject to Title VII of the Dodd-Frank Act. The publication of these rules in the Federal Register—expected to occur in the near future—will trigger the effectiveness or the phase-in of many of the new derivatives regulations under Dodd-Frank such as reporting, recordkeeping, mandatory clearing, swap execution, business conduct and position limits. This Client Alert provides a preliminary look at these final definitional rules based on the fact sheets that have been made available by the SEC and the CFTC. A more detailed memo will follow upon the release of the text of these final rules. Read more.
SEC Adopts Final Rule Requiring Listing Standards for Compensation Committees
On June 20, 2012, the Securities and Exchange Commission adopted Rule 10C-1 under the Securities and Exchange Act of 1934, as amended, in compliance with Section 10C thereof, which section had been added to the Exchange Act pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Rule 10C-1 closely follows Section 10C and directs national securities exchanges (“exchanges”) to prohibit the listing of any equity security of an issuer that does not comply with the rules to be promulgated by the exchanges regarding, among other matters, the independence of compensation committees, the authority to retain compensation consultants and the consideration of compensation adviser independence. The SEC also amended Item 407(e)(3) of Regulation S-K to require the disclosure by listed issuers of any conflicts of interest of their compensation consultants. Read more.
The CFTC Adopts Final Rules on the Recordkeeping and Reporting of Historical Swaps
The CFTC has adopted final rules governing the recordkeeping and reporting of historical swaps—imposing comprehensive recordkeeping and reporting obligations on all historical swap counterparties, including end-users. The historical swaps covered by these final rules encompass (i) swaps entered into before July 21, 2010 and still outstanding as of July 21, 2010 and (ii) swaps entered into on or after July 21, 2010, but prior to the applicable compliance date set forth in the rules. Counterparties to historical swaps would be well-advised to undertake a comprehensive review of both current and recently expired swap positions as well as consider updates to their recordkeeping policies and technological capabilities. Read more.
Basel III Update: Federal Reserve Proposes New Bank Capital Framework
Yesterday, the Federal Reserve issued a much-awaited proposal to restructure current regulatory capital rules for U.S. banking organizations. The proposal would implement heightened international capital standards, known as Basel III, as well as certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the Federal Reserve, the new framework “addresses shortcomings in regulatory capital requirements that became apparent during the recent financial crisis.”
The following memorandum provides a high-level summary of the proposal. Read More.
New Figures Confirm That Dodd-Frank Whistleblower Tips Are Pouring Into The SEC
A senior official of the Securities and Exchange Commission (“SEC”) has confirmed what many observers expected to occur in the wake of the Dodd-Frank Act: the potentially enormous financial rewards offered to whistleblowers in return for information about suspected wrongdoing are generating a deluge of tips to the SEC. According to a recent report, the chief of the SEC’s Office of Market Intelligence revealed in an interview with Law360 that the SEC has been receiving an average of seven whistleblower tips per day -- with roughly two to three worthy of investigation -- since the Dodd-Frank whistleblower program began. Read more.
CFTC and SEC Adopt New Rules Further Defining “Major Swap Participant” and “Major Security-Based Swap Participant”
Pursuant to Section 712 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Commodity Futures Trading Commission and the Securities and Exchange Commission (collectively, the “Commissions”), in consultation with the Board of Governors of the Federal Reserve System, have issued critical, final rules defining the terms “major swap participant” and “major security-based swap participant” (collectively, “major participants”). These new regulations establish a comprehensive testing methodology that swap and security-based swap counterparties must employ both to determine whether they will be subject to heightened regulation as a major participant and to establish whether they will be shielded from such requirements by a safe harbor. To the extent that an entity satisfies any of the three alternative major participant tests, it will generally become subject to additional statutory and regulatory requirements, encompassing margin, capital, business conduct, recordkeeping, and reporting. Because the CFTC rule and the SEC rule (collectively, the “final rules”) are substantially similar in both substance and approach, this memo discusses the two rules concurrently, highlighting areas in which they differ. Read more.
CFTC and SEC Adopt New Rules Further Defining "Swap Dealer" and "Security-based Swap Dealer"
The U.S. Commodity Futures Trading Commission (the “CFTC”) and U.S. Securities Exchange Commission (the “SEC”) recently adopted final rules regarding the criteria for a person to be considered a “Swap Dealer” or “Security-Based Swap Dealer” under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A person who is a Swap Dealer or Security-Based Swap Dealer generally must register with the CFTC or SEC, respectively, and will be subject to regulation on matters including capital and margin requirements, business conduct, reporting and recordkeeping, and position limits monitoring, among other provisions. Read more.
Volcker Rule Update: Federal Reserve Issues Guidance on Conformance Period for Entities Engaged in Proprietary Trading or Private Fund Activities
Last week, the Federal Reserve issued a statement of policy on the period of time banking entities have to bring their activities and investments into compliance with the Volcker Rule provisions of Dodd-Frank. While the Volcker Rule becomes effective on July 21, 2012, the key date is July 21, 2014, which is the statutory deadline by which banking entities must conform their activities and investments to the Volcker Rule. The Federal Reserve’s recent guidance confirms that banking entities will have this entire two-year “conformance period” to come into compliance with the Volcker Rule. Read more.
Federal Banking Regulators Clarify Effective Date for the Swaps “Push-Out” Rule Under Dodd-Frank
On March 30, 2012, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation jointly issued guidance clarifying that the effective date of Section 716 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”)—known more commonly as the swaps “push-out” rule—is July 16, 2013. Read more.
The Federal Reserve’s Evolving Financial Stability Analysis in Bank and Nonbank Acquisitions
On February 14, the Federal Reserve issued an order approving Capital One Financial Corporation’s proposed acquisition of ING Bank, fsb. The Capital One order, together with the Federal Reserve’s earlier order approving the acquisition of RBS Bank (USA) by The PNC Financial Services Group, Inc., are the first interpretations of the new “financial stability” factor, which the Federal Reserve is required by Dodd-Frank to consider in connection with approving acquisitions. Read more.
Regulating Systemically Important Financial Companies
The Federal Reserve has released a much-awaited proposed rule on the enhanced prudential standards and early remediation framework that will apply to large bank holding companies and to those nonbank financial companies designated by the new Financial Stability Oversight Council as “systemically important.” The proposed rule would implement Sections 165 and 166 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) and, together with other rulemakings, form the heart of systemic risk regulation under Dodd-Frank. Comments on the proposed rule, which was published last week in the Federal Register, are due by March 31, 2012. Read more.
Financial Stability Oversight Council Releases Proposed Rules and Interpretive Guidance on Designations of Systemically Important Nonbank Financial Companies
On October 11, 2011, the Financial Stability Oversight Council (the “FSOC”) issued a second notice of proposed rulemaking and interpretive guidance regarding the standards and process that it will use to determine whether a nonbank financial company should be treated as “systemically important” and, therefore, subject to supervision by the Federal Reserve in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. In particular, the FSOC has outlined a three-stage process that it intends to follow in making so-called “SIFI” determinations. Comments on the FSOC’s proposal are due by December 19, 2011. Read more.
Regulations Proposed to Implement the Volcker Rule
The Federal Reserve and other agencies have issued a much-awaited proposed rule implementing the so-called “Volcker Rule,” a set of provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule, once effective, will prohibit banking entities from engaging in proprietary trading and from investing in or sponsoring private equity and hedge funds, subject to certain exceptions and transition considerations. The agencies are seeking comment on the proposed rule until January 13, 2012. Read more.
SEC Removes Credit Rating Criteria from Form S-3 and F-3 and from Certain SEC Rules
The Securities and Exchange Commission recently adopted amendments to remove investment grade criteria from the transaction eligibility requirements of Form S-3 and F-3. The SEC also adopted corresponding amendments to modify certain SEC rules that reference credit ratings. These form and rule changes will generally become effective on September 2, 2011. These changes were made in light of Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which requires that the SEC review its regulations with a credit ratings component and “remove any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness.” Read more.
Federal Reserve Issues Regulations for Savings and Loan Holding Companies
On August 12, the Federal Reserve Board issued an interim final rule establishing regulations for savings and loan holding companies. The regulations follow the recent transfer under the Dodd-Frank Act of supervisory and rulemaking authority for savings and loan holding companies and their nondepository subsidiaries from the Office of Thrift Supervision to the Federal Reserve Board. Read more.
Reflections on Dodd-Frank: A Look Back and a Look Forward
Simpson Thacher has published “Reflections on Dodd-Frank: A Look Back and a Look Forward,” a compendium of articles that review and analyze key rulemaking developments during the first year of enactment. Read more.
Federal Reserve Issues Final Rule Regulating Debit Interchange Fees and Network Exclusivity
Today, the Board of Governors of the Federal Reserve System approved its final rule regulating debit interchange fees and network exclusivity and routing, as well as its interim final rule on fraud-prevention adjustment, pursuant to Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. After receiving over 11,000 comments, the Board made significant changes to its proposed rule, including a substantial increase in allowable interchange fees. Read more.
SEC Announces Final Rules Implementing The Dodd-Frank Whistleblower Program
On May 25, 2011, the SEC announced the long-awaited final rules implementing the sweeping whistleblower program included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). While Dodd-Frank enacted a framework for the new whistleblower program, it explicitly left it to the SEC to adopt specific rules and procedures for implementing the program. In November 2010, the SEC released proposed rules and extensive commentary and solicited comments, prompting a flurry of letters from business interests and whistleblower advocates, especially over the question of whether the SEC should require that whistleblowers report wrongdoing through internal corporate compliance channels before becoming eligible for bounties under the whistleblower program. The rules answer many of the uncertainties about the Dodd-Frank whistleblower program that have been lingering since the Dodd-Frank Act was signed into law last summer. Read more.
Securitization After Dodd-Frank: A Look at the Proposed Risk Retention Rules
On March 29, five federal banking and housing agencies, as well as the SEC, released proposed rules implementing the credit risk retention requirement mandated by Dodd-Frank for certain securitization transactions. Section 941 of Dodd-Frank added a new Section 15G to the Securities Exchange Act of 1934, which directs regulators to adopt rules that generally require sponsors of asset-backed securities to retain at least 5% of the credit risk relating to the assets that underlie such asset-backed securities. This so-called “skin in the game” requirement is intended to provide sponsors with a meaningful incentive to monitor and control the quality of securitized assets and align the interests of the sponsor with those of investors. The proposed rules provide a complete exemption for securities collateralized exclusively by “qualified residential mortgages” that meet stringent underwriting standards. Special treatment is also provided for securities that are backed by qualifying commercial loans, commercial real estate loans and automobile loans. Read more.
SEC Proposes Readoption of Rules 13d-3 and 16a-1 Regarding Beneficial Ownership in Light of Dodd-Frank
On March 17, 2011, the Securities and Exchange Commission (the “SEC”) proposed to readopt, without change, certain portions of Rules 13d-3 and 16a-1 (the “Rules”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The proposed readoption of the Rules is intended to preserve the existing application of the beneficial ownership rules promulgated under Sections 13 and 16 of the Exchange Act (the “Beneficial Ownership Rules”) to security-based swaps following the effectiveness of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The SEC is soliciting comments on the proposed readoption through April 15, 2011. Read more.
U.S. Regulators Propose Rules on Incentive-Based Compensation Arrangements at Large Financial Institutions
On February 7, the FDIC issued proposed rules governing incentive-based compensation arrangements at major financial institutions with consolidated assets of at least $1 billion. The proposed rules impose prohibitions on compensation arrangements that encourage inappropriate risks and also establish new reporting requirements. The same rules are expected to be proposed by the other major banking and financial regulators, including the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Securities and Exchange Commission. Read more.
The Sweeping Whistleblower Provisions Tucked Inside Dodd-Frank: Why And How Companies Should Prepare For a New Era of Corporate Whistleblowing
In announcing their blockbuster $750 million settlement with GlaxoSmithKline last month, federal officials described the case as proof that the Department of Justice is committed to cracking down on health care fraud. What the official announcement left out was that the investigation into drug safety concerns at Glaxo began more than six years ago not with a subpoena or a customer who fell ill, but when a former Glaxo employee blew the whistle on quality control problems at a Glaxo plant. In return for that information, the former employee will receive $100 million from the government — the largest whistleblower award ever paid in this country. But the record set by the Glaxo award might not last long. Read more.
Federal Reserve Issues Proposed Transition Rules for “Volcker Rule” Compliance
On November 17, 2010, the Federal Reserve released proposed transition rules for banking entities and certain other companies that will be subject to the “Volcker Rule” restrictions on proprietary trading and on investments in and sponsorship of private equity funds and hedge funds. The proposed transition rules, which are subject to a 45-day public comment period, implement provisions of the Volcker Rule that provide banking entities and certain other companies a defined period of time to conform their activities and investments to the Volcker Rule. This memorandum provides a summary of the Federal Reserve’s proposed transition rules. Read more.
The CFTC and the SEC Issue Interim Final Reporting Rules for “Pre-Enactment Unexpired” Swaps and Security-Based Swaps
As required under the Dodd-Frank Act, the Commodities Futures Trading Commission (the “CFTC”) and the Securities Exchange Commission (the “SEC”) have issued interim rules with respect to the reporting of swaps and security-based swaps entered into prior to July 21, 2010, the date of enactment of the Dodd-Frank Act (the “enactment date”), that had not expired as of the enactment date (“pre-enactment unexpired swap transactions”). Read more.
Regulation of Private Funds and Their Advisers Under the Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), a broad overhaul of the nation’s financial regulatory system. This memorandum focuses on the provisions of the Act that alter the registration, reporting and recordkeeping obligations applicable to private funds and their advisers. Previously, private equity and hedge fund advisers generally were not required to register with the Securities and Exchange Commission (“SEC”) or comply with related reporting, recordkeeping and other burdens in reliance on the “private investment adviser” exemption under the Investment Advisers Act of 1940. Under the Act, however, private equity and hedge fund advisers will be required to register with the SEC if their advisee funds and other client accounts have $150 million in assets or more under management. Advisers solely to “venture capital funds,” regardless of their size, are not required to register, although they will be subject to certain reporting requirements. The registration, reporting and recordkeeping obligations become effective one year after the Act is enacted. While the Act establishes a framework for heightened regulation of the private funds industry, the provisions of the Act are in many respects incomplete (and in some cases intentionally so), and Congress has authorized the SEC and other federal regulators to fill in these gaps and complete this process through further analytical review, rulemaking and interpretation. This administrative process will dictate important aspects of the reform and the exact ways in which the new legislation will affect private funds and their advisers. As a result, it will likely be quite some time until such reforms are broadly implemented and the direct and indirect impact of the Act on the private funds industry is fully understood. Read more.
Guidance on New SEC Rating Agency Expert Consent Requirement
With President Obama signing the Dodd-Frank Wall Street Reform and Consumer Protection Act into law today, a new requirement has become effective that generally requires filing of written consents from credit rating agencies with the SEC where any portion of a credit rating agency report or opinion is quoted or summarized in a registration statement or prospectus. In light of the conflict between this new consent requirement and preliminary positions adopted by the leading credit ratings agencies not to deliver consents, we have collaborated with a number of other law firms and have spoken with the staff of the Securities and Exchange Commission with a view to developing guidance with respect to the application of the new consent requirement. This guidance is set forth in the white paper appended to our memorandum. Read more.
The Volcker Rule Provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act
On June 30, 2010, the U.S. House of Representatives passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is widely expected to be passed by the U.S. Senate and signed into law by President Obama. Among the most consequential features of the legislation is the so-called “Volcker Rule”. Named after Paul Volcker, the former chairman of the Federal Reserve, the Volcker Rule will, subject to limited exceptions, ban banking organizations from engaging in proprietary trading and sponsoring or investing in hedge funds and private equity funds. Our July 6, 2010 memorandum, “U.S. Congress Nears Completion of Landmark Financial Services Reform Legislation”, provided an overview of the legislation. This memorandum provides additional detail on the Volcker Rule. Read more.
U.S. Congress Nears Completion of Landmark Financial Services Reform Legislation
On June 30, 2010, the U.S. House of Representatives approved the most sweeping financial reform legislation in decades, entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” The U.S. Senate has yet to vote on the legislation, but it is widely anticipated that it will be approved by the Senate when it reconvenes on July 12. Once enacted, the legislation will have far-reaching implications, affecting virtually every segment of the financial services industry and its customers. This memorandum provides a summary of the key provisions in the legislation. Read more.
The Prospective Impact on Public Companies of the Financial Regulatory Reform Bills: A Legislative Update
On May 20, 2010, the U.S. Senate passed a comprehensive set of financial regulatory reforms that, if enacted, will represent the most sweeping set of changes to the U.S. financial regulatory system since the Great Depression. The reforms, which are set forth in a bill of more than 1,500 pages called the Restoring American Financial Stability Act of 2010 (S. 3217, or the “Senate Bill”), come after nearly a year of Congressional hearings and months of stop-and-start legislative negotiations. The Senate Bill tracks many of the themes contained in the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173, or the “House Bill”) that was passed by the U.S. House of Representatives on December 11, 2009. Both bills mandate specific executive compensation and corporate governance practices at U.S. public companies generally. Read more.