Below is a link to a Client Advisory (“Dodd-Frank Wall Street Reform and Consumer Protection Act – Public Company Impact”) prepared by Goodwin Procter’s Securities & Corporate Finance and ERISA & Executive Compensation Practices.

Dodd-Frank Wall Street Reform and Consumer Protection Act - Public Company Impact

Below is a link to a Client Alert (“Private Fund Investment Advisers Registration Act of 2010 Signed Into Law”) prepared by Goodwin Procter’s Private Investment Funds and Hedge Funds Practice.

Private Fund Investment Advisers Registration Act of 2010 Signed Into Law

The U.S. House of Representatives approved the conference report on the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) by a vote of 237-192.  For a discussion of the Act, please see the June 29, 2010 Alert.  The Act will now be voted upon by the Senate, where its chances of approval are regarded as good, but less than certain.  The Act has been primarily supported by Democrats and with the death of Senator Robert Byrd there are only 58 Democratic senators; 60 votes are needed to end debate on the Act.  The governor of West Virginia may appoint a successor to Sen. Byrd before the Senate returns from its Fourth of July recess on July 12.  Of the two Democratic senators who did not vote for the previous Senate financial reform bill, Sen. Maria Cantwell has stated that she will vote for the Act and Senator Russ Feingold has stated that he will not vote for the Act.  Republican Senator Susan Collins, who voted for the previous Senate financial reform bill, has also stated that she will vote for the Act.  The three other Republican senators who voted for the previous Senate financial reform bill, Sens. Olympia Snowe, Scott Brown and Charles Grassely, have not indicated whether they will vote for the Act.

The Congressional conference committee on financial regulatory reform released its 2,319 page conference report reconciling the Wall Street Reform and Consumer Protection Act of 2009 that was passed by the U.S. House of Representatives on December 11, 2009 (the “House Bill”) with the Restoring American Financial Stability Act of 2010 that was passed by the U.S. Senate on May 20, 2010 (the “Senate Bill”).  The final legislation, which was renamed by the conference committee the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), would comprehensively reform the regulation of financial products and services by providing for, among other things, the establishment of a Financial Stability Oversight Council (the “Council”) to monitor systemic risk, the creation of a new resolution process for systemically important financial institutions, the establishment of a Consumer Financial Protection Bureau (the “CFPB”), the registration of private fund advisers and the regulation of derivatives.

After releasing its conference report, the conference committee reconvened to revise the funding provisions of the Act to address concerns regarding a proposed assessment on large financial institutions.  The conference committee agreed to replace the proposed assessment with provisions that would authorize (i) the early termination of the Troubled Asset Relief Program and (ii) require the FDIC to take steps to increase the reserve ratio of the Deposit Insurance Fund from 1.15 percent to 1.35 percent of estimated insured deposits by September 30, 2020, provided that any increased assessment must not be applied to institutions with less than $10 billion in assets. [Read more →]

George Osborne, Chancellor of the British Exchequer, recently announced that by 2012, the current tripartite system of regulation of the British financial services industry – currently allocated among the Bank of England, the Financial Services Authority (the “FSA”) and the Office of Fair Trading – would be replaced with multi-partite system, with the FSA ceasing to exist in its current form.  Our colleagues at SJ Berwin have prepared an analysis of these changes in the U.K.’s regulation of the financial markets, which is available here .

The U.S. Senate has passed the Restoring American Financial Stability Act of 2010 (the “Senate Bill”), which would comprehensively reform the regulation of financial products and services by providing, among other things, for the establishment of a Financial Stability Oversight Council (the “Council”) to monitor systemic risk, a new resolution process for systemically important financial institutions, a new Consumer Financial Protection Bureau (the “CFPB”), the registration of private fund advisers and the regulation of derivatives.  For more on the Senate Bill, please see the March 16, 2010 Alert, the March 23, 2010 Alert and the April 27, 2010 Alert.  The Senate Bill must now be reconciled with the Wall Street Reform and Consumer Protection Act of 2009 (the “House Bill”), a similar comprehensive financial reform bill that was passed by the U.S. House of Representatives on December 11, 2009.  For more on the House Bill, please see the November 3, 2009 Alert, December 8, 2009 Alert and the December 15, 2009 Alert.

Amendments.  During three weeks of contentious debate, the following amendments to the Senate Bill were adopted:

• Resolution Authority.  An amendment by Senators Christopher Dodd and Richard Shelby that implements a bipartisan agreement on the Senate Bill’s resolution title, which establishes a new federal process for shutting down large, interconnected financial companies in an orderly manner.  The amendment strikes the provisions of the Senate Bill that would create a $50 billion resolution fund for the FDIC to liquidate certain failing systemically important financial firms and direct the FDIC to use Treasury funds for liquidation.  Under the amendment, creditors of such a failing firm would have to pay back any funds received in excess of what they would have received in liquidation.  The amendment also requires Congress to approve FDIC debt guarantees and provides that the FRB may only use its emergency lending authority for solvent companies.  A separate amendment by Senator Barbara Boxer stipulates that any financial firm that enters into the federal resolution process shall be liquidated and provides that no taxpayer funds shall be used to prevent the liquidation of such financial firm. Senator Boxer’s amendment further provides that any funds spent to liquidate such a financial firm shall be recovered from the disposition of assets of such financial firm, or shall be the responsibility of the financial industry, through assessments, in order to prevent taxpayers from bearing any losses from such resolution process.

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Speaking at the Institute of International Bankers’ International Banking Anti-Money Laundering (“AML”) seminar, FinCEN Director James Freis discussed the impact of financial regulatory reform on the regulatory framework for AML and counter-terrorist financing (“CFT”). In his remarks, Freis acknowledged that AML/CFT regulation has not received close attention in the regulatory reform debate, but noted that reform will nonetheless have indirect effects on AML/CFT, making it necessary for FinCEN to take into account the impact of regulatory changes on financial institutions and their regulators.

Freis framed his remarks by stating that, like any regulator, FinCEN must understand its “line of business,” which in FinCEN’s case includes (1) alignment of specific AML/CFT requirements with the operating obligations of financial sector participants, (2) involvement and integration with safety and soundness regulation more broadly, and (3) detection and prevention of money laundering and terrorist financing. Freis explained that FinCEN’s main regulatory tool is to impose basic standards of behavior, minimum standards of knowledge, and consistent standards of transparency.

Looking forward, Freis predicted that, unlike other areas of financial regulation which will be directly impacted by regulatory reform, the changes in AML/CFT regulation are more likely to be in the nature of evolution, maturation and integration, with a focus on effective implementation. Freis also explained that he believes there will be continued focus on AML/CFT issues because combating abuses of financial crime is a part of promoting financial stability. In addition, Freis noted that AML/CFT obligations are consistent with the main principles outlined by the G-20 countries regarding potential changes in regulation of the financial services industry: Strengthening Transparency and Accountability, Enhancing Sound Regulation, Promoting Integrity in Financial Markets, Reinforcing International Cooperation, and Reforming International Financial Institutions.

Focusing on the practical by financial institutions implications of regulatory reform, Freis outlined the business case for continued investment by financial institutions in AML/CFT compliance during periods of financial stress. Freis explained, for example, that a 2009 survey by the American Bankers Association showed $788 million in fraud related losses on payment cards in 2008, and more than $1 billion under the umbrella of check fraud during the same period. In light of such statistics, Freis highlighted his continued support for close integration of AML/CFT compliance with longstanding efforts to prevent fraud and other losses, explaining that a complete and correct risk assessment, customer identification program, and transaction monitoring process can pay for itself through the prevention and detection of fraud committed against the institution, the prevention and detection of identity theft and corporate account hijacking, the accurate evaluation and pricing of new products and services, the discovery of market products not properly served, and compliance with non-AML/CFT regulations, such as consumer protection rules.

Goodwin Procter issued a Client Alert discussing proposed legislation anticipated to be enacted shortly that would affect the treatment of “carried interest” incentive allocations received by sponsors of investment funds organized as partnerships and LLCs.  Under the legislation, 50% of such allocations would be treated as ordinary income (rather than capital gain as is generally the case under current law) through 2012, with 75% of such allocations treated as ordinary income thereafter.

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Covered bonds are back on legislators’ lists of bank financing alternatives.  Long an integral part of the European financial markets, covered bonds figured prominently on U.S. regulators’ radar in 2008, until the potential opportunity they offered was eclipsed by a deepening credit crisis.  The FDIC issued, on July 15, 2008, the first formal guidance on covered bonds, the “Final Covered Bond Policy Statement” (the “Covered Bonds Statement”), following several months of comment on its April 23, 2008 “Interim Final Covered Bond Policy Statement” (the “Interim Covered Bond Statement”).  Less than two weeks later, on July 28, 2008, the Department of the Treasury (“Treasury”) published “Best Practices Guide for US Residential Covered Bonds” (the “Covered Bond Best Practices”).  Both the FDIC’s Covered Bond Statement and Treasury’s Covered Bond Best Practices focused on providing guidance for what are generally referred to as structured covered bonds rather than statutory covered bonds since both addressed covered bonds that relied on structuring and regulatory guidance rather than a statute.

The United States Covered Bond Act of 2010 (the “Covered Bond Act” or the “Act”) introduced on March 18, 2010 by Representative Scott Garrett, along with co-sponsors Representative Paul E. Kanjorski and Financial Services Committee Ranking Member Spencer Bachus, however, would provide a U.S. statutory framework for covered bonds potentially similar to that afforded certain European covered bonds and offer a financing alternative for a range of asset classes.  Under the Act, the Secretary of Treasury (or other appointed officer of Treasury) would oversee the regulation of the covered bond market, including authorization to approve all covered bond programs launched in the market, following mandatory consultation with the potential issuer’s applicable federal regulator (referred to here, generally as the “Federal Bank Regulator”).  Treasury’s Covered Bond Best Practices, which incorporates guidance from the FDIC’s Covered Bond Statement, may provide insight into Treasury’s covered bond regime should the Covered Bond Act be enacted.  Highlights of the Covered Bond Act follow.  [Read more →]

The Senate Banking Committee approved Senator Christopher Dodd’s financial regulatory reform bill (the “Dodd Bill”) on a 13-10 party-line vote, with no Republicans voting in favor of the Dodd Bill. For more on the Dodd Bill, please see our discussion of the proposed legislation in the March 16, 2010 Alert. Though over 400 amendments had been prepared for the Committee’s mark-up session, the Dodd Bill was approved in substantially the form that it had been introduced. Only a manager’s amendment, which did not address the most controversial issues, was approved before the vote was taken on the Dodd Bill itself. Further amendments to the Dodd Bill are expected to be introduced during the debate on the Senate floor. The Alert will continue to follow the developments surrounding financial regulatory reform and any modifications to the Dodd Bill.

Senator Christopher Dodd, the Chairman of the Senate Banking Committee, released a revised version of his comprehensive bill to overhaul the regulation of financial products and services, the Restoring American Financial Stability Act of 2010 (the “Dodd Bill”). Among other things, the Dodd Bill would create an independent consumer protection bureau within the FRB, grant the FRB authority over all financial firms with more than $50 billion in assets, realign the supervision of banks, form an interagency council to identify and address systemic risks; create a new resolution system for large, complex financial institutions, and impose a host of specific requirements including higher capital and leverage standards on large firms that pose a risk to the economy. Senator Dodd first proposed a regulatory reform bill in November 2009 (the “November 2009 Draft”), as discussed in the November 17, 2009 Alert. The Dodd Bill was released after the negotiations between Senator Dodd and Republican Senators Richard Shelby and Bob Corker failed to result in a consensus for a bipartisan financial regulatory reform bill. In December 2009, the House passed its version of a comprehensive financial regulatory reform bill, the Wall Street Reform and Consumer Protection Act of 2009 (the “House Bill”). For more on the House Bill, please see the December 17, 2009 Alert. [Read more →]

The SEC issued the adopting release for amendments to Regulation SHO that impose an alternative uptick rule on short selling in a security covered by the rules once trading in the security trips a “circuit breaker” by causing the security to experience a price decline of at least 10 percent from the prior day’s close. Under the alternative uptick rule, short selling is permitted only if the price of the security is above the current national best bid. The restriction applies to short sale orders in that security for the remainder of the day on which the circuit breaker is tripped and on the following day. The alternative uptick rule generally applies to all equity securities that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market. This new requirement will be implemented by requiring trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a prohibited short sale. The compliance date for the amendments is November 10, 2010.

The Technical Committee of the International Organization of Securities Commissions (“IOSCO”) has released a template designed to allow securities regulators to gather comparable and consistent data from hedge fund managers and advisers to facilitate international supervisory cooperation in identifying possible systemic risks in the hedge fund sector. The template was released in view of planned legislative changes being considered in various jurisdictions, with a recommendation that the first gathering of data be carried out on a best efforts basis in September 2010. SEC Commissioner Kathleen Casey chairs the Technical Committee. As discussed in a November 20, 2009 Goodwin Procter Client Alert, the various U.S. financial regulatory reform proposals to date would grant the SEC considerable rulemaking power to require advisers to privately offered funds to report on their activities and those of their funds.

Senate Banking Committee Chairman Christopher Dodd and Ranking Member Richard Shelby announced that they have reached an impasse in their bipartisan efforts to craft a comprehensive financial markets regulatory reform bill.  It is believed that their talks fell apart over whether an independent consumer protection division within a regulatory agency could have rule-making authority.  Senator Dodd had previously agreed to scrap a proposal for a new independent agency the Consumer Financial Protection Agency, in favor of an independent consumer protection division within a financial regulatory agency.  In December 2009, the House of Representatives passed the Wall Street Reform and Consumer Protection Act of 2009, which would establish an independent Consumer Financial Protection Agency.  No Republican members of the House voted for the bill.

The Senate Banking Committee had formed four bipartisan working groups to address specific regulatory reform subjects.  Senators Dodd and Shelby worked on consumer protection and prudential banking regulation; Senators Jack Reed and Judd Gregg worked on derivatives and credit-rating agencies; Senators Mark Warner and Bob Corker worked on the resolution of major financial institutions; and Senators Charles Schumer and Michael Crapo worked on executive compensation and corporate governance.  Senators Dodd and Corker have announced they will continue to work on the bipartisan legislation, setting aside for the moment consumer protection issues.  Senator Corker stated that he was willing to be the lone Republican vote for financial markets regulatory reform, but that he believes the Senate Banking Committee will draft a bill that other Republicans would be comfortable supporting.