trust legislative update firma annual conference april 18, 2011 phoebe papageorgiou american bankers...

Trust Legislative Update

FIRMA Annual Conference

April 18, 2011

Phoebe PapageorgiouAmerican Bankers Association

aba.com |1-800-BANKERS


• Dodd-Frank Act• Tax Issues• Bank Collective Funds• ERISA Definition of Fiduciary


Volcker Rule (Section 619)

Qualified prohibition on “banking entities” from:• Engaging in “proprietary trading”• Does not prohibit: • Owning, investing, trading in US govies,

agencies, municipals• Hedging, underwriting, and market

making• Agency/customer facing activities


Volcker Rule, continued

Qualified prohibition on “banking entities” from:Acquiring or retaining any equity, partnership, or other ownership interest in or sponsoring “hedge fund” or “private equity fund”• Does not prohibit organizing/offering hedge fund/private

equity fund if:• Bank provides bona fide trust, fiduciary or investment

advisory services• De minimis investments permitted (see capital for first

year/3% or less of fund/3% of less of Tier 1 capital in all funds• 23A limitations


Volcker Rule, continued

• FSOC Study – released January 2011• FRB Conformance Period Rule • Two years after the earlier of one year after the

issuance of final rules or two years after enactment • FRB may extend additional 3 years• FRB may extend additional 5 years for “illiquid funds”

• Banking agencies, SEC, CFTC rulemaking by October 2011 – will define key terms


Regulation of Derivatives (Title VII)

• New regulation of Swap Dealers and Major Swap Participants

• Definition of swap dealer and major swap participant• Registration• Business conduct standards


Municipal Advisors (Sec. 975)

• “Municipal advisors” must register with SEC and MSRB.

• Enforcement/examination by SEC.

• MSRB rules for: • Business conduct• Reporting and recordkeeping requirements• continuing education• Fiduciary standard set by MSRB.


Municipal Advisor, continued

• DFA defines “municipal advisor” as any entity or individual that:• Provides advice (undefined) to state/local

governments (including pension plans) • re “municipal financial products” or issuance of

muni securities



• “Municipal financial products” = muni derivatives, GICs, or Investment strategies which “includes plans, programs for the investment of the proceeds of municipal securities.”

• SEC proposal expands statutory language to require registration if providing “advice” about “funds held by or on behalf of a municipal entity”



• Traditional bank activities potentially affected:• Bank deposits• Cash management products• Advice to muni pension plans• Response to RFPs for investment products

offered by bank• Banks acting as indenture trustees for muni

bonds• Providing list of investment options



• MSRB Proposed Rules • Pay to Play• Fiduciary Duty• Application of G-17 (fair dealing rule) to

municipal advisors


Registered Investment Adviser “Clients”

• Sec. 929Q: SEC may request documents relating to custody of RIA “client” assets from banks

• Sec. 411 and 412: GAO study on compliance costs of the SEC custody rule

• Who is the RIA “client”?


Regulation of Advisors (Title IV)

• Elimination of Private Advisor Exception (Sec. 403)

• Family Offices (Sec. 409): explicitly excluded from definition of “investment adviser”

• Accredited Investors (Sec. 413): net worth calculation excludes value of primary residence

• Qualified Client (Sec. 418): dollar threshold must be adjusted for inflation


SEC and the Proxy Process

• SEC Final Rule on Say on Pay Votes (Sec. 951)

• 13f Investment Manager Disclosure of Say on Pay Votes (Sec. 951)– Required if voting power over securities– Amended Form N-PX includes:• Issuer name, ticker symbol, CUSIP, meeting date• # shares voted, how voted


Cancelled Securities

• Cancelled Securities (Section 929D)• In addition to reporting missing, stolen, lost

or counterfeit securities to SEC, reporting institutions must now also report cancelled securities


Notice to Missing Securities Holders (Section 929W)

Paying agents must send written notice to “missing securities holders” that a check sent to holder was not negotiated• “Paying agent” includes issuer, custodian, transfer agent,

broker, dealer, indenture trustee, or other person that accepts payments from the issuer of a security and distributes payments to security holders

• SEC regulations must minimize disruptions to systems that process payments to account holders and avoid requiring multiple paying agents to send a notice to a single holder.


GAO and SEC Studies

• SEC Study on Broker-Dealer Standard (Sec. 913)– Concluded that B-Ds should be subject to same

standard of care as RIAs when providing personalized advice to retail customers on securities

• Study on Financial Planners (Sec. 919C)– GAO study on “financial planners” and their

designations – concluded no additional regulation needed


Bureau of Consumer Financial Protection (Title X)

• Regulates and examines the provision of “consumer” “financial products or services”

• “Consumer” defined as: individual, or an agent, trustee, or representative acting on behalf of an individual.

• Exclusions for EB plans, IRAs, insurance, SEC-regulated entities.


Foreign Financial Account - FBAR

Amended regulations and Form/Instructions– Global custody arrangements– “Mutual funds or similar pooled funds” = funds

available to the general public– Private EB plans are subject to the FBAR filing

obligations. Public EB plans are exempt– “Signature or other authority” = authority to control

disposition of funds by direct communication– Trust beneficiaries do not need to report if trustee

reports


Collective Investment Funds

Bulletin on Collective Investment Funds and Outsourced Arrangements

• Delegation to third parties does not relieve bank of fiduciary responsibility

• Due diligence of third-party vendor prior to delegation and ongoing monitoring

• Third party may not advertise/market CIF unless clear/prominent disclosure that CIF is managed and offered by bank


ERISA Definition of Fiduciary Proposal

Proposed amendments to definition:1. Provides to a plan, a plan fiduciary or a plan

participant or beneficiary:– Advice, appraisals, or fairness opinion as to value of assets– Recommendations as to buying, selling or holding assets, or – Advice as to management of assets

2. Represents or acknowledges that acting as fiduciary for purposes of providing advice

3. Investment adviser under Investment Advisers Act


Definition of Fiduciary Proposal

4. Provides advice or makes recommendations pursuant to an agreement with plan, plan fiduciary, or plan participant or beneficiary that may be considered in connection with making investment or management decisions, and will be individualized to the needs of plan, plan fiduciary, or participant or beneficiary.


DFA ResourcesABA Websites

Dodd-Frank Tracker: http://regreformtracker.aba.com Dodd-Frank Resources: http://www.aba.com/RegReform/default.htm ABA CSTI: http://www.aba.com/Solutions/Trust.htm

Government Websites Federal Reserve Board

http://www.federalreserve.gov/newsevents/reform.htm

Federal Deposit Insurance Corporationhttp://www.fdic.gov/regulations/reform/index.html

Securities and Exchange Commissionhttp://www.sec.gov/spotlight/dodd-frank.shtml

Commodity Futures Trading Commissionhttp://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm

http://regreformtracker.aba.com/

http://www.aba.com/RegReform/default.htm

http://www.aba.com/Solutions/Trust.htm

http://www.federalreserve.gov/newsevents/reform.htm

http://www.fdic.gov/regulations/reform/index.html

http://www.sec.gov/spotlight/dodd-frank.shtml

http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm


Questions?

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trust legislative update firma annual conference april 18, 2011 phoebe papageorgiou american bankers...

Documents

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sec custody rule

bankersmunicipal advisor

municipal entity

investment strategies

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bankers4volcker rule

muni derivatives