In response to a petition filed by the Business Roundtable and the U.S. Chamber of Commerce with the U.S. Court of Appeals for the District of Columbia Circuit asking the Court to vacate recent changes to the SEC’s proxy rules designed to facilitate shareholder nomination of directors (as discussed in the September 1, 2010 Goodwin Procter Client Alert and the September 7, 2010 Alert), the SEC has issued an order staying the effectiveness of newly adopted Rule 14a-11, related amendments to the proxy rules and amendments to Rule 14a-8, pending the Court’s review.

The SEC issued an order amending Rule 100 of Regulation FD to remove the exemption for disclosures of material non-public information disclosed to rating agencies.  This amendment, which implements section 939B of the Dodd-Frank Wall Street Reform and Consumer Protection Act, became effective without a public comment period on October 4, 2010.  In the view of the SEC, publication for comment was not required by the Administrative Procedure Act because the change was required by Congress and notice and a comment period would be unnecessary, impracticable and contrary to the public interest. [Read more →]

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)¹ rolls back the clock on preemption for national banks to a time before broad preemption regulations were promulgated by the Office of the Comptroller of the Currency (OCC) in 2004. Dodd-Frank also subjects federal savings banks to the same preemption rules applicable to national banks. Beginning in July 2011, national banks and federal savings banks will have to adhere to more limited preemption of state laws in accordance with the 1996 Supreme Court holding in Barnett Bank v. Nelson.² With less than 10 months before the new preemption rules become effective, national banks and federal savings banks must immediately begin work implementing the new rules to ensure that their products, services and operations comply with state laws that have been preempted in the past. This Special Alert is provided to help national banks and federal savings implement the new preemption rules.

A.    Current Preemption Standard

There has been a vast expansion of the doctrine of federal preemption of state law in the consumer financial services sector in the last two decades. In its regulations and legal opinions, the Office of Thrift Supervision (OTS) has interpreted the Home Owners’ Loan Act (HOLA) as occupying the entire field of regulation for consumer financial products and services offered by federal savings banks and their operating subsidiaries, and the courts have for the most part agreed. Field preemption has allowed federal savings banks and their operating subsidiaries to offer products and services without regard to state laws purporting to regulate or otherwise affect such products and services, except in very limited circumstances.³ [Read more →]

The FDIC Board of Directors issued a proposed rule (the “Proposed Rule”) to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) that provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts.  The separate coverage for noninterest-bearing transaction accounts becomes effective on December 31, 2010, and terminates on December 31, 2012.  The Proposed Rule also serves as formal notice that the FDIC will not be extending the Transaction Account Guarantee Program (“TAGP”) beyond its scheduled expiration date of December 31, 2010.  Comments are due on the Proposed Rule by October 15, 2010.  The FDIC noted that the shorter than usual comment period is necessary to give insured depository institutions adequate time to implement the notice and disclosure requirements set forth in the proposed rule by December 31, 2010. [Read more →]

The OTS issued an updated Examination Handbook Section on Capital Adequacy (“New Section 120”), providing extensive revisions from the previous version.  Changes include, among other things, (1) an expanded discussion on assessing compliance with minimum regulatory capital requirements, and (2) updates on the Basel International Accord.  New Section 120 also significantly expands the discussion on assessing overall capital adequacy to include: (a) a review of an institution’s own capital adequacy assessment process; (b) factors that affect capital, including material risks; (c) an assessment of the quality of capital; and (d) an assessment of capital adequacy relative to an institution’s unique risk profile. [Read more →]

The FDIC’s Board of Directors approved a final rule (the “Final Rule”) that will extend through December 31, 2010 safe harbor protection for applicable securitizations and participations in the event of an FDIC-insured bank’s failure.  The Final Rule is similar to the FDIC’s extension of the safe harbor on March 11, 2010.  For a discussion of the safe harbor and its extensions, see the June 16, 2009 Alert, the November 17, 2009 Alert and the March 16, 2010 Alert.  A detailed discussion of the Final Rule will appear in a future issue of the Alert.

Treasury Secretary Tim Geithner, Chairperson of the Financial Stability Oversight Council (the “FSOC”) established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, announced that the FSOC would hold its first meeting on October 1, 2010 in Washington D.C.  The press release announcing the meeting stated that the FSOC will provide, “comprehensive oversight over the stability of our nation’s financial system.  [The FSOC] is charged with identifying threats to the financial stability of the United States; promoting market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties that the government will shield them from losses in the event of failure; and responding to emerging risks to the stability of the United States financial system”.

Elizabeth Warren has been appointed Assistant to the President and Special Advisor to the Secretary of the Treasury for the Bureau of Consumer Financial Protection (“CFPB”).  In this role, Ms. Warren will be charged with establishing the CFPB, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) to regulate consumer financial products and services under the federal consumer financial laws.  Ms. Warren is a Harvard Law School professor and is widely credited with originally proposing the creation of a consumer protection agency.  Until the announcement of her appointment as special advisor, Ms. Warren chaired the Congressional Oversight Panel that oversees the Troubled Asset Relief Program.  [Read more →]

The SEC website includes a page devoted to the SEC’s efforts in implementing applicable portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (as discussed in the July 28, 2010 Alert).  The Dodd-Frank webpage includes information on the timing of upcoming rulemaking and SEC action to date.  The webpage also includes overviews of rulemaking required under the Act in the following areas:

• Derivatives
• Clearing and Settlement
• Asset-Backed Securities
• Advisers to Hedge Funds and Other Private Funds
• Whistleblower Program
• Corporate Governance Issues, Including Executive Compensation Disclosure and Related SRO Rules
• Municipal Securities
• Credit Rating Agencies
• Specialized Corporate Disclosure

The SEC announced that it has approved rule proposals submitted by the national securities exchanges and FINRA that expand a recently-adopted circuit breaker program (discussed in the June 15, 2010 Alert) to include all stocks in the Russell 1000 Index and certain exchange-traded funds.  The SEC anticipates that the national securities exchanges and FINRA will begin implementing the expanded circuit breaker program this week.  The SEC also approved new rules proposed by the stock exchanges and FINRA designed to clarify the process for reviewing trades in exchange-traded securities to determine whether they are clearly erroneous and should be cancelled (as discussed in the June 22, 2010 Alert).   As with the circuit breaker program, the final erroneous trade rules will be in effect on a pilot basis through December 10, 2010.

In his keynote address for the ISDA Regional Conference in New York City, CFTC Chairman Gary Gensler discussed the CFTC’s efforts to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) with regard to regulation of the swaps marketplace.  Chairman Gensler estimated that more than 200 entities will register as swap dealers and 20 to 30 new entities will register as swap execution facilities or designated contract markets as a result of the Dodd-Frank Act and the rules being promulgated by the CFTC and SEC.  Gensler noted that the CFTC is actively working with international regulators to harmonize swaps market oversight.  Citing to the European Commission’s proposed legislation on over-the counter derivatives released on September 15 2010, Chairman Gensler stated his confidence in “strong and consistent regulation of the U.S. and European swaps market.”  For further discussion of swaps marketplace regulation under Title VII of the Dodd-Frank Act, see the August 2, 2010 Special Edition of the Alert).

Following the publication of two Commission Communications in July and October 2009, the European Commission issued its “Proposal for Regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories” on September 15, 2010.  (The text of the proposed legislation is available at http://ec.europa.eu/commission_2010-2014/barnier/headlines/news/2010/09/20100915_en.htm.)  Like Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the proposed legislation is intended to promote transparency in the OTC derivatives market, reduce counterparty credit risk and reduce operational risk.  Specifically, the proposed legislation would, among other things, mandate clearing for standardized OTC derivatives through central counterparties (“CCPs”).  To avoid CCPs becoming a source of risk to the financial system, the new regime would impose stringent conduct of business and prudential requirements on CCPs.  It would also increase transparency by requiring heightened reporting on OTC derivatives to trade repositories and that such information be accessible to supervisory authorities.  The European Council and the European Parliament must approve the proposal before it becomes law.

The Basel Committee on Banking Supervision (the “Basel Committee”) announced that the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, agreed on new, higher capital standards for banking organizations at its meeting on September 12, 2010.  The President of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, Jean-Claude Trichet, noted that “the agreements reached today are a fundamental strengthening of global capital standards,” and that “their contribution to long term financial stability and growth will be substantial.”

The new standards will include a minimum common equity requirement of 4.5% (compared to the current requirement of 2%).  The phase-in period for this requirement will begin on January 1, 2013, with full implementation effective January 1, 2015.  The Tier 1 capital requirement, which includes common equity and other qualifying financial instruments, will increase from 4% to 6% over the same period.  The total capital requirement will remain at the existing level of 8%, and therefore will not need to be phased in. [Read more →]

The SEC recently adopted amendments to the proxy rules under the Securities Exchange Act of 1934 (the “1934 Act”) that facilitate shareholder nomination of directors.  The release adopting the amendments is available here.  The amendments also revise Rule 14a-8 under the 1934 Act, principally to eliminate an issuer’s ability to exclude a shareholder proposal that relates to a procedure for the nomination or election of directors under Rule 14a-8(i)(8) and to codify prior SEC staff positions regarding an issuer’s ability to exclude certain shareholder proposals relating to director elections.  This article summarizes the main features of the SEC’s amendments to the proxy rules, which include several features specific to registered investment companies.

Shareholder Nominations.  New Rule 14a-11 under the 1934 Act requires an issuer to include a shareholder nominee or nominees for director in an issuer’s proxy statement and form of proxy (collectively, “proxy materials”) if certain conditions are met.  The rule applies to all issuers subject to the proxy rules, including investment companies, except for issuers subject to the proxy rules solely because they have a class of debt registered under Section 12 of the 1934 Act.  [Read more →]

Goodwin Procter’s M&A/Corporate Governance Practice has issued a Client Alert that examines the recent SEC rule changes designed to facilitate shareholder nomination of directors and their immediate implications for public companies.  The Client Alert is available here.