Fourth Annual Capital Markets Symposium

September 16, 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

Executive Summary

Notice: This is a summary that we believe may be of interest to you for general information. It is not a full analysis of the matters presented and should not be relied upon as legal advice. If you have any questions about the matters covered in this publication, the names and office locations of all of our partners appear on our website, www.herrick.com. Attorney advertising. Prior results do not guarantee a similar outcome.

TABLE OF CONTENTS Page Title I - Financial Stability ............................................................................................................1 I. II. III. IV. V. VI. VII. Financial Stability Oversight Council......................................................................1 Regulation by the Federal Reserve ..........................................................................2 Leverage and Risk Based Capital Requirements .....................................................4 Other Prudential Rules.............................................................................................4 Fees Imposed on Systemically Important Companies .............................................4 Access to U.S. Financial Market by Foreign Institutions ........................................5 International Policy Coordination............................................................................5

Title II - Orderly Liquidation Authority .....................................................................................6 I. II. III. IV. Orderly Liquidation .................................................................................................6 Companies Eligible for Orderly Liquidation ...........................................................6 Procedure For Orderly Liquidation..........................................................................7 Orderly Liquidation Fund ........................................................................................9

Title III - Transfer of Powers of the OTC to the OCC, the FDIC and the Federal Reserve 13 I. II. III. IV. V. VI. Elimination of the OTS..........................................................................................13 Transfer of OTS Powers ........................................................................................13 Funding for New Duties of Federal Reserve and OCC .........................................13 Shift of Regulatory Focus for OCC; Limited Oversight of OCC by the Treasury 14 Deposit Insurance Reforms....................................................................................14 Office of Minority and Women Inclusion .............................................................15

Title IV - Regulation of Advisers to Hedge Funds and Others................................................16 I. II. III. IV. V. VI. Registration of Private Fund Advisers...................................................................16 Private Fund Systemic Risk Data Collection.........................................................18 Allocation of Federal and State Responsibilities - Asset Threshold for Federal Registration ............................................................................................................18 Adjustments to Regulation of Mid-Sized Fund Advisers ......................................19 Changes to Accredited Investor and Qualified Client Provisions .........................19 Qualified Clients ....................................................................................................19

-i-

Title V - Insurance .......................................................................................................................20 I. II. Federal Insurance Office........................................................................................20 State-Based Insurance Reform...............................................................................21

Title VI - Improvements to Regulation of Banks and Savings Association Holding Companies and Depository Institutions.....................................................................................23 I. II. Volcker Rule ..........................................................................................................23 Other Adjustments to Banking Regulation ............................................................24

Title VII - Wall Street Transparency and Accountability .......................................................27 I. II. III. IV. V. VI. VII. VIII. IX. Overview................................................................................................................27 Regulatory Authority Over OTC Derivatives........................................................27 Definitions..............................................................................................................27 Clearing and Exchange-Trading Requirements .....................................................29 Regulation of Market Participants .........................................................................30 Regulation of Clearing Organizations ...................................................................32 Prohibition Against Federal Government Bailouts of Swaps Entities...................32 Preemption of State Law........................................................................................33 Swap Activities of Non-U.S. Parties......................................................................34

Title VIII - Payment, Clearing and Settlement Supervision....................................................35 I. Designation of Systemic Importance .....................................................................35

Title IX - Investor Protections and Improvements to the Regulation of Securities...............39 INCREASING INVESTOR PROTECTION.....................................................................39 I. II. I. II. III. IV. V. VI. Investment Advisory Committee; Office of Investor Advocate and Ombudsman39 Streamlining Rule Filings By Self Regulatory Organizations...............................39 New Standards and Regulation of Brokers and Dealers........................................39 Authority to Restrict Mandatory Pre-Dispute Arbitration .....................................40 Whistleblower Protection.......................................................................................41 Short Sale Reforms ................................................................................................41 Enforcement Authority ..........................................................................................42 Confidentiality of Materials Submitted to SEC .....................................................43

INCREASING REGULATORY ENFORCEMENT REMEDIES....................................39

ii

VII. VIII. IX. I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XV.

Foreign Public Accounting Firms..........................................................................43 Bad Actors Disqualified from Regulation D Offerings .........................................43 State Regulation of Investment Advisers...............................................................44 Internal Controls ....................................................................................................44 Suspension or Revocation of Registration.............................................................44 Preventing Conflicts of Interest .............................................................................44 Expert Liability ......................................................................................................45 Qualification Standard for Employees...................................................................46 Compliance Officer................................................................................................46 Transparency of Ratings ........................................................................................46 Credit Rating Methodologies.................................................................................47 Disclosure of Ratings Performance .......................................................................47 Enforcement and Penalties.....................................................................................47 Office of Credit Ratings.........................................................................................47 Outside Information ...............................................................................................48 Ratings Symbols ....................................................................................................48 Referring Tips to Law Enforcement and Regulatory Authorities..........................48

IMPROVEMENTS TO REGULATION OF CREDIT RATING AGENCIES ................44

XIV. Due Diligence Services for Asset-Backed Securities ............................................48 XVI. Elimination of Exemption From Regulation FD ...................................................48 IMPROVEMENTS TO ASSET-BACKED SECURITIZATION PROCESS ..................48 I. II. I. II. III. IV. V. VI. VII. I. Credit Risk Retention.............................................................................................48 Increased Disclosure Regarding Asset-Backed Securities ....................................50 Shareholder Vote on Executive Compensation and Golden Parachutes ...............50 Compensation Committee Independence ..............................................................51 Controlled Company Exception.............................................................................52 Executive Compensation Disclosures....................................................................52 Recovery of Executive Compensation...................................................................53 Disclosure Regarding Employee and Director Hedging........................................53 Voting by Brokers..................................................................................................54 Proxy Access..........................................................................................................54 iii

ACCOUNTABILITY AND EXECUTIVE COMPENSATION.......................................50

STRENGTHENING CORPORATE GOVERNANCE.....................................................54

II. I. II. III. IV. I. II. III. IV. V.

Chairman and CEO Structure ................................................................................54 Registration of Municipal Securities Dealers and Advisers ..................................54 Increase in Authority and Independence of Municipal Securities Rulemaking Board......................................................................................................................54 Fiduciary Duty .......................................................................................................55 Office of Municipal Securities...............................................................................55 Public Company Accounting Oversight Board (the PCAOB) ...........................55 Portfolio Margining ...............................................................................................55 Senior Investor Protections ....................................................................................55 Council of Inspectors General on Financial Oversight..........................................56 SEC Match Funding...............................................................................................56

MUNICIPAL SECURITIES AND RISK COMMODITIES.............................................54

OTHER MATTERS...........................................................................................................55

Title X - Bureau of Consumer Financial Protection.................................................................57 I. II. III. IV. Establishment of the Bureau of Consumer Financial Protection ...........................57 Powers of the Bureau .............................................................................................59 Specific Bureau Authorities...................................................................................62 Preservation of State Law ......................................................................................64

Title XI - Federal Reserve System Provisions ...........................................................................65 I. II. Debt Guarantee Program for Emergency Financial Stabilization..........................65 Amendments to Emergency Lending Authority of Federal Reserve.....................66

Title XII - Improving Access to Mainstream Financial Institutions.......................................68 Title XIII - Pay It Back Act.........................................................................................................69 Title XIV - Mortgage Reform and Anti-Predatory Lending Act ............................................70 I. II. III. IV. V. VI. Residential Mortgage Loan Origination Standards................................................70 Minimum Standards for Mortgages .......................................................................71 High-Cost Mortgages.............................................................................................73 Office of Housing Counseling and Neighborhood Reinvestment Corporation .....74 Mortgage Servicing................................................................................................74 Appraisal Activities ...............................................................................................75

iv

VII.

Mortgage Resolution and Modification .................................................................75

Title XV - Miscellaneous Provisions...........................................................................................76 I. Restrictions on U.S. Funds for Foreign Governments...........................................76

Title XVI - Section 1256 Contracts.............................................................................................78

Title I - Financial Stability I. Financial Stability Oversight Council A. Establishment of Council

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) establishes the Financial Stability Oversight Council (the Council) to identify and manage systemic risk in the financial system. B. Purpose of Council

The Councils purposes are: (i) to identify risks to the financial stability of the U.S. that could arise from the material financial distress or failure, or ongoing activities of large, interconnected bank holding companies (i.e., in excess of $50 billion in assets) and nonbank financial companies (i.e., more than 85% of consolidated annual gross revenues or consolidated assets are related to activities that are financial in nature), or that could arise outside the financial services marketplace; (ii) to promote 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 (iii) to respond to emerging threats to the stability of the U.S. financial systems. C. Members of Council

The Council is comprised of 10 voting members and 5 non-voting members. The members are heads of the major financial regulatory agencies, and the Council is chaired by the Secretary of the Treasury. D. Information Gathering

The Council will collect information from financial regulatory agencies and will also have broad powers to gather reports and information from bank holding companies and nonbank financial companies (including non-U.S. companies). E. Information Sharing

Another responsibility of the Council will be to facilitate information sharing and coordination among financial regulatory agencies (state and federal) regarding financial services policy development, rulemaking, examinations, reporting requirements and enforcement actions. The Council will provide a forum among its member agencies for discussion and analysis of emerging market developments and financial regulatory issues. F. Monitoring

The Council will also monitor the financial services marketplace in order to identify potential threats to U.S. financial stability. It will also monitor domestic and international financial regulatory proposals and developments (including insurance and accounting issues).

G.

Identifying Gaps in Regulations

The Council will identify gaps in regulation that could pose risks to U.S. financial stability. H. Advisory

The Council will advise and make recommendations to (i) Congress for enhancing the integrity, efficiency, competitiveness, and stability of the U.S. financial markets, to promote market discipline, and to maintain investor confidence; (ii) the SEC and other standard-setting bodies with respect to accounting principles, standards and procedures; and (iii) financial regulatory agencies regarding new regulations. As part of its advisory duties, the Council will annually report to Congress regarding its activities and significant financial market and regulatory developments along with an assessment of those developments on the stability of the financial system and potential emerging threats to the stability of the U.S. II. Regulation by the Federal Reserve A. Supervision by Federal Reserve Board (the FRB)

The Council may require a nonbank financial company (U.S. or foreign), other than those subject to an existing regulatory regime, to be supervised by and registered with the FRB (with respect to its U.S. operations) if the Council determines that, based on the criteria enumerated in the Dodd-Frank Act, that material financial distress at the company or the nature, scope, size, scale, concentration or interconnectedness or mix of its activities could pose a threat to the nations financial stability. The Dodd-Frank Act also contains an anti-evasion provision which allows the Council to require a company that is not a nonbank financial company to be supervised by and registered with the FRB if it makes the above determination and finds that the company is organized or operates in such a manner as to evade application of the systemic risk regime. Any company that received TARP assistance, has assets in excess of $50 billion as of January 1, 2010 and is no longer a bank holding company will be treated as a nonbank financial company supervised by the FRB. Any nonbank financial company that is subjected to supervision by the FRB can establish an intermediate holding company out of which to conduct non-financial activities, which will not be subject to FRB oversight. B. Additional Reporting Requirements

The FRB is granted the authority to require nonbank financial companies supervised by it and their subsidiaries (other than insured depository institutions) to submit reports regarding their financial conditions, operating and other risks, and compliance with the Dodd-Frank Act, as well as to submit to examinations by the FRB.

C.

Monitoring Acquisitions

The FRB is granted authority to receive notice of and to disallow any proposed acquisition by a company it regulates (in the case of bank holding companies, only those with assets in excess of $50 billion) of any company engaged in financial activities which has assets in excess of $10 billion if it determines the acquisition would result in greater risks to the U.S. economy or to financial stability generally. In the event of a proposed acquisition of more than 5% of the voting stock of another bank or bank holding company, FRB approval must be obtained. D. Heightened Prudential Standards

The FRB may, on its own or upon recommendation from the Council, impose on companies it regulates (in the case of bank holding companies, only those with assets in excess of $50 billion) heightened prudential standards based on capital structure, riskiness, complexity, financial activities, size and other risk-related factors. These standards may be applied to nonU.S. companies, with due regard to national treatment and home country standards. E. Possible New Requirements

Newly imposed prudential standards may include: risk-based capital requirements; leverage limits (including maintenance of a debt-to-equity ratio of not more than 15:1 if the Council determines the company poses a grave risk to U.S. financial stability and such requirement is necessary to mitigate such risk); liquidity requirements; overall risk management requirements; requirement to periodically submit resolution plans (if satisfactory plan is not provided, the company will be required to divest assets or operations to the extent necessary to facilitate an orderly resolution of the entity in the event of material financial distress of failure); and/or reports on credit exposure and limits on credit exposure to unaffiliated companies in excess of 25% of capital and surplus; and concentration limits. F. Developing a Plan for Remediation of Financial Distress

The Dodd-Frank Act requires that the FRB, in consultation with the Council and FDIC, enact regulation establishing requirements to provide for the early remediation of financial distress of companies it regulates. The aim is to establish remedial steps that can be taken to minimize the probability that an institution experiencing financial distress will become insolvent. G. Limiting Activities of Grave Threat Companies

In the event the FRB determines that a nonbank financial company subject to its supervision or a bank holding company with assets over $50 billion is a grave threat to U.S. financial stability, the FRB may, upon authorization from the Council, limit the ability of such company to acquire, merge or affiliate with other companies, restrict its ability to offer financial products, terminate one or more of its activities or order a divestiture of assets to parties unaffiliated with the institution.

H.

Risk Committees

The FRB must require publicly traded nonbank financial companies it regulates and publicly traded bank holding companies with assets in excess of $10 billion to establish a risk committee responsible for oversight of enterprise-wide risk management practices. I. Annual Stress Test

The FRB must conduct an annual stress test on nonbank financial companies it regulates and bank holding companies with more than $50 billion in assets to determine whether they have enough capital (on a consolidated basis) to absorb losses as a result of adverse economic conditions. J. Resolution Plan (Living Will)

Nonbank financial companies subject to supervision by the Federal Reserve and large, interconnected bank holding companies will be required to prepare and maintain a resolution plan, which must be approved by the Federal Reserve and the FDIC for the purpose of facilitating orderly resolution in bankruptcy (although the plans are nonbinding in bankruptcy courts and no private right of action may be based on a resolution plan). If a company fails to adopt an acceptable plan, the Federal Reserve and the FDIC may impose more stringent requirements on the company (including capital, leverage, liquidity, restrictions on growth or operations) and, if an acceptable plan is not submitted within 2 years, may also require the company to divest assets. III. Leverage and Risk Based Capital Requirements

The Dodd-Frank Act requires that the appropriate Federal banking agencies establish minimum leverage capital requirements and minimum risk-based capital requirements, each on a consolidated basis, for insured depository institutions, depository institution holding companies, and nonbank financial companies supervised by the FRB. IV. Other Prudential Rules

The Dodd-Frank Act also requires Federal Banking agencies, subject to the recommendation of the Council, to develop rules applicable to the above companies regarding: volumes of activity in derivatives, securitized products, securities borrowing and lending, and repurchase agreements and reverse repurchase agreements; concentrations of assets for which values are based on models rather than historical costs or prices; and concentrations in market share for any activity that would substantially disrupt financial markets if the institution is forced to unexpectedly cease activity. V. Fees Imposed on Systemically Important Companies

The Council and the newly formed Office of Financial Research (the function of which is to assist the Council in its information-gathering functions as well as to conduct various studies regarding the financial markets and financial regulation) will be funded by assessments on nonbank financial companies subject to supervision by the Federal Reserve and on bank holding

companies with over $50 billion in assets. The Treasury Secretary and Council will jointly establish a schedule of assessments which will take into account various differences among companies in setting fees. The Federal Reserve will also impose fees on nonbank financial companies subject to supervision by the Federal Reserve and on bank holding companies with over $50 billion in assets in an amount it deems necessary or appropriate to carry out its responsibilities. VI. Access to U.S. Financial Market by Foreign Institutions

The FRB already has the authority to approve or terminate a branch of a foreign bank, and the Act adds an additional factor for the FRBs consideration in making such determinations for a foreign bank that presents a risk to the stability of the U.S. financial system: whether the home country has adopted or has made demonstrable progress towards adopting an appropriate system of regulation to mitigate such risk. The Act also prescribes the above factor for the SECs consideration in determining whether to permit a foreign person or an affiliate of a foreign person to register as a U.S. broker dealer, or whether to terminate such person as a registered broker dealer. VII. International Policy Coordination

The Act provides that the President (or a designee) may coordinate through international policy channels in order to protect financial stability and the global economy. The Act also requires the heads of financial regulatory agencies and the Secretary of the Treasury to consult with appropriate foreign organizations on matters relating to systemic risk and to encourage comprehensive supervision and regulation.

Title II - Orderly Liquidation Authority I. Orderly Liquidation

The Dodd-Frank Act provides a mechanism for the FDIC to liquidate failing financial companies. The Federal Deposit Insurance Corporation (the FDIC), the Secretary of the Treasury and the Federal Reserve Board (the FRB) share responsibility in selecting financial companies for orderly liquidation. Once a financial company is selected for orderly liquidation, the FDIC acts as receiver for the financial company and the provisions of the Bankruptcy Code no longer apply. Instead, the provisions of Title II of the Dodd-Frank Act exclusively govern all matters related to the financial companys liquidation. A. Receivership Must Result in Liquidation

Once appointed as receiver, the FDIC must liquidate and wind-up the affairs of a financial company. The FDICs liquidation of a financial company must be conducted in such a way as to mitigate risk and moral hazard, such that (i) creditors and shareholders will bear the losses of the financial company; (ii) management responsible for the financial companys condition will not be retained; and (iii) the FDIC and other agencies will take all steps necessary to assure that all parties having responsibility for the financial companys condition bear losses consistent with their responsibility for such condition. B. Term of Receivership

The appointment of the FDIC as receiver lasts for an initial term of three years, subject to a maximum of two one-year extensions upon certification by the FDIC to Congress that an extension is necessary. After five years, the receivership may only be extended for the purpose of completing ongoing litigation in which the FDIC as receiver is a party; provided, that, the receivership shall terminate not later than 90 days after the completion of the litigation. II. Companies Eligible for Orderly Liquidation

The Dodd-Frank Act creates an orderly liquidation regime applicable to covered financial companies, as well as a separate regime for broker-dealers, and a backstop mechanism for insurance companies pursuant to which the FRB can institute liquidation proceedings in state court. A. Definition of Covered Financial Company

A covered financial company is any company that is organized under Federal or State law that is a (i) bank holding company; (ii) nonbank financial company supervised by the FRB; (iii) company predominantly engaged in activities that are financial in nature or incidental thereto for purposes of 4(k) of the Bank Holding Company Act of 1956 (the BHCA); or (iv) subsidiary of a company described in (i) - (iii) that is predominantly engaged in activities that are financial in nature or incidental thereto (other than an insured depository institution or an insurance company). A financial company shall not be deemed predominantly engaged in financial 6

activities unless 85% or more of its total consolidated revenues or assets are attributed to such activities. B. Exemptions from Definition of Covered Financial Company

The definition of covered financial company excludes a Farm Credit System institution, governmental entity, any Federal Home Loan Bank, Freddie Mac and Fannie Mae. C. Broker-Dealers

The Dodd-Frank Act sets forth a separate liquidation procedure for registered brokers and dealers, which is discussed below. D. Insurance Companies

If an insurance company qualifies as a covered financial company, the liquidation or rehabilitation of the insurance company shall be conducted as provided under State law; provided, however, that if the State regulatory agency fails to take appropriate judicial action to place the company into orderly liquidation within 60 days of the systemic risk determination, the FDIC shall have the authority to file such action with the appropriate State court. An insurance company is defined under this Title II as any entity that is (i) engaged in the business of insurance; (ii) subject to regulation by a State insurance regulatory agency; and (iii) covered by a State law that is designed to specifically deal with the rehabilitation, liquidation, or insolvency of an insurance company. III. Procedure For Orderly Liquidation A. Appointment of FDIC as Receiver

On a recommendation by 2/3 of each of the respective members of the boards of the FDIC and the FRB, the Treasury Secretary may appoint the FDIC as receiver for a covered financial company. B. Contents of Recommendation for Receivership

The recommendation must contain (i) an evaluation of whether the financial company is in default or danger of default; (ii) the effect that the default would have on financial stability in the United States; (iii) the effect that the default would have on economic conditions for lowincome, minority or underserved communities; (iv) a recommendation regarding the extent of actions to be taken under Title II; (v) an evaluation of the likelihood of success of private sector alternative actions to prevent the default; (vi) an evaluation of effects on creditors, counterparties, shareholders and other market participants; and (vii) an assessment of whether the company satisfies the definition of financial company. C. Systemic Risk Determination

Upon such a recommendation, the Treasury Secretary, in consultation with the President, may make a determination to appoint the FDIC as receiver for a covered financial company. The 7

Treasury Secretary may act if he determines that (1) the financial company is in default or danger of default; (ii) the failure of the financial company and its resolution under otherwise applicable Federal or State law would have serious adverse effects on financial stability in the United States; (iii) no viable private sector alternative is available to prevent the financial companys default; (iv) any effect on the claims or interests of creditors, counterparties, and shareholders of the financial company and other market participants as a result of actions to be taken is appropriate, given the potential impact on the financial stability in the United States; (v) any orderly liquidation would avoid or mitigate such adverse effects on the financial system, the cost to the general fund of the Treasury, and the potential to increase excessive risk taking on the part of creditors, counterparties and shareholders in the financial company; (vi) a Federal regulatory agency has ordered the financial company to convert all of its convertible debt instruments that are subject to the regulatory order; and (vii) the company meets the definition of a financial company. D. Notification of Determination

Following his determination to appoint the FDIC as receiver, the Treasury Secretary must notify the financial company and the FDIC of the determination. If the financial companys board of directors consents to the appointment, the Treasury Secretary shall appoint the FDIC as receiver. If such companys board of directors does not consent, the Treasury Secretary must petition the U.S. District Court for the District of Columbia for an order authorizing the appointment. The petition must be made under seal and the court must make a decision within 24 hours; provided, if no decision is made, such petition will be deemed granted. The U.S. Court of Appeals for the District of Columbia has jurisdiction for an expedited appeal of the lower court decision and the U.S. Supreme Court has discretionary jurisdiction to review the decision of the U.S. Court of Appeals for the District of Columbia on an expedited basis. E. Role of FDIC as Receiver

As receiver, the FDIC may, subject to all legally enforceable and perfected security interests and all legally enforceable security entitlements to assets held by the financial company, liquidate and wind-up the affairs of the financial company, including taking steps to realize upon the assets of the financial company. Once appointed receiver, the FDIC may in turn appoint itself as receiver of a financial companys U.S. subsidiary and will have the same rights and powers to liquidate such subsidiary. F. Powers of the FDIC

Upon appointment as receiver, the FDIC shall succeed to (i) all rights, titles, powers and privileges of the covered financial company and its assets, and any stockholder, member, officer or director of such company; and (ii) title to the books, records and assets of any previous receiver or other legal custodian of such covered financial company. The FDIC may (i) take over the assets of and operate the covered financial company with all of the powers of the members or shareholders, the directors and the officers of the covered financial company, and conduct all business of the covered financial company; (ii) collect all obligations and money owed to the covered financial company; (iii) perform all functions of the 8

covered financial company, in the name of the covered financial company; (iv) manage the assets in the context of the orderly liquidation; and (v) provide by contract for assistance in fulfilling any function, activity, action or duty of the FDIC as receiver. The FDIC in its discretion shall liquidate and wind-up the affairs of a covered financial company, including taking steps to sell assets to a third-party at fair value. Alternatively, the FDIC may establish a temporary bridge financial company to hold certain assets of a covered financial company pending any eventual sale of such assets to a third-party at fair value or until such assets are otherwise liquidated in an orderly fashion. The FDIC may transfer assets to a third-party or a bridge financial company without any creditors consent or prior court approval. The FDIC also has the authority to decide the priority of creditors claims and to allocate the assets of a covered financial company among such creditors, including any value received from the sale of assets to a third-party. G. Liquidation Procedure for Registered Brokers or Dealers

The Dodd-Frank Act also provides special rules for liquidation of a registered broker or dealer. By the vote of not fewer than 2/3 of the respective commissioners or members of the Securities Exchange Commission (the SEC) and the FRB, the Treasury Secretary may appoint the FDIC as receiver of a registered broker or dealer. Upon appointment of the FDIC as receiver, the FDIC must appoint the Securities Investor Protection Corporation (the SIPC) to act as trustee of a registered broker or dealer under the Securities Investor Protection Act (the SIPA). The SIPC must then promptly file with any Federal district court an application for a protective decree under the SIPA with regard to such broker or dealer. The trustee must satisfy all claims against the broker or dealer consistent with Title II and the SIPA. The FDIC retains the power to (i) take any action, except as otherwise provided in Title II; (ii) organize, establish, operate or terminate any bridge financial company; (iii) transfer assets and liabilities; and (iv) enforce or repudiate contracts. All obligations of a covered broker or dealer to a customer relating to, or net equity claims based on, customer property or customer name securities shall be promptly discharged by the SIPC and the FDIC by the delivery of securities or the making of payments to or for the account of such customer. Claims not related to customer property or customer name securities shall be paid in accordance with the priority of unsecured claims generally set forth in Title II. IV. Orderly Liquidation Fund A. No Taxpayer Funds Used in Liquidation

The Dodd-Frank Act prohibits the use of taxpayer funds in connection with the liquidation of any covered financial company. B. Source of Funds for Liquidation

Title II creates an Orderly Liquidation Fund (the Fund) in the Treasury for the FDICs liquidation of covered financial companies. This segregated Fund shall be available to the FDIC 9

to cover the cost of the orderly liquidation of covered financial companies, the payment of administrative expenses, the payment of principal and interest by the FDIC on obligations issued to the Treasury and the exercise of the FDICs authority under Title II. The FDIC will manage the Fund. The FDIC may issue obligations to the Treasury Secretary, the proceeds of which are deposited into the Fund. These obligations serve as interim loans by the Treasury to fund an orderly liquidation of a covered financial company, which must later be repaid by risk-based assessments on eligible financial companies. The obligations issued to the Treasury in connection with any one financial company may not exceed 10 percent of the total consolidated assets of the financial company during the first 30 days of liquidation proceedings and 90 percent of the fair value of the total consolidated assets of the financial company available for repayment following the initial 30-day period. The Treasury Secretary may not purchase any obligations unless a specific plan for repayment of such obligations is agreed upon by the FDIC and the Treasury Secretary. C. Repayment of Funds

Prior to issuing obligations, the Treasury Secretary and the FDIC must agree to a mandatory repayment plan that (i) provides a specific plan and schedule of repayment, and (ii) demonstrates that income to the FDIC from liquidated assets of a covered financial company and any risk-based assessments levied by the FDIC will be sufficient to amortize the outstanding balance within the period set by the repayment plan and pay the interest accruing on such balance within 60 months of the date of issue of the obligations. Such obligations shall have first priority for repayment. All costs of an orderly liquidation under Title II are borne first by shareholders and unsecured creditors. The FDIC shall ensure that shareholders and unsecured creditors bear losses consistent with the priority of claims as set forth in Title II. Secured claims on assets or property held by the covered financial company shall not be affected by the requirements of Title II. The first level of assessments are made against any claimant that received additional payments from the FDIC in connection with an orderly liquidation. Such assessments shall be in an amount equal to the difference between the aggregate value the claimant received on its claim according to the priority of claims under the Dodd-Frank Act and the value the claimant was entitled to receive solely from the proceeds of liquidation. The maximum FDIC liability to any person having a claim against the FDIC in its capacity as receiver shall equal the amount that such claimant would have received if (i) the FDIC had not been appointed as receiver to the financial company; and (ii) the financial company had been liquidated pursuant to chapter 7 of the Bankruptcy Code or a similar provision under State law. If recoveries from shareholders and unsecured creditors are not sufficient to repay the obligations issued to the Treasury Secretary within 60 months of the date of initial borrowing, the Dodd-Frank Act authorizes the FDIC to charge one or more risk-based assessments on eligible financial companies and financial companies with total consolidated assets of more than $50 billion that are not eligible financial companies. An eligible financial company is defined as any bank holding company with total consolidated assets of $50 billion or more and any nonbank financial company supervised by the Federal Reserve. The FDIC shall impose risk10

based assessments on a graduated basis, with financial companies having greater assets and risk being assessed at a higher rate. The FDIC, subject to input from the Financial Stability Oversight Council (the Council), is required to develop a risk matrix, which the FDIC shall use in imposing risk-based assessments. In establishing such risk matrix, the FDIC and the Council shall take into account: (i) economic conditions generally affecting financial companies; (ii) any assessments imposed on a financial company or an affiliate of a financial company that is an FDIC insured depository institution, a member of the SIPC, an insured credit union, or is an insurance company; (iii) the risks presented by the financial company to the financial system and the extent to which the financial company has benefitted, or likely would benefit, from the orderly liquidation of a covered financial company under Title II; (iv) any risks presented by the financial company during the 10-year period immediately prior to the appointment of the FDIC as receiver for the covered financial company that contributed to the failure of the covered financial company; (v) such other risk-related factors as the FDIC or the Council, as applicable, may determine to be appropriate. D. Personal Liability of Directors and Officers

The FDIC may hold directors and officers of a covered financial company personally liable for monetary damages in a civil action for gross negligence, including any similar conduct that demonstrates a greater disregard of a duty of care (e.g. intentional tortious conduct) under applicable State law. Federal courts are required to expedite the consideration of such cases brought by the FDIC. E. Clawback of Compensation from Senior Executives and Directors

The FDIC, as receiver of a covered financial company, may recover from any current or former senior executive or director substantially responsible for the failed condition of the covered financial company any compensation received during the 2-year period preceding the date on which the FDIC was appointed as the receiver; provided, however, that no time limit shall apply in the case of fraud. The FDIC must weigh the financial and deterrent benefits of recovery against the cost of executing the recovery. F. Ban on Certain Activities by Senior Executives and Directors of Covered Financial Company

The Dodd-Frank Act empowers the FRB or the FDIC to issue an order to prohibit a senior executive or director of a covered financial company that is being liquidated from participating in the affairs of any financial company for a period of at least 2 years. To issue an order, the FRB or FDIC must first determine that a senior executive or a director of the covered financial company, prior to the appointment of the FDIC as receiver, has: (A) violated (i) any law or regulation; (ii) any cease-and-desist order which has become final; (iii) any condition imposed in writing by a Federal agency in connection with any action on any application, notice, or request by such company or senior executive; or (iv) any written agreement between such company and such agency; (B) engaged or participated in any unsafe or 11

unsound practice in connection with any financial company; or (C) committed or engaged in any act, omission or practice which constitutes a breach of the fiduciary duty of such senior executive or director. Second, the FRB or the FDIC must determine that by reason of the violation, the senior executive or director has received financial gain or benefit that contributed to the failure of the company. Finally, if a violation has occurred and the senior executive or director has received a financial gain or benefit, the FRB or the FDIC may issue an order if the violation (i) involves personal dishonesty on the part of such senior executive or director; or (ii) demonstrates willful or continuing disregard by such senior executive or director for the safety or soundness of the covered financial company.

12

Title III - Transfer of Powers of the OTC to the OCC, the FDIC and the Federal Reserve I. Elimination of the OTS

The Office of Thrift Supervision (a federal agency under the Department of Treasury) is abolished effective one year after enactment of the Dodd-Frank Act (unless the timeline is extended to 18 months). The powers and duties of the OTS are transferred to the OCC, the FDIC and the Federal Reserve Board (the FRB). II. Transfer of OTS Powers A. OTS Powers Transferred to OCC

The OCC will have all of OTSs rulemaking authority relating to State and Federal savings associations (with some exceptions) and will supervise all Federal savings associations. B. OTS Powers Transferred to FDIC

The FDIC will supervise all State savings associations. C. OTS Powers Transferred to the Federal Reserve Board (the FRB)

The FRB will regulate all savings and loan holding companies and all nonbank subsidiaries of such companies. The FRB will also take over the OTSs rulemaking authority relating to savings and loan holding companies, savings association transactions with affiliates, insider loans by savings associations and tying arrangements involving savings associations (i.e., arrangements whereby a seller obliges a buyer to agree to purchase an additional product, the tied product, if they wish to purchase their desired product). D. Continuation of OTS Orders and Agreements

The Dodd-Frank Act provides for the continuation of lawsuits by or against the OTS or the Director of the OTS. Additionally, the transfer of powers will not affect the validity of any existing orders, resolutions, determinations, agreements and regulations, interpretive rules, procedures and other advisory materials of the OTS (including proposed regulations). III. Funding for New Duties of Federal Reserve and OCC

The funding for carrying out these newly granted supervisory and regulatory responsibilities will come from assessments. The Dodd-Frank Act requires the Federal Reserve to collect assessments, fees and other charges from bank holding companies and savings and loan holding companies with total consolidated assets in excess of $50 billion and from all nonbank financial companies supervised by the Federal Reserve under Title I. Such assessments will be in amounts equal to the cost of carrying out the agencys responsibilities. The Dodd-Frank Act also provides that the OCC may collect an assessment from any entity for which it is the appropriate federal regulator, including a federal savings association, as

13

the Comptroller determines is necessary to carry out the OCCs responsibilities. Similarly, the FDIC may collect an assessment to cover the costs of conducting an examination or for an amount that is necessary to carry out its responsibilities from certain depository institutions and any entity for which it is the appropriate federal banking agency, including state savings associations. IV. Shift of Regulatory Focus for OCC; Limited Oversight of OCC by the Treasury

The Dodd-Frank Act expressly tasks the OCC with assuring the safety and soundness of, and compliance with the laws and regulations, fair access to financial services and fair treatment of customers by, the institutions and other persons subject to its jurisdiction. The Dodd-Frank Act limits oversight of the OCC by the Treasury. The Treasury Secretary may only intervene in OCC matters or proceeds if the law expressly provides for intervention. V. Deposit Insurance Reforms A. Change in Assessment Base For Calculation of FDIC Deposit Insurance Premiums

The assessment base for calculating deposit insurance premiums payable to the FDIC is now equal to the average total consolidated assets of an insured depository institution during the assessment period minus the sum of the average tangible equity of the insured depository institution during the assessment period (additional amounts will be subtracted for custodial banks and bankers banks). This will shift more of the cost of federal deposit insurance to the larger banks. B. Increase in Reserve Ratio of the Deposit Insurance Fund

The minimum reserve ratio of the Deposit Insurance Fund must be increased, by September 30, 2020, from 1.15% to 1.35% of estimated insured deposits or the comparable percentage of the assessment base. There will no longer be an upper limit for the reserve ratio designated by the FDIC each year. This higher reserve ratio will be funded with assessments payable by insured depository institutions with assets in excess of $10 billion. C. Elimination of Dividend Requirement

The Dodd-Frank Act also eliminates the requirement that the FDIC pay dividends to its member institutions if the amount of the Deposit Insurance Fund exceeds 1.5%. D. Permanent Increase in Insurance Limits

The Dodd-Frank Act increases the standard maximum Federal deposit insurance amount from $100,000 to $250,000.

14

E.

Unlimited Federal Insurance for Noninterest-bearing Transaction Accounts

The Dodd-Frank Act extends the unlimited Federal insurance on the net amount of noninterest-bearing transaction accounts through December 31, 2013. Noninterest-bearing transaction account is defined as an account maintained at an insured depository institution which does not accrue or pay interest, on which the depositor or account holder is permitted to make withdrawals without giving advance notice to the depository institution. VI. Office of Minority and Women Inclusion

The Dodd-Frank Act requires each agency to create an Office of Minority and Women Inclusion that will be responsible for all matters of the agency relating to diversity, and each such agency director must develop standards such as increasing women and minority-owned business in programs and contracts for the agency.

15

Title IV - Regulation of Advisers to Hedge Funds and Others The Private Fund Investment Advisers Registration Act of 2010 (the Act) establishes a new investment adviser registration regime for managers of hedge funds and private equity funds and certain foreign advisers. It also alters the allocation of federal and state oversight responsibilities in this area and makes important changes to certain investor eligibility criteria under the federal securities laws. I. Registration of Private Fund Advisers A. Eliminated Exemptions from Adviser Registration

The Act eliminates the private adviser exemption under the Investment Advisers Act of 1940 (the Advisers Act), which is the exemption relied on by most hedge fund and private equity fund managers to avoid registering as an investment adviser with the SEC. The private adviser exemption, under 203(b)(3) of the Advisers Act, exempted from registration an investment adviser who has fewer than 15 clients and who does not hold itself out to the public as an investment adviser. Under the Act, all hedge fund and private equity fund managers who manage private funds aggregating $150 million or more in assets will be subject to SEC investment adviser registration, unless another exemption is available. This effectively requires most U.S.-based fund managers to register with the SEC. B. Definition of Private Fund

The Act adds private fund to the defined terms under the Investment Advisers Act of 1940 (the Advisers Act). It is defined to mean an issuer that would be an investment company under 3 of the Investment Company Act of 1940 (the Investment Company Act), but for the exemptions provided in 3(c)(1) for privately-offered funds with fewer than 100 investors or 3(c)(7) for privately-offered funds comprised entirely of qualified purchasers. C. New Exemptions from Adviser Registration

The Act adds several new exemptions from registration. 1. Foreign Private Advisers

A foreign private adviser is exempt under 203(b)(3) of the Advisers Act if it (a) has no place of business in the U.S.; (b) has fewer than 15 clients and fund investors in the U.S.; (c) has less than $25 million in aggregate assets under management attributable to U.S. clients and fund investors (or such higher amount as the SEC may deem appropriate); and (d) neither holds itself out generally in the U.S. as an investment adviser nor acts as an investment adviser to any registered investment company or business development company. 2. Small Business Investment Company Advisers

The Act adds 203(b)(7) to the Advisers Act, which provides an exemption for an investment adviser who is not a business development company (a BDC) and who solely

16

advises (i) small business investment companies that are licensed under the Small Business Investment Company Act of 1958 (the SBIA); (ii) entities that have received a notice to proceed to qualify as a small business investment company; and (iii) affiliates of the entities described in (i) who have a pending application to be licensed under the SBIA. 3. Venture Capital Advisers

The Act also adds 203(1) to the Advisers Act, which provides an exemption from registration for an investment adviser who solely advises one or more venture capital funds, the definition of which will be determined by the SEC within one year of the Acts enactment. However, these exempted advisers will still be required to maintain such records and provide such annual or other reports as the SEC determines appropriate in the public interest or for the protection of investors. 4. Small Private Fund Advisers

An exemption is added pursuant to 203(m) of the Advisers Act, which directs the SEC to promulgate a rule exempting an adviser that (i) acts solely as an adviser to private funds and (ii) has assets under management in the U.S. of less than $150 million. However, as with venture capital advisers, small private fund advisers will be required to maintain such records and provide such annual or other reports as the SEC determines appropriate in the public interest or for the protection of investors. 5. Family Offices

The Act amends the definition of investment adviser under 202(a)(11)(G) of the Advisers Act to exclude family offices. The definition of family office for purposes of this exclusion will be set by subsequent SEC regulation. The Act requires the SEC to adopt these rules in a manner that is consistent with previous SEC exemptive orders and that takes into account the range of organizational, management, and employment structures and arrangements employed by family offices. In addition, the Act requires that the SEC grandfather certain specified family office related investment activities engaged in prior to January 1, 2010 and previously exempt from SEC registration. D. Modified Exemptions 1. Intrastate Advisers

Advisers whose clients all reside in the state within which the adviser maintains its principal place of business and that does not provide advice with respect to securities listed on any national securities exchange, will still be exempt from registration; however, the Act modifies the exemption so that it is no longer available to advisers to a private fund. 2. CFTC-Registered Advisers

Advisers registered with the CFTC as commodity trading advisors, whose business does not primarily consist of acting as an investment adviser and who do not advise mutual funds or business development companies will still be exempt from registration. The exemption also

17

applies to advisors to a private fund unless the advisor renders predominantly securities-related advice. II. Private Fund Systemic Risk Data Collection A. Systemic Risk Reporting to the Financial Stability Oversight Council

The Act requires registered hedge and private equity fund advisers to participate in systemic risk reporting to the newly established Financial Stability Oversight Council (the Council). Specifically, fund advisers will be required to maintain records and provide the SEC with reports (which will be made available to the Council) concerning assets under management and the use of leverage, counterparty credit risk exposure, trading and investment positions, valuation policies and practices, types of assets held, side letters with certain fund investors, trading practices and other information necessary for an assessment of systemic risk. Funds must maintain these records for as long as the SEC deems necessary, and the records may be subject to periodic or special examinations by the SEC. All record submissions to the SEC or the Council will be kept confidential (except with respect to disclosures to Congress, other government agencies or pursuant to court order) and are exempt from Freedom of Information Act disclosure. The Act attempts to strike a balance between regulators need to assess systemic risk and fund advisers need to keep their proprietary information confidential. B. New Recordkeeping and Reporting Requirements

For hedge and private equity fund advisers subject to SEC registration, the Act would authorize the SEC to impose substantial new recordkeeping and reporting requirements. Under the Act, all records and reports of a private fund managed by a registered investment adviser would be treated as the records and reports of the adviser and thus subject to examination by the SEC. Additionally, as noted above, certain exempt advisers may also be subject to reporting and recordkeeping requirements in the SECs discretion. III. Allocation of Federal and State Responsibilities - Asset Threshold for Federal Registration

The Act substantially modifies the applicable thresholds for assets under management for the purposes of SEC registration. These changes can be summarized as follows: A manager with less than $25 million in assets under management is not eligible for SEC registration unless acting as an adviser to a registered investment company (which was the case prior to passage of the Act). A manager with between $25 million and $100 million in assets under management (a Mid-Size Investment Adviser) is not eligible for SEC registration if it is required to be registered with the state in which the manager maintains its principal office, and if registered, would be subject to examination by the applicable state authority.

18

Notwithstanding the foregoing, a Mid-Size Investment Adviser must register with the SEC if it (i) advises a registered investment company or business development company, or (ii) is not required to be registered and examined by applicable state authorities. A Mid-Size Investment Adviser has the option to voluntarily register with the SEC if it would otherwise be required to register with 15 or more states.

IV.

Adjustments to Regulation of Mid-Sized Fund Advisers

The Act directs the SEC to consider the systemic risk posed by advisers to mid-size private funds based on the size, governance and investment strategy of such funds, and to establish appropriate (and presumably less burdensome) registration and examination procedures for advisers to such funds commensurate with the level of systemic risk posed by such funds. V. Changes to Accredited Investor and Qualified Client Provisions A. Accredited Investors

The Act also adjusts the accredited investor standard for individual investors in all private placement transactions, including private placements of hedge and private equity funds. SEC rules presently define accredited investors to include natural persons with income in each of the two most recent years in excess of $200,000 (or $300,000 for a couple) or with a net worth of $1 million either individually or jointly with the persons spouse (the Net Worth Test). The Act mandates that the Net Worth Test for all private placements shall exclude the value of the persons primary residence. While the Act mandates that the SEC review the entire accredited investor definition as it applies to natural persons every four years and authorizes the SEC to enact rules modifying such definition as appropriate in the public interest and to protect investors, the Act freezes the Net Worth Test for the first fours years after enactment at $1 million, exclusive of the equity in an individuals primary residence. These changes would exclude certain previously qualified individual investors from investing in hedge and private equity funds in particular, with respect to funds with less than 100 investors that rely on the exemption from registration provided by 3(a)(1) of the Investment Company Act (3(c)(1) Funds). VI. Qualified Clients

The Act also subjects the current qualified client threshold of $1.5 million net worth to mandatory inflation adjustments within one year after enactment and every five years thereafter. This is relevant to the existing rule promulgated by the SEC exempting arrangements with qualified client investors from the Advisers Act prohibition on charging performance fees. Unlike the optional authority of the SEC to modify the accredited investor definition every four years, the inflation adjustments to the qualified client threshold are mandatory and will be implemented by the SEC by order without notice or rulemaking, and may significantly curtail the availability of hedge and private equity fund products with carried interests or other performance fees (especially in respect of 3(c)(1) Funds) with respect to investors who do not meet the adjusted qualified client threshold.

19

Title V - Insurance I. Federal Insurance Office

The Office of National Insurance Act of 2010 (ONIA) establishes the Federal Insurance Office within the Department of the Treasury. The Federal Insurance Office will be headed by a Director, who will be appointed by the Treasury Secretary. A. Functions

The Federal Insurance Office will be responsible for (i) monitoring all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or U.S. financial systems; (ii) monitoring the extent to which underserved consumers and communities, minorities and low-income persons have access to affordable insurance products; (iii) recommending to the Financial Stability Oversight Council insurers (and their affiliates) that should be treated as systemically important and therefore subjected to enhanced prudential standards; (iv) consulting with State insurance regulators regarding insurance matters of national and international importance, and coordinating Federal efforts and developing Federal policy on prudential aspects of international insurance; and (v) determining whether State insurance measures are preempted by covered agreements. A covered agreement is defined to mean a written bilateral or multilateral agreement regarding prudential measures with respect to the business of insurance or reinsurance that (i) is entered into between the U.S. and one or more foreign governments, authorities or regulatory entities; and (ii) relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that provides for an equivalent level of protection as provided for under State regulation. B. Information Gathering

The Federal Insurance Office will have information-gathering powers extending to all insurers and their affiliates (subject to a minimum size threshold to be established by the Federal Insurance Office), which will include authority to issue subpoenas. Before collecting information directly from an insurer, the Federal Insurance Office must coordinate with other regulators to determine whether the information is otherwise available. C. Reports

The Federal Insurance Office must submit reports to Congress regarding how to modernize and improve the system of insurance regulation, annual reports on the insurance industry and any actions the Federal Insurance Office has taken regarding preemption of State law, a report on the global reinsurance market and its role in supporting the U.S. insurance market, and a reports describing the impact of ONIA.

20

D.

Scope of Authority

The Federal Insurance Office will not have regulatory authority, but will monitor all lines of insurance except health, long-term care and crop insurance. State insurance regulators will remain the primary regulatory authority over insurance. The Federal Insurance Office will have the power to preempt any state insurance regulation to the extent that such regulation (i) results in less favorable treatment of a non-U.S. insurer as compared to a U.S. insurer admitted in the state and (ii) is inconsistent with a covered agreement. However, the Federal Insurance Office may not preempt any State measure that governs any insurers rates, premiums, underwriting or sales practices, or State coverage requirements for insurance, or the application of State antitrust laws to insurance, or any State measure governing the capital or solvency of an insurer. ONIA may not be construed to affect the preemption of any State measure otherwise inconsistent with or preempted by Federal law or to alter, amend, or limit the responsibility of the Bureau of Consumer Financial Protection. II. State-Based Insurance Reform

The Nonadmitted and Reinsurance Reform Act of 2010 (the NRRA) reforms regulation of nonadmitted insurance markets and reinsurance markets. Nonadmitted insurance refers any property or casualty insurance permitted to be placed directly or through a surplus line broker with a nonadmitted insurer eligible to accept such insurance. A nonadmitted insurer means, with respect to a State, an insurer not licensed to engage in the business of insurance in such state (excluding a risk retention group as defined in the Liability Risk Retention Act of 1986). A surplus line broker is defined as an individual, firm, or corporation which is licensed in a State to sell, solicit or negotiate insurance on properties, risks, or exposures located or to be performed in a State with nonadmitted insurers. A. Premium Taxes

The NRRA prohibits a state other than the home state of the insured (defined as the state of the insureds principal place of business or residence, in the case of an individual) from requiring any premium tax payment for nonadmitted insurance. The NRRA provides that States may establish a uniform system through an interstate compact or other procedures for the allocation of the surplus lines premium taxes paid to an insureds home state. Congress enacted the NRRA with the intent to establish a nationwide or uniform system of reporting, payment, collection and allocation of surplus lines taxes among the states. B. Compliance Obligations for Multi-State Risks

The NRRA eliminates existing uncertainty over which state has jurisdiction to regulate a multi-state insurance transactions by directing that surplus lines insurance shall be subject to the regulatory requirements solely of the insureds home state.

21

C.

Streamline Access for Large Commercial Purchasers

The NRRA exempts certain large, sophisticated commercial purchasers from diligence requirement in connection with the purchase of surplus lines of insurance. Instead, these exempt commercial purchasers must employ a qualified risk manager who will represent the insured in its surplus transactions and have in place a property and casualty insurance premium in excess of $100,000 on a nationwide basis. D. Uniform Standards

The NRRA establishes national eligibility standards for surplus insurance carriers by prohibiting states from imposing any eligibility requirements other than those set forth in its domiciliary jurisdiction and the capital/surplus requirements under the Non-Admitted Insurance Model Act, as promulgated by the National Association of Insurance Commissioners (NAIC). E. National Producer Database

The NRRA provides that, beginning in July 2012, a state may not collect fees relating to licensing surplus lines brokers unless the state participates in the national insurance producer database of the NAIC, or any equivalent uniform national database, for the licensure of surplus line brokers. F. Reinsurance

The NRRA provides that if the State of domicile of a ceding insurer (i.e., the insurer purchasing reinsurance) (i) is a NAIC-accredited State or has financial solvency requirements substantially similar to those required for NAIC accreditation and (ii) recognizes credit for reinsurance for the insurers ceded risk, then no other State may deny such credit for reinsurance. Additionally, the NRRA preempts certain laws and regulations or other actions of a state other than the ceding insurers domiciliary state (except with respect to taxes and assessments in insurance companies and their income). The reinsurers domiciliary state has the sole responsibility for regulating its financial solvency if that state is either NAIC accredited or has financial solvency requirements substantially similar to those of NAIC. No other state may require the reinsurer to provide any additional financial information other than what has been filed with its domiciliary state.

22

Title VI - Improvements to Regulation of Banks and Savings Association Holding Companies and Depository Institutions The Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010 (the Bank Improvements Act) imposes new restrictions on certain entities owning or controlling banks, and also prohibits banks from engaging in proprietary trading and investing in hedge and private equity funds. I. Volcker Rule

The Bank Improvements Act prohibits banks from (i) engaging in proprietary trading activities, and (ii) investing in hedge funds and private equity funds, and acting as sponsor to those funds (e.g. serving as general partner, managing member, name-sharing or otherwise controlling the management of a fund). A. Exceptions for Proprietary Trading

Activities that are excluded from the proprietary trading ban include trading in U.S. government and agency securities and state and municipal obligations; underwriting and marketmaking to the extent that such activities are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties; risk-mitigating hedging; agency transactions on behalf of customers; and certain activities engaged in by regulated insurance companies and certain non-U.S. institutions. These permitted activities are subject to certain limitations, including the absence of any material conflict of interest and any future restrictions that Federal bank regulators may impose to promote and protect U.S. financial stability. B. Exceptions for Hedge and Private Equity Fund Prohibition

The Volcker Rule also contains important exceptions to the ban on investing in or sponsoring hedge and private equity funds, provided that these permitted investments do not involve a material conflict of interest or cause a bank to have material exposureto high risk assets or high risk trading strategies. Banks are permitted to organize and offer hedge and private equity funds if (i) the fund is organized and offered in connection with the banks provision of bona fide trust, fiduciary, or investment advisor services to customers of the bank with respect to those services, and (ii) the banks ownership in the fund is limited to a de minimis investment. This means that a bank can provide seed capital or other de minimis funding so long as (i) it actively seeks outside investors to dilute its interest and otherwise reduces its interest to no more than 3% of the funds total ownership interests within one year of the funds establishment, and (ii) the interest is immaterial, and in any event does not exceed 3% of the banks Tier 1 (core) capital. C. Nonbank Financial Companies

The Volcker Rule also subjects certain large nonbank financial companies supervised by the Federal Reserve to capital requirements and quantitative limits on their proprietary trading and fund investing or sponsoring activities. The Federal Reserve will issue rules regarding these capital requirements and quantitative limits. 23

D.

Implementation Period for Compliance

The Volcker Rule is not self-implementing. The rule requires the Financial Stability Oversight Council (the Council) to conduct a study and make recommendations regarding implementing regulations to federal regulatory agencies, who will then have nine months to adopt final regulations implementing the rules provisions. There will be a long transition period thereafter for banks to comply. The final regulations implementing the Volcker Rule will take effect within two years of enactment; thereafter, banks have two more years to divest their noncomplying assets/activities, subject to the Federal Reserves authority to grant extensions for up to three one-year periods, and a one-time, five-year extension with respect to the divestiture of interests in certain illiquid funds. Accordingly, the Federal Reserve and other regulatory agencies will define the contours of the Volcker Rule in the coming years. II. Other Adjustments to Banking Regulation A. Moratorium on Establishment and Acquisition of Limited Purpose Banks

The Bank Improvements Act prohibits the FDIC from approving an application for deposit insurance that is received after November 23, 2009 for a credit card bank, industrial bank or trust company that is controlled, directly or indirectly, by a commercial firm. For the purposes of the Bank Improvements Act, a company is a commercial firm if the annual gross revenues derived by the company and all of its affiliates from financial activities and, if applicable, from the ownership and control of an insured depository institution, represent less than 15% of the consolidated annual gross revenues of the company. B. Regulation of Financial Holding Companies

The Bank Improvements Act requires a bank holding company to be well capitalized and well managed before it may engage in any nonbanking financial activities, or directly or indirectly acquire or retain shares of any company engaged in such activities. For the purposes of the Dodd-Frank Act, a bank holding company is defined with reference to the Bank Holding Company Act of 1956 (the BHCA), to mean any company which has control over any bank or over any company that is or becomes a bank holding company by virtue of the BHCA. A financial holding company is also defined with reference to the BHCA to mean any bank holding company that meets the conditions for engaging in expanded financial activities pursuant to Section 4(l) of the BHCA. Moreover, the permitted business activities of a savings and loan holding company, or any subsidiary of such company, were expanded to include any activity that is permissible for a financial holding company if (i) the savings and loan holding company meets all of the criteria to qualify as a financial holding company, and complies with all of the requirements applicable to a financial holding company under 4(l) and 4(m) of the BHCA and 804(c) of the Community Reinvestment Act of 1977 as if the savings and loan holding company was a bank holding company; and (ii) the savings and loan holding company conducts the activity in accordance with the same terms, conditions, and requirements that apply to the conduct of such activity by a bank holding company under the BHCA and the Federal Reserves regulations and interpretations under the BHCA.

24

C.

Oversight of Depository Institution Subsidiaries of Holding Companies

The Bank Improvements Act expands the authority of the Federal Reserve to require reports from and examine regulated subsidiaries of bank holding companies and savings and loan holding companies. The Federal Reserve will also have the power to examine the activities of a holding companys non-depository institution subsidiaries, but only to the same extent that it may examine a holding companys lead insured depository institutions activities. D. Limits on Bank Acquisitions of Nonbank Holding Companies

Prior approval by the Federal Reserve is required for a financial holding companys acquisition of a nonbank holding company if the assets to be acquired exceed $10 billion. In connection with this approval, the Federal Reserve is required to take into consideration the financial stability of the U.S. E. Capital Requirements for Bank and Thrift Holding Companies

The Bank Improvements Act calls upon the Federal Reserve to enact countercyclical capital requirements for bank and thrift holding companies, meaning that the amount of capital a bank or thrift holding company will be required to retain will increase during times of economic expansion and decrease during times of economic contraction. F. Concentration Limits for Large Financial Firms

The Bank Improvements Act prohibits, subject to recommendations by the Council, a financial company from merging or consolidating with, acquiring all or substantially all of the assets of, or otherwise acquiring control of, another company, if the total consolidated liabilities of the acquiring financial company upon consummation of the transaction would exceed 10% of the aggregate consolidated liabilities of all financial companies in the U.S. at the end of the calendar year preceding the transaction. For the purposes of this section, the term financial company means (i) an insured depository institution; (ii) a bank holding company; (iii) a savings and loan holding company; (iv) a company that controls an insured depository institution; (v) a nonbank financial company supervised by the Federal Reserve pursuant to Title I of the Dodd-Frank Act; and (vi) a foreign bank or company that is treated as a bank holding company for purposes of the Dodd-Frank Act. G. Prohibitions on Interstate Mergers

The Federal Deposit Insurance Act is amended to authorize the responsible agencies to deny an application for an interstate merger transaction if the resulting insured depository institution (including all insured depository institutions which are affiliates of the resulting insured depository institution) upon consummation of the transaction would control more than 10% of the total amount of deposits of insured depository institutions in the U.S. However, this restriction will not apply to a transaction that involves one or more insured depository institutions in default or in danger of default.

25

H.

Restrictions on Covered Transactions

The Bank Improvements Act enhances existing restrictions on a banks transactions with its affiliates (covered transactions). An affiliate of a Federal Reserve member bank will now include any investment fund with respect to which a member bank or affiliate thereof is an investment adviser. The definition of covered transaction is expanded to include the acceptance of securities or other debt obligations by the affiliate as collateral for an extension of credit to any person or company. Further, two new sets of transactions will be subject to restrictions: (i) any transaction with an affiliate involving the borrowing or lending of securities to the extent the transaction causes a member bank or a subsidiary to have credit exposure to the affiliate and (ii) any derivative transaction with an affiliate to the extent the transaction causes a member bank or a subsidiary to have credit exposure to the affiliate. I. Treatment of Dividends by Certain Mutual Holding Companies

The Bank Improvements Act adds a notice requirement for savings associations that are subsidiaries of a mutual holding company. Such savings association must give the appropriate Federal banking agency and the Federal Reserve notice not later than 30 days before the date of a proposed declaration by the board of directors of the savings association of any dividend on the guaranty, permanent, or other nonwithdrawable stock of the savings association. Failure to give the required notice will cause the dividend to be declared invalid.

26

Title VII - Wall Street Transparency and Accountability I. Overview

Title VII of the Dodd-Frank Act enacts sweeping reform of the over-the-counter (OTC) derivatives market, which was previously largely unregulated. The stated aims are to reduce systemic and counterparty risk and to increase market transparency. Some of the key changes will include mandated clearing of swaps on regulated clearing exchanges, restrictions on various activities by banks and systemically important market participants, registration and oversight of significant swap market participants, and reporting requirements. Title VII has established a new regulatory framework and has granted broad rule-making authority to the CFTC and the SEC, meaning that the full effect of these changes will not be known until the SEC and CFTC publish their implementing regulations (which must occur by July 2011). II. Regulatory Authority Over OTC Derivatives A. Regulation of Swaps and Swap Market Participants

Title VII divides OTC derivatives into swaps, which will be regulated by the CFTC, and security-based swaps, which will be regulated by the SEC. The CFTC and SEC will have shared authority over mixed swaps. The regulatory authority over market participants is likewise divided, with the CFTC having authority over swap dealers and major swap participants and the SEC having regulatory authority over security-based dealers and major security-based swap participants. The SEC and CFTC are charged with working cooperatively and in coordination with each other to ensure regulatory consistency, and they are required to adopt rules that treat functionally or economically equivalent products and certain regulated entities in the same manner. B. Enforcement Authority

Title VII grants the CFTC and SEC enhanced enforcement authority in connection with swaps and security-based swaps, respectively. The CFTCs anti-fraud and anti-manipulation authority is broadened (similar to the SECs authority under Exchange Act Rule 10b-5). Title VII also provides for whistleblower protections and monetary awards for commodities whistleblowers who voluntarily provide original information that leads to a successful enforcement action. III. Definitions A. Definition of Swap

Swap is defined broadly to include most OTC derivatives. Title VII specifically enumerates various types of swaps included in the definition (interest rate swaps, rate floor/cap/collar, cross-currency rate swap, equity/debt index swap) and also contains a broad catch-all clause including any agreement, contract or transaction that is, or in the future, becomes known in the trade as a swap. Rate swaps, currency swaps, equity swaps, credit default swaps and commodity swaps are all included in the definition. Excluded from the definition of swap 27

are futures traded on an exchange; futures that will be physically settled; calls, options and straddles on securities that are subject to the Securities Act and the Exchange Act; foreign currency swaps entered into on an SEC registered exchange; transactions based on a security entered into for capital raising purposes; and any sale of a nonfinancial commodity or any security for deferred shipment or delivery, so long as the transaction is physically settled. Foreign exchange swaps and forwards are included in the definition of swaps, unless the Secretary of the Treasury determines that foreign exchange swaps or forwards should not be regulated as swaps and are not structured to evade the Dodd-Frank Act, in which case foreign exchange swaps and/or forwards must still be reported to a swap data repository or the CFTC. B. Definition of Security-Based Swap

A security-based swap is defined as a swap that is based on a narrow-based security index, a single security or loan, or on the occurrence (or nonoccurrence or extent of occurrence) of an event relating to an issuer or issuers in a narrow-based security index, which event directly affects the financial statements, financial condition or financial obligation of the issuer or issuers. Excluded from the definition is any agreement, contract or transaction that meets the definition only because it references, is based on, or settles through the transfer or delivery of an exempted security under the Exchange Act (unless the transaction is a put, call or other option). C. Definitions of Swap Dealer and Security-Based Swap Dealer

Swap dealer is defined as anyone who holds itself out as a dealer in swaps, is a marketmaker in swaps, regularly engages in purchases and re-sales of swaps in the ordinary course of business, or engages in activities commonly associated with a dealer or market-maker. Securitybased swap dealer has a parallel definition with respect to dealings in security-based swaps. A person who enters into swaps for his own account and as part of regular business will not fall under either definition. There is also a de minimis exception which may be granted by the relevant regulatory authority (CFTC for swaps, and SEC for security-based swaps). Excluded from the definition of swap dealer, but not from the definition of security-based swap dealer, is an insured depository institution to the extent it offers to enter a swap with a customer in connection with originating a loan. D. Definitions of Major Swap Participant and Major Security-Based Swap Participant

Major swap participants are defined as any person that is not a swap dealer and who (i) maintains a substantial position in swaps for any of the major swap categories as determined by the CFTC or SEC, as applicable (excluding positions held for hedging or mitigating commercial risk or maintained by any employee benefit plan for hedging or mitigating risk associated with the operation of the plan); (ii) whose outstanding swaps create substantial counterparty exposure that could have serious adverse effect on the financial stability of the U.S. banking system or financial markets, or (iii) a financial entity that is highly leveraged and maintains a substantial position in outstanding derivatives in any major swap category. There is a parallel definition for security-based swap participants with respect to dealings in swap-based securities. Substantial position will be defined by the CFTC, with respect to major swap participants, and by the SEC with respect to major security-based swap participants. Excluded from the definition of major

28

swap participant (but not from the definition of major security-based swap participant) is any entity whose primary business is providing financing and which uses derivatives for the purpose of hedging underlying commercial risk related to interest rate and foreign currency exposures, 90% or more of which exposures arise from financing that facilitates the purchase or lease of products, and 90% or more of which products are manufactured by the parent company or another subsidiary of the parent company. IV. Clearing and Exchange-Trading Requirements A. Mandatory Clearing and Exchange-Trading

Title VII requires clearing of most derivative transactions on a DCO (derivatives clearing organization) for swaps and a clearing agency for security-based swaps. The SEC or CFTC, as applicable, will make determinations regarding whether a swap or any category of swaps is required to be cleared. Any swap that is required to be cleared must also be traded on an exchange. Swaps entered into before the effectiveness of the Dodd-Frank Act are not required to be cleared if these are reported within 180 days to a swap data repository or the CFTC or SEC, as applicable. B. Exemptions From Clearing Requirement

Clearing is not required if one of the counterparties is an end user, which is not a financial entity, and uses the derivative transaction to hedge or mitigate commercial risk. Such end user must also notify the CFTC or SEC, as applicable, as to how it generally meets its financial obligations associated with non-cleared swaps. A financial entity means a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant, a person predominantly engaged in banking or financial activities (as defined in the Bank Holding Company Act), a commodity pool (as defined in the Commodity Exchange Act), a private fund (as defined in the Investment Advisers Act), or an employee benefit plan. Although clearing is not mandated by statute, the counterparty has the power to elect whether the transaction will be cleared and also to select the clearing platform. If the counterparty has securities registered under the Securities Act or is a reporting company under the Exchange Act, it must obtain approval of an appropriate board committee in order to elect not to clear the swap. Clearing is also not required if no clearinghouse will accept the swap for clearing. The CFTC and SEC have discretion to provide an exemption from the clearing requirement upon application by a counterparty or on their own initiative. In addition, the CFTC may exempt small banks, savings associations, farm credit institutions and credit unions from the clearing requirement. C. Reporting Requirements

Non-cleared swaps must be reported to a swap data repository or the CFTC or SEC, as applicable.

29

Cleared swaps must be reported by the clearing organization to the CFTC or SEC, as applicable. The CFTC and SEC will adopt rules and regulations regarding real-time reporting (defined to mean as soon as technologically practicable) of swap transaction data, including price and volume. D. Margin Requirements

The CFTC and SEC will impose both initial and variation margin requirements (i.e., requirements for a swap counterparty to deposit collateral to cover its credit risk to the other counterparty) for all non-cleared swaps, as well as margin requirements and public disclosure of the clearinghouses margin-setting methodologies for swaps that are cleared. The Dodd-Frank Act states that margin required for non-cleared swaps will be higher than for cleared swaps, and also states that regulations may permit the use of non-cash collateral to fulfill margin requirements. Senators Dodd and Lincoln stated, during the course of the reconciliation process, that it was not the intent of Congress to subject end users to margin requirements. This letter does not have any legal force, but it may influence rulemaking by the CFTC and SEC. V. Regulation of Market Participants A. Registration Requirements

All swap dealers, security-based swap dealers, major swap participants and major security-based swap participants will be required to register with the CFTC and/or SEC, as applicable, by July 2011, and will be subject to capital and margin, reporting and record-keeping, business conduct, documentation standards and internal systems and procedures requirements. In addition, registered entities must designate a chief compliance officer who will be required to certify annually as to the compliance of the entity with the Dodd-Frank Act and with its code of ethics and conflict of interest policies. Any person who accepts money, securities or other assets on behalf of a customer to margin, guarantee or secure cleared derivatives, must be registered with the CFTC as a futures commission merchant, in the case of swaps, and with the SEC as a broker, dealer or securitybased swap dealer, in the case of security-based swaps. Title VII expands the scope of definitions of futures commission merchant, commodity pool operator and introducing broker, with the result that more market participants will now be subject to oversight and registration. B. Capital Requirements

All swap dealers, security-based swap dealers, major swap participants and major security-based swap participants will be subject to minimum capital requirements with respect to non-cleared swaps. Such requirements will be prescribed by the CFTC or the SEC, as applicable, who, in setting such requirements, must aim to ensure the safety and soundness of the swap dealer, security-based swap dealer, major swap participant and major security-based swap participant and set requirements appropriate for the risk associated with non-cleared swaps.

30

Banks which are swap dealers, security-based swap dealers, major swap participants or major security-based swap participants will be subject to rules jointly adopted by bank regulators in consultation with the CFTC and SEC. Title VII does not prohibit retroactive application of capital requirements, leaving that to the discretion of the regulators. C. Reporting Requirements for Non-Cleared Swaps

Swaps not cleared by a clearinghouse must be reported to either a swap data repository, or if no swap data repository will accept a reporting of the swap, to the CFTC or SEC, as applicable. Swaps entered into prior to the enactment of the Dodd-Frank Act are to be reported to a swap data repository or the CFTC or SEC, as applicable. D. Business Conduct Standards

All swap dealers, security-based swap dealers, major swap participants and major security-based swap participants must comply with business conduct standards to be adopted by the CFTC or SEC, as applicable. These standards will include requirements regarding counterparty eligibility verification, disclosure requirements of risk, material incentives and trade valuation, back office standards, and such other requirements as the CFTC and SEC determine to be appropriate in the public interest and for the protection of investors. E. Duty of Care

Title VII imposes a heightened duty of care on swap dealers, security-based swap dealers, major swap participants and major security-based swap participants in dealing with customers and counterparties, especially those who are special entities. The specifics of the business conduct standards will be established by the CFTC and SEC, as applicable. Special entities are defined to include federal and state agencies, states, political subdivisions, municipalities, employee benefit plans, retirement plans and endowments. It is possible that funds that accept benefit plan investors (i.e., plan asset hedge funds) may fall within the definition of special entity, however that will be determined by implementing regulation. When entering into a swap with a counterparty who is not a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant, material risks must be disclosed as well as the characteristics of the swap and material incentives or conflicts of interest. When acting as an advisor to a special entity, a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant must act in the best interest of the special entity and must make a reasonable effort to obtain such information as necessary to make a determination that the recommended derivatives transaction is in the best interest of the special entity. When entering into a transaction with a special entity, a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant must have a reasonable

31

basis to believe that the special entity has a qualified, independent advisor capable of evaluating the transaction and acting in the best interests of the special entity. The above duties with respect to special entities do not apply to transactions initiated by a special entity on an exchange or swap execution facility, or in which the identity of the special entity is not known to the swap dealer, security-based swap dealer, major swap participant or major security-based swap participant. F. Segregation of Collateral

For cleared swaps, a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant must segregate collateral posted by the customer and treat it as belonging to the customer, not commingling it with other assets and not re-hypothecating it (with certain exceptions). For non-cleared swaps, the end-user counterparty has the right to require segregation of collateral and must be notified of this right at the outset of the transaction. VI. Regulation of Clearing Organizations

Clearing organizations that clear swaps must be registered with the CFTC and those that clear security-based swaps must be registered with the SEC. Clearing organizations subject to comparable, comprehensive supervision by a foreign governmental entity (as determined by the CFTC or SEC, as applicable) are exempt. Registered clearing organizations will be required to designate a chief compliance officer, who must annually certify as to the compliance of the clearing organization with the Dodd-Frank Act. Registered clearing organizations will be subject to requirements relating to recordkeeping and maintenance of information, standards for financial, operational and managerial resources, membership standards, risk management controls, and settlement procedures. The CFTC and SEC are also required to adopt rules to mitigate conflicts of interest between swap dealers, security-based swap dealers, major swap participants, major securitybased swap participants and a clearing organization that clears swaps in which such swap dealer or major swap participant has a material debt or equity investment. VII. Prohibition Against Federal Government Bailouts of Swaps Entities A. Push-Out Rule

The so-called push out provision of Title VII prohibits certain types of federal assistance (which includes most advances from any Federal Reserve credit facility or discount window) from being provided to any swaps entity. This provision will have a significant impact on the swaps activities of certain banking entities that will fall under the definition of swaps entities, as these entities will have to either push out their trading desks for swaps products to qualifying affiliates or no longer have access to borrowings from the Federal Reserve.

32

B.

Definition of Swap Entity

Swaps entity means any swap dealer, security-based swap dealer, major swap participant or major security-based swap participant. Insured depository institutions are excluded from the definition of swaps entity if they are only a major swap participant or major security-based swap participant. Also excluded from the definition of swaps entity are insured depository institutions and covered financial companies which are in conservatorship or receivership. C. Permitted Swap Activities for Insured Depository Institutions

An insured depository institution may engage in the following swaps activities: (i) hedging and other similar risk mitigating activities directly related to the activities of the insured depository institution, and (ii) acting as a swaps entity for swaps or security-based swaps involving rates or reference assets that are permissible for investment by a national bank under the National Banking Act; provided, however, that an insured depository institution may only act as a swaps entity for credit default swaps if such swaps or security-based swaps are cleared by a derivatives clearing organization or clearing agency that is either registered or exempt from registration. D. Swaps Entity Affiliates of Insured Depository Institutions

An insured depository institution may have an affiliate that is a swaps entity, so long as (i) the insured depository institution is part of a bank holding company, or savings and loan holding company, that is supervised by the Federal Reserve, and (ii) the swaps entity affiliate complies with sections 23A and 23B of the Federal Reserve Act, as well as any other requirements set by the CFTC, SEC or the Federal Reserve. E. Effective Date for Push Out Rule

The push out rule will become effective almost three years after enactment of the DoddFrank Act, at which point a 24 month transition period (with a possible 1 year extension) will begin during which depository institutions must divest themselves of impermissible swap activities. The prohibition of the push out rule will apply only to swaps entered into after the transition period ends. VIII. Preemption of State Law Currently swaps are preempted from state gaming and bucket shop statues (under the Commodities Exchange Act). For security-based swaps Title VII repeals the preemption, and for other swaps state gaming and bucket shop laws may apply unless the swaps are traded on a regulated exchange or swap execution facility. Title VII also clarifies that swaps are not insurance and cannot be regulated as insurance contracts under any state law.

33

IX.

Swap Activities of Non-U.S. Parties

Title VII does not apply to swap activities occurring outside of the U.S., so long as such activities do not have a direct or significant connection with, or effect on, U.S. activities or commerce, and do not contravene rules or regulations implemented by the CFTC. The CFTC and SEC are granted authority to prohibit entities domiciled in a foreign country from participating in derivatives activities in the U.S. if the CFTC or SEC, in consultation with the Secretary of the Treasury, determine that the regulation of swaps in that foreign country undermines the stability of the U.S. financial system.

34

Title VIII - Payment, Clearing and Settlement Supervision The Payment, Clearing, and Settlement Supervision Act of 2010 (the Payment Act) was enacted to mitigate the systemic risk in the financial system and promote financial stability, uniform standards, strengthen liquidity and supervision of risk management by providing the Federal Reserve with an enhanced role in the supervision of risk management standards for systemically important financial market utilities and payment, clearing and settlement activities by financial institutions. I. Designation of Systemic Importance

The Financial Stability Oversight Council (the Council) will designate those financial market utilities or payment, clearing or settlement activities by financial institutions that the Council determines are, or are likely to become, systemically important. The Council may subsequently determine to rescind such designation. Financial market utilities include any entity that manages or operates a multilateral system for the purposes of transferring, clearing or settling payments, securities or other financial transactions, but do not include national securities exchanges or associations, swap data repositories and registered swap execution facilities, designated contract markets, registered futures associations, or any broker-dealers, transfer agents, investment company who acts on behalf of a financial market utility and whose services do not constitute critical risk management or processing functions. Payment, clearing or settlement activities include any activities carried out by one or more financial institutions to facilitate the completion of financial transactions (defined to include funds transfers, securities contracts, forward contracts, swaps, financial derivates contracts and any similar transaction), but do not include any offer or sale of a security under the Securities Act. Title VIII specifically states that the following are included activities: calculation and communication of unsettled financial transactions between counterparties; netting of transactions; provision and maintenance of trade, contract, or instrument information; management of risks and activities associated with continuing financial transactions; movement of funds, final settlement of financial transactions, or similar functions as the Council may determine. Financial institution means (i) a depository institution, as defined in the Federal Deposit Insurance Act; (ii) a branch or agency of a foreign bank, as defined in the International Banking Act of 1978; (iii) a foreign branch of a U.S. bank and banks authorized to do foreign banking business; (iv) a credit union; (v) a broker or dealer; (vi) an investment company; (vii) an insurance company; (viii) an investment adviser; (ix) a futures commission merchant, commodity trading advisor, or commodity pool operator; and (x) any company engaged in activities that are financial in nature or incidental to a financial activity.

35

A.

Consideration of Systemic Importance

The Council will take the following factors into consideration in determining systemic importance: (a) (b) (c) (d) the aggregate monetary value of transactions processed; the aggregate exposure of the financial market utility or a financial institution, engaged in payment, clearing or settlement activities to its counterparties; the relationship, interdependencies or other interactions with other financial market utilities or payment, clearing or settlement activities; the effect that the failure of or a disruption to the financial market utility or payment, clearing or settlement activity would have on critical markets, financial institutions or the broader financial system; and any other factors that the Council deems appropriate. Consultation with the Supervisory Agency

(e) B.

Prior to making a systemic importance determination, the Council must consult with the Federal Reserve and the relevant Supervisory Agency, which is the Federal agency that has primary jurisdiction over a designated financial market utility, as follows: (a) (b) (c) (d) the SEC, with respect to any clearing agency registered with the SEC. the CFTC, with respect to any derivatives clearing organization registered with the CFTC. The appropriate Federal banking agency, with respect to any institution described in 3(q) of the Federal Deposit Insurance Act. The Federal Reserve, with respect to any other financial institution.

If a designated financial market utility is subject to the supervision of more than one agency, then such agencies will either agree on one of them to act as the Supervisory Agency or, if they cannot so agree, the Council shall decide. C. Notice and Opportunity for Hearing

Prior to making a determination of systemic importance, the Council must also provide advance notice to the financial institution by publishing a notice in the Federal Register. The financial utility or financial institution may request a hearing before the Council to demonstrate that the proposed designation or rescission of designation is not supported by substantial evidence.

36

D.

Risk Management Standards

The Federal Reserve, in consultation with the Council and the Supervisory Agencies, will prescribe risk management standards for designated entities and activities, taking into consideration relevant international standards and existing prudential requirements. Alternatively, the CFTC and SEC may, for entities over which they have regulatory authority, establish, in consultation with the Council and the Federal Reserve, such risk management standards. The objectives and principles for the risk management standards shall be to (i) promote robust risk management; (ii) promote safety and soundness; (iii) reduce systemic risks; and (iv) support the stability of the broader financial system. Such standards may address (i) risk management policies and procedures; (ii) margin and collateral requirements; (iii) participant or counterparty default policies and procedures; (iv) the ability to complete timely clearance and settlement of financial transactions and (v) capital and financial resource requirements. The appropriate financial regulators shall have authority to enforce such standards in the same manner and to the same extent as if the financial institution subject to such standards were an insured depository institution and the appropriate financial regulator were the appropriate federal agency for such insured depository institution. In addition, the Federal Reserve is granted back-up enforcement authority. E. Federal Reserve Bank Involvement with Designated Financial Market Utilities

The Federal Reserve may authorize a Federal Reserve Bank to establish and maintain an account for a designated financial market utility and provide certain enumerated services under the Federal Reserve Act to the designated financial market utility that the Federal Reserve Bank is authorized to provide to a depository institution. In connection with these services, the Federal Reserve may authorize a Federal Reserve Bank to provide to a designated financial market utility discount and borrowing privileges only in unusual or exigent circumstances upon the approval of a majority of the members of the FRB and upon a showing that the designated financial market utility cannot secure adequate credit accommodations. F. Annual Examinations and Enforcement

The relevant Supervisory Agency will conduct examinations of each designated financial market utility at least annually to determine (i) the nature of operations of, and the risks borne by, the designated entity; (ii) the financial and operational risks presented by the designated entity to financial institutions, critical markets or the broader financial system; (iii) resources and capabilities of the designated entity to monitor and control such risks; (iv) the safety and soundness of the designated entity; and (v) compliance with rules prescribed under Title VIII. When a service integral to the operation of the designated entity is performed by another entity, the Supervisory Agency may examine compliance with applicable regulations to the same extent as if the designated entity were performing the service.

37

The relevant Supervisory Agencies are granted enforcement authority. In addition, the Federal Reserve, in consultation with the Council and the appropriate Supervisory Agency, may take enforcement action against a designated entity in order to prevent or mitigate significant liquidity, credit, operational or other risk to the financial markets or the financial stability of the U.S. The Federal Reserve is also granted the power to take emergency enforcement actions, after consulting with the Council and the appropriate Supervisory Agency, in the event it concludes that an action engaged in or contemplated by a designated entity, or the condition of the designated entity, poses an imminent risk of substantial harm to financial institutions, critical markets, or the broader U.S. financial system. G. Information, Reports and Records 1. Information to Assess Systemic Importance

The Council is authorized to require any financial market utility to submit such information as the Council may require for the sole purpose of assessing whether that financial market utility or financial institution is systemically important, but only if the Council has reasonable cause to believe the financial market utility meets the standards for systemic importance. The Council is also authorized to require any financial institution to submit such information as the Council may require for the sole purpose of assessing whether any payment, clearing or settlement activity engaged in or supported by a financial institution is systemically important, but only if the Council has reasonable cause to believe that the activity meets the standards for systemic importance. 2. Reporting After Designation of Systemic Importance

The Council may require a designated financial market utility to submit reports or data to the Federal Reserve and the Council in order to assess the safety and soundness of the utility and the systemic risk that the utilitys operations pose to the financial system. The Federal Reserve and the Council may each require 1 or more financial institutions to submit reports and data to the Federal Reserve and the Council about financial activities designated as having systemic importance.

38

Title IX - Investor Protections and Improvements to the Regulation of Securities INCREASING INVESTOR PROTECTION I. Investment Advisory Committee; Office of Investor Advocate and Ombudsman

The Dodd-Frank Act codifies the formation of the Investment Advisory Committee within the SEC (which was established in June 2009), the purpose of which is to advise and consult with the SEC on regulatory priorities, fee structures, effectiveness of disclosures and investor protection. The Office of Investor Advocate is established within the SEC, the purpose of which is to assist investors in resolving problems with the SEC and self-regulatory organizations (e.g., FINRA). An Ombudsman will be appointed to act as liaison between the SEC and retail customers, as well as to review and make recommendations to the SEC for establishing policies and procedures to ensure open flow of information regarding securities laws and compliance to investors. II. Streamlining Rule Filings By Self Regulatory Organizations

The Dodd-Frank Act amends the Exchange Act to streamline the SECs process for approval and publication of rules submitted by self regulatory organizations. INCREASING REGULATORY ENFORCEMENT REMEDIES I. New Standards and Regulation of Brokers and Dealers A. Fiduciary Duty for Brokers and Dealers

Currently, brokers and dealers who are not investment advisers under the Advisers Act are not subject to the fiduciary standard of care imposed by the Advisers Act, which requires avoiding conflicts of interest when making recommendations to customers and acting in the best interest of the customer. Such brokers and dealers are only subject to the lower standard of suitability, which requires only that the product or transaction be suitable for the customer. The Dodd-Frank Act authorizes the SEC to impose standards of conduct on brokers and dealers who provide investment advice to retail customers (and such other customers as the SEC deems necessary) that is the same as the standard of conduct applicable to investment advisers under the Investment Advisers Act of 1940 (Advisers Act). Retail customer is defined as a natural person, or his legal representative, who receives personalized investment advice from a broker, dealer or investment adviser and uses such advice primarily for personal, family or household purposes. B. Actions That Will Not Be Considered Violations

Neither receipt of compensation based on commission, or other standard brokerage compensation for the sale of securities nor sale of only proprietary or a limited range of products

39

shall, in and of itself, be considered a violation of any standard of conduct that the SEC may apply to brokers and dealers. In addition, brokers and dealers will not be required to have a continuing duty of care or loyalty to a customer after providing investment advice. C. Additional Restrictions To Be Imposed on Brokers and Dealers

The SEC is also directed to examine and, where appropriate, enact rules prohibiting or restricting certain sales practices, conflicts of interest and compensation schemes for broker dealers and investment advisers that the SEC deems contrary to public interest and the protection of investors. D. Enforcement of New Standards of Conduct for Brokers and Dealers

The Dodd-Frank Act provides that the SEC has the same degree of enforcement authority for prosecuting violations of standards of care owed by brokers, dealers and investment advisers under both the Advisers Act and the Exchange Act. E. Increased Disclosure Requirements for Brokers and Dealers 1. Pre-Sale Disclosures to Retail Customers

The SEC is authorized to enact rules requiring brokers and dealers to provide certain disclosures to retail investors before they purchase an investment product or service, which information must (i) be in summary format; (ii) contain clear, concise information about investment objectives, strategies, costs and risks; and (iii) contain clear and concise information about any compensation or other financial incentive received by a broker, dealer or other intermediary in connection with the purchase of retail investment products. 2. Disclosure Regarding Sale of Proprietary Products

The SEC is authorized to enact rules requiring brokers and dealers that sell only proprietary or other limited range of products (which products are not yet defined) to provide notice of such to each retail customer, and to obtain the consent and acknowledgement of the customer. 3. Disclosure of Terms of Advisory Relationship

The Dodd-Frank Act directs the SEC to provide simple and clear disclosures to investors regarding the terms of their relationships with brokers, dealers and investment advisers, including any material conflict of interest. II. Authority to Restrict Mandatory Pre-Dispute Arbitration

The SEC is granted the power to prohibit or impose conditions or limitations on the use of agreements that require customers or clients of any broker, dealer, municipal securities dealer or investment adviser to arbitrate disputes, if the SEC determines that such prohibition or limitation is in the public interest and will protect investors.

40

III.

Whistleblower Protection A. Monetary Awards for Whistleblowers

The Dodd-Frank Act provides that any individual who voluntarily gives original information to the SEC that leads to a successful enforcement action that results in monetary sanctions (including penalties, disgorgement and interest) in excess of $1 million, will receive an award of anywhere between 10-30% (to be determined in the discretion of the SEC) of the total monetary sanctions collected in the enforcement action and any related actions. Original information is defined as (i) derived from independent knowledge or analysis; (ii) not known to the SEC from any other source; and (iii) not exclusively derived from allegations made in a judicial or administrative hearing, governmental report, hearing, audit, or investigation, or from news media, unless the whistleblower is a source of information. The awards will be paid from the newly established SEC Investor Protection Fund, which will be funded by monetary sanctions collected by the SEC. B. Protection for Whistleblowers

Employers are prohibited from firing or discriminating against whistleblowers because of any lawful act done by a whistleblower. Any individual who alleges wrongful discharge or discrimination based on whistleblower activities may bring a private cause of action in the appropriate Federal district court, with a statute of limitations of six years from the date of violation or three years from the date when facts material to the cause of action are known or reasonably should have been known to the employee (however, no action may be brought more than 10 years after the violation). The rights and remedies provided to whistleblowers by the Dodd-Frank Act may not be waived by any agreement, policy form or condition of employment, including by a pre-dispute arbitration agreement. In addition, a pre-dispute arbitration agreement that requires arbitration of whistleblower claims shall not be valid or enforceable. IV. Short Sale Reforms A. Short Sale Disclosure

The SEC must enact rules requiring public disclosure by institutional investment managers, at least on a monthly basis, of various information regarding short sales of securities, including the name of the issuer, the title, class, CUSIP number, and aggregate amount of securities sold, as well as any additional information to be prescribed by the SEC. B. Prohibition of Manipulative Short Sales

The Dodd-Frank Act prohibits manipulative short sales of securities. The SEC is charged with enacting rules as necessary and appropriate to ensure proper enforcement options and remedies for violations of this prohibition.

41

C.

Notices to Customers Regarding Securities Lending

Brokers and dealers must provide notice to their customers that they may choose not to allow their fully paid securities to be used in connection with short sales, and they may receive compensation in connection with lending the customers securities. D. Additional Custody Recordkeeping Requirements

Persons having custody or use of assets of an investment client or a registered investment company will be required to maintain and preserve records relating to such custody or use (for a period to be prescribed by the SEC) and will be subject to periodic and special SEC examinations. A custodian that is subject to regulation or examination by a federal regulatory agency may satisfy any examination request by submitting a list of the assets within its custody or use. V. Enforcement Authority A. Collateral Bars

The administrative sanctions that the SEC can impose for violations of the Exchange Act and the Advisers Act are expanded to include collateral bars, which bars any person from association with brokers, dealers, investment advisers, municipal securities dealers, transfer agents or nationally recognized statistical rating organizations. B. Formerly Associated Persons; Offices and Directors

The SEC is granted the power to sanction persons who were formerly associated with a Municipal Securities Rulemaking Board, the Public Accounting Oversight Board, a government securities broker or dealer, a national securities exchange or registered securities association, registered clearing agency or public accounting firm. The SEC is also granted the power to sanction officers and directors of self-regulatory organizations and investment companies. C. Aiding and Abetting

The Dodd-Frank Act amends the Securities Act, the Exchange Act, the Advisers Act and the Investment company Act so that all four statutes provide that any person who knowingly or recklessly provides substantial assistance to a person who violates a provision of any of such statute, or any rules or regulations promulgated thereunder, will be subject to liability and prosecution by the SEC for aiding and abetting. Formerly, the SEC had no authority to prosecute persons for aiding and abetting under the Securities Act or the Investment Company Act, and the threshold under the Exchange Act for aiding and abetting liability was knowingly, so the Dodd-Frank Act has made it easier to hold persons liable for aiding and abetting under the securities laws. D. Extraterritorial Jurisdiction

The SEC may bring actions in federal courts for certain violations of the securities laws involving (i) conduct within the U.S. that constitutes significant steps in furtherance of the

42

violation, even if the securities transaction occurs outside the U.S. and involves only foreign investors, or (ii) conduct occurring outside the U.S. that has a foreseeable substantial effect within the U.S. E. Nationwide Service of Subpoenas

The SEC may serve subpoenas nationwide for civil actions filed in federal court under the Securities Act, Exchange Act, the Investment Company Act and the Advisers Act. VI. Confidentiality of Materials Submitted to SEC

The SEC shall not be compelled to disclose records or information obtained pursuant to the Exchange Act, Investment Company Act or the Advisers Act, if such records or information were obtained for use in furtherance of the purposes of the Dodd-Frank Act, including surveillance, risk assessment, or other regulatory oversight activities. Nevertheless, the SEC may share any such records or information with certain federal agencies, the PCAOB, any self-regulatory organization, any foreign securities authority or law enforcement authority, or any State securities or law enforcement authority without being deemed to have waived its privilege with respect to such information. Likewise, federal agencies, the PCAOB, any self-regulatory organization, any foreign securities authority or law enforcement authority, or any State securities or law enforcement authority may share privileged information with the SEC without being deemed to have waived their privilege. VII. Foreign Public Accounting Firms

If a foreign public accounting firm performs material services upon which a registered public accounting firm relies in the conduct of an audit or interim review, the SEC has the authority to require the foreign public accounting firm and the registered public accounting firm to produce to the SEC the work papers and other documents of the foreign public accounting firm. VIII. Bad Actors Disqualified from Regulation D Offerings The SEC must enact rules no later than July 2011 disqualifying private placements of securities by bad actors from Regulation D. Bad actors include anyone (i) subject to a final order by a State securities commission, a State bank regulatory agency, a State insurance commission or the National Credit Union Administration barring such person from associating with an entity regulated by any of the foregoing, engaging in the business of securities, insurance or banking; (ii) subject to a final order by any of the foregoing based on a violation of any law for fraudulent, manipulative or deceptive conduct within 10 years of the offering or sale; or (iii) who has been convicted of any felony or misdemeanor in connection with the purchase or sale of any security involving the making of any false filing with the SEC.

43

IX.

State Regulation of Investment Advisers

The Dodd-Frank Act clarifies that various restrictions imposed by the Advisers Act on investment advisory contracts do not apply to State-registered investment advisers, but only to those advisers registered with the SEC. IMPROVEMENTS TO REGULATION OF CREDIT RATING AGENCIES Congress has determined that due to the systemic importance of credit ratings, the activities and performances of credit rating agencies are matters of public interest. Moreover, credit rating agencies are central to capital formation, investor confidence and the efficient performance of the U.S. economy. This is because credit rating agencies play a critical gatekeeper role in the debt market that is functionally similar to that of securities analysts and auditors, and such role justifies similar levels of oversight and accountability. Further, Congress found that the ratings on structured financial products have been inaccurate and this inaccuracy contributed significantly to the mismanagement of risks by financial institutions and investors, which in turn adversely impacted the health of the U.S. economy. Accordingly, Congress has imposed a variety of new requirements on credit rating agencies. I. Internal Controls

Nationally recognized statistical rating organizations (NRSROs) will be required to establish, maintain and document effective internal controls governing the implementation and adherence to policies, procedures and methodologies for determining credit ratings, taking into consideration any factors the SEC may prescribe. NRSROs will also be required to submit to the SEC an annual internal controls report, containing a description of the responsibility of management in establishing and maintaining effective internal controls, an assessment of the effectiveness of internal controls, and an attestation by the CEO (or equivalent officer). II. Suspension or Revocation of Registration

The SEC may suspend or revoke the registration of an NRSRO with respect to a particular class or subclass of securities if the SEC determines (after notice and hearing) that the NRSRO lacks adequate financial or managerial resources to consistently produce ratings with integrity. The SEC will consider whether the NRSRO failed over a sustained period of time to produce accurate ratings for such class or subclass of securities, and such other factors as the SEC may determine. III. Preventing Conflicts of Interest

The Dodd-Frank Act directs the SEC to enact rules to prevent the sales and marketing considerations of NRSROs from influencing the production of ratings, which rules shall contain exceptions as determined by the SEC. Such rules will also provide for suspension or revocation of an NRSROs registration. NRSROs will be required to establish, maintain and enforce policies and procedures to review all credit ratings involving an employee of an entity subject to, or with securities subject to, an NRSRO rating, who was employed by the NRSRO and participated in determining ratings 44

for such entity during the 1-year period preceding the rating, to determine whether a conflict of interest influenced the credit rating. If a conflict of interest is found, the NRSRO must take action to revise the rating, if appropriate, in accordance with rules to be set by the SEC. The SEC will conduct reviews of such conflict of interest policies and the NRSROs code of ethics at least annually and whenever such policies are materially altered. NRSROs will also be required to report to the SEC, and the SEC will disclose publicly, when a person associated with the NRSRO within the past 5 years becomes employed by an entity for which the NRSRO rated an instrument during the 1 year period prior to such employment. These reporting requirements only apply to senior officers of the NRSRO and persons that participated in determining the ratings for such entity. The board of directors of each NRSRO will be required to consist of at least half, but not fewer than two, independent directors. The board of directors must oversee the policies and procedures for management of conflicts of interest, for determining ratings, for determining the effectiveness of internal controls, and for compensation and promotion. IV. Expert Liability

The Securities Act imposes liability on experts whose statements are included in a registration statement; however, currently credit ratings issued by NRSROs are not considered part of the registration statement, and are therefore exempted from expert liability. The DoddFrank Act eliminates this exemption effective immediately. As a result, an NRSRO that consents to have its credit ratings included in registration statements would be exposed to liability as an expert under Section 11 of the Securities Act for material misstatements or omissions with respect to such credit rating. Following the passage of the Dodd-Frank Act, the three major NRSROs publicly announced that they are unwilling to provide written consent to use of their ratings in registration statements. This affected capital markets, and especially the asset-backed securities market which have historically relied on credit ratings. Registration statements for publicly issued assetbacked securities must disclose whether an NRSRO credit rating is a condition of issuance (underwriting agreements typically require credit ratings as a condition to closing and the use of shelf registration statements by asset-backed issuers is generally conditioned on the securities being investment grade) and, if so, the identity of the NRSRO and the credit rating. In response, the SEC issued a no-action letter to Ford Motor Credit stating that the SEC will not recommend enforcement action if an asset-backed issuer omits ratings disclosures from its registration statement. The letter expires on January 24, 2011, which gives policy makers and credit rating agencies six months during which to work out this new problem. In addition, the SEC released a new Compliance and Disclosure Interpretations, clarifying that an NRSROs consent is not required to disclose ratings in a filing with the SEC that relates to a change to the rating, the liquidity of the registration, the cost of the funds for the registrant or the terms of agreements that refer to credit ratings. It is unclear how this issue will be resolved, but one possibility would be an increase in private 144A offerings (which offer less liquidity) instead of public offerings.

45

V.

Qualification Standard for Employees

The SEC will enact rules (not later than July 2011) to ensure that persons employed by NRSROs meet standards for training, experience, and competence necessary to produce accurate ratings and that such persons are tested for knowledge of the credit rating process. VI. Compliance Officer

NRSROs are currently required to have a compliance officer, and the Dodd-Frank both limits the permissible activities of such officers within the NRSRO and imposes new duties on such officers. Designated compliance officers may not perform credit ratings, participate in the development of credit rating methodologies, perform marketing or sales functions, or participate in establishing compensation levels (other than for employees working for such officer). The compliance officer must establish procedures for the receipt of, retention and treatment of complaints regarding credit ratings, models, methodologies, and compliance with securities laws, as well as confidential, anonymous complaints by employees or users of ratings. In addition, the compliance officer must prepare, and certify to the accuracy and completeness of, an annual report to be submitted to the SEC addressing the NRSROs compliance with securities laws and its policies and procedures and any material changes to the NRSROs code of ethics or conflict of interest policies. VII. Transparency of Ratings

When issuing or changing a rating, an NRSRO will be required to publicly disclose certain information for the purpose of allowing users of credit ratings to evaluate the accuracy of such ratings and to compare performance of different NRSROs. The content of disclosures will be established by the SEC, and will be required to be comparable for all NRSROs to allow for comparisons, clear and informative for investors, published and made freely available on an easily accessible portion of the NRSROs website, and must include an attestation by the NRSRO that no part of the rating was influenced by any other business activities, that the rating was based solely on the merits of the instruments being reviewed, and that such rating was an independent evaluation of the risks and merits of the instrument. When issuing a credit rating, each NRSRO will be required to publish a form that will disclose qualitative information including (i) assumptions underlying the credit rating procedures and methodologies; (ii) data that was relied upon to determine the credit rating and information regarding the reliability, accuracy and quality of such data; (iii) the potential limitations of the credit ratings, including the types of risk excluded from the credit rating; (iv) conflicts of interest; (iv) whether and to what extent third-party diligence services were used; and (v) whether and how servicer or remittance reports were used to conduct surveillance of the credit rating, and any other information that can be used by investors and other users of credit ratings to better understand such credit ratings, as well as quantitative information including (A) an explanation of the measure of the potential volatility of the ratings, including any factors that may lead to a change in the rating and the magnitude of any such change; (B) content of the rating including historical performance of the rating, expected probability of default and expected loss in case of default; and (C) information on sensitivity of rating to assumptions made by NRSRO.

46

VIII. Credit Rating Methodologies The SEC will prescribe rules setting out procedures and methodologies, including qualitative and quantitative data and models, to be used by NRSROs in determining credit ratings. The rules will require that the procedures and methodologies used by an NRSRO be approved by its board of directors, that material changes to such procedures and methodologies are applied consistently to all ratings, including current ratings, and that the reason for the change is publicly disclosed, and that users of ratings are notified of the procedures and methodologies as well as any material changes and of any significant errors that are identified. IX. Disclosure of Ratings Performance

NRSROs will be required to publicly disclose performance information on initial rating and any subsequent changes to those ratings. Information will span over a range of years and will cover a variety of types of ratings (including withdrawn ratings). Such disclosures must be clear and informative, and must be comparable among NRSROs in order to allow investors to compare performance of different NRSROs. Such disclosures must also be accompanied by an attestation that ratings were not influenced by other business activities of the NRSRO, were based solely on the merits of the rated instruments, and were the product of an independent evaluation of the risks and merits of an investment product. X. Enforcement and Penalties

The Dodd-Frank Act provides that the enforcement and penalty provisions of the Exchange Act will apply to statements made by NRSROs to the same extent as they apply to statements made by registered public accounting firms or securities analysis under the securities laws. This means a private right of action can now be brought against an NRSRO. Additionally, any statements made by NRSROs will be not deemed forward-looking statements for purposes of the Section 21E safe-harbor. In private securities fraud actions for money damages against NRSROs or a controlling person of an NRSRO, the state of mind requirement will be to state with particularity facts giving rise to a strong inference that the NRSRO or controlling person knowingly or recklessly failed to conduct a reasonable investigation of the rated security with respect to factual elements relied upon by its own methodology for evaluating credit risk or to obtain reasonable verification of such factual elements from sources independent of the issuer and underwriter that the NRSRO considered competent. The Dodd-Frank Act expands penalties that the SEC may impose on persons associated with an NRSRO for certain misconduct. XI. Office of Credit Ratings

The SEC will establish a new Office of Credit Ratings which will administer the SECs rules with respect to NRSROs practices in determining ratings, promote the accuracy of credit ratings, and ensure ratings are not unduly influenced by conflicts of interest. The Office will conduct an annual examination of each NRSRO and issue a public report with respect to each NRSROs policies, procedures and rating methodologies; management of conflicts of interest; 47

implementation of ethics policies; activities of compliance officers; and processing of complaints. The SEC will establish fines and other penalties for violations by NRSROs. XII. Outside Information

In producing a rating, NRSROs must consider information about an issuer other than information received from the issuer or underwriter, if it finds such information credible and potentially significant. XIII. Ratings Symbols NRSROs will be required to establish, maintain and enforce policies and procedures that clearly define and disclose the meaning of any ratings symbols it uses and to apply such symbols consistently. XIV. Due Diligence Services for Asset-Backed Securities An issuer or underwriter of an asset-backed security must publicly disclose the findings of any third-party due diligence report and the diligence providers must give the NRSRO issuing a rating a public certification. XV. Referring Tips to Law Enforcement and Regulatory Authorities

NRSROs will be required to report to appropriate law enforcement or regulatory authorities any information it receives from a third-party and finds credible regarding material violations of law by an issuer of securities rated by the NRSRO. XVI. Elimination of Exemption From Regulation FD Currently, under Regulation FD, whenever an issuer of securities discloses any material nonpublic information regarding the issuer or its securities to certain persons and entities, the issuer must also publicly disclosure such information, however information disclosed by the issuer to an NRSRO is exempt. The Dodd-Frank Act eliminates this exemption. IMPROVEMENTS TO ASSET-BACKED SECURITIZATION PROCESS I. Credit Risk Retention A. Requirement for Risk Retention In Asset-Backed Transactions

The SEC jointly with federal banking agencies will prescribe regulations to require securitizers of asset-backed securities to retain at least 5% of unhedged credit risk (or less if certain underwriting standards are met) of any assets transferred, sold or conveyed through the issuance of asset-backed securities (ABS). There will be separate rules for different types of asset classes (i.e., commercial mortgages, auto loans, commercial loans), as the SEC and federal banking agencies deem appropriate. The SEC and federal banking agencies will also jointly determine appropriate allocation of risk retention obligation between a securitizer and originator if the securitizer purchases assets from an originator.

48

B.

Definitions

A securitizer is defined as an issuer of an ABS or a person who organizes and initiates ABS transactions by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer. Title IX specifically states that insured depository institutions that qualify as securitizers will be subject to the new credit risk retention requirements. An originator is defined as a person who creates a financial asset (through the extension of credit or otherwise) that collateralizes an ABS and who sells that asset directly or indirectly to a securitizer. An asset-backed security is defined as a fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset. Excluded from the definition are securities issued by a finance subsidiary which are held by the parent company or a company controlled by the parent company if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company. C. Exemption For Qualified Residential Mortgages

The new credit risk retention requirements will not apply to qualified residential mortgages, which will be defined jointly by federal banking agencies, the SEC, the Secretary of Housing and Urban Development, and the Director of Federal Housing Finance Agency. However, this exemption will not apply to any ABS that is collateralized by tranches of other ABS. For every issuance of an ABS collateralized exclusively by qualified residential mortgages, the issuer will be required to certify to the SEC that it has evaluated the effectiveness of its internal supervisory controls with respect to the process for ensuring that all assets that collateralize the ABS are qualified residential mortgages. D. Additional Exemptions for Government Issued Securities

The new credit risk retention requirements will also not apply if the assets securitized are assets issued or guaranteed by the U.S. or an agency of the U.S. (other than Fannie Mae or Freddie Mac) or by any State or political subdivision or public instrumentality of a State if the securities are exempt from registration under the Securities Act. The contours of these exemptions, as well as additional exemptions which may be enacted, will be determined by the SEC and federal banking agencies. E. New Standards for Asset-Backed Securities

The SEC and federal banking agencies will establish standards for retention of economic risk with respect to collateralized debt obligations (CDOs), securities collateralized by CDOs and similar instruments collateralized by other ABSs. These regulators will also establish standards with respect to commercial mortgages, dealing with permissible type, form and amount of risk retention, and may require risk retention of first-loss positions by a third-party purchaser.

49

F.

Enforcement

The SEC will have enforcement authority over any securitizer that is not an insured depository institution, which shall be subject to the enforcement authority of the appropriate federal banking agency. G. Effective Dates for New Requirements

Regulations must be enacted by May 2011, and will become effective 1 year, in the case of ABS secured by residential mortgages, and 2 years for all other ABS securities, after final regulations are published. II. Increased Disclosure Regarding Asset-Backed Securities A. Increased Disclosure Requirements

The SEC will impose extensive new disclosure requirements on issuers of publicly offered ABS, with respect to asset-level information for each tranche or class of security issued, including loan-level data, if such data is necessary for investors to independently perform due diligence. Issuers of registered ABSs will also be required to perform a review of the assets underlying the ABS and disclosure the nature of this review in the registration statement. B. Representations and Warranties

NRSRO reports accompanying ratings of an ABS will be required to contain a description and comparison of the representations, warranties and enforcement mechanisms available to investors and how they differ from those of other securities. Securitizers will also be required to disclose fulfilled and unfulfilled repurchase requests across all trusts aggregated by such securitizer. C. Removal of Exemption From Registration

Currently, certain categories of mortgage backed securities are exempt from registration under the Securities Act. Title IX removes this exemption. ACCOUNTABILITY AND EXECUTIVE COMPENSATION I. Shareholder Vote on Executive Compensation and Golden Parachutes

Title IX adds new requirements for shareholders to vote on executive compensation. At least every 3 years, shareholders will vote to approve the compensation of executives (whether such vote will take place every 1, 2, or 3 years will be decided by a shareholder vote held every 6 years). Proxy or consent materials for the first meeting of the shareholders occurring after January 21, 2011 must include these two separate resolutions. Any proxy or consent materials for a meeting of shareholders occurring after January 21, 2011 at which shareholders are asked to approve an acquisition, merger or consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer (a Business

50

Combination), must disclose any agreements or understandings with any named executive officers of such issuer or of the acquiring issuer, if applicable, concerning any type of compensation that is based on or otherwise relates to the Business Combination (known as golden parachute compensation) and the aggregate total of all such compensation that may be paid or become payable to or on behalf of such executive officer. Any such proxy or consent solicitation shall include a separate resolution subject to shareholder vote to approve such agreements or understandings and compensation as disclosed, unless such agreements or understandings have been subject to a shareholder vote. The shareholder votes on executive compensation and golden parachute compensation shall not be binding on the issuer or its board of directors and may not be construed as (i) overruling a decision by the issuer or its board of directors; (ii) creating or implying any change to the fiduciary duties for such issuer or its board of directors; (iii) creating or implying any additional fiduciary duties for such issuer or its board of directors; or (iv) restricting or limiting the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation. The SEC may exempt an issuer, or class of issuers, from the foregoing requirements, particularly if such requirements disproportionately burden small issuers. Every institutional investment manager shall report at least annually how it voted on any shareholder vote pursuant to the foregoing requirements, unless such vote is otherwise required to be reported by rule or regulation of the SEC. II. Compensation Committee Independence A. Independence Requirements

The SEC is directed to promulgate rules (not later than July 2011) directing national securities exchanges and associations to require each member of the compensation committee of a listed companys board of directors to be (i) a member of the board of directors; and (ii) independent. For the purposes of these requirements, the national securities exchanges and associations shall consider relevant factors, including the source of a board members compensation, including any consulting, advisory, or other compensatory fees paid by the issuer; and whether a member is affiliated with the issuer, a subsidiary of the issuer, or an affiliate of the issuer. SEC rules shall permit a national securities exchange or association to exempt a particular relationship, taking into consideration the size of an issuer and any other relevant factors. B. Power to Prohibit Listing of Equity Securities

Title IX mandates the SEC to establish rules (not later than July 2011) requiring national securities exchanges and associations to prohibit the listing of any equity security of an issuer that does not comply with the compensation committee independence requirements; provided that this power shall not extend to an issuer that is a controlled company, limited partnership, company in bankruptcy, registered open-end management investment company, or a foreign private issuer that provides annual disclosures to shareholders of reasons why it does not have an independent compensation committee. 51

C.

Compensation Consultants and Other Advisers

The compensation committee of an issuer may only select a compensation consultant, legal counsel, or other adviser (a Compensation Adviser) after taking into consideration the independence requirements described above. The SEC will identify factors that affect the independence of a Compensation Adviser, including: (i) the provision of other services provided to the issuer; (ii) the amount of fees received from the issuer by the person that employs the Compensation Adviser as a percentage of the total revenue of the person; (iii) the policies and procedures of the person who employs the Compensation Adviser that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the Compensation Adviser with a member of the compensation committee; and (v) any stock of the issuer owned by the Compensation Adviser. An issuers compensation committee may, in its sole discretion, retain a Compensation Adviser and will be directly responsible for the oversight of such Compensation Advisers work. However, the compensation committee will not be required to act consistently with the advice of a Compensation Adviser and may exercise its own judgment with regard to its duties. Each issuer shall disclose in any proxy or consent solicitation material for an annual meeting (or a special meeting in lieu of an annual meeting) occurring on or after one year from the date of the Dodd-Frank Acts enactment, whether (i) the compensation committee retained or obtained the advice of a compensation consultant; and (ii) the work of the compensation consultant has raised any conflict of interest and if so, the nature of the conflict and how the conflict is being addressed. These requirements do not cover the services of independent legal counsel or other advisers. III. Controlled Company Exception

The independence requirements do not apply to any controlled company, meaning an issuer that is listed on a national securities exchange or association and that holds an election for its board in which more than 50 percent of the voting power is held by an individual, group, or another issuer. IV. Executive Compensation Disclosures A. Pay versus Performance Disclosure

Title IX adds new disclosure requirements regarding pay versus the performance of an executive. The SEC must establish rules to require each issuer to disclose in any proxy or consent solicitation material for an annual meeting a clear description of any compensation required to be disclosed by the issuer pursuant to Regulation S-K, including information that shows 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 issuer and any distributions. Additionally, the SEC must amend Regulation S-K to require issuers to disclose in any registration statement: (i) the median of the annual total compensation of all employees of the issuer, except the CEO (or any equivalent position) of the issuer; (ii) the annual total compensation of the CEO (or any equivalent position) of the issuer; and (iii) the ratio of the amount described in (i) to the amount described in (ii).

52

B.

Compensation Structure Reporting

By April 2011, the appropriate Federal regulators (the Federal Reserve, the OCC, the FDIC, the OTS, the National Credit Union Administrative Board, the SEC or the Federal Housing Finance Agency) shall prescribe regulations or guidelines to require each covered financial institution to disclose to such regulator the structures of all incentive-based compensation arrangements offered by such institution sufficient to determine whether the compensation structure (i) provides an executive officer, employee, director or principal shareholder with excessive compensation; or (ii) could lead to material financial loss. A covered financial institution need not report actual compensation paid to particular individuals or provide reports if it does not have incentive-based compensation arrangements. A covered financial institution means (i) a depository institution or holding company; (ii) a registered broker-dealer; (iii) a credit union; (iv) an investment adviser; (v) the Federal National Mortgage Association; (vi) the Federal Home Loan Mortgage Corporation; and (vii) any other financial institution that the appropriate Federal regulators, jointly, by rule determine should be treated as a covered financial institution. By April 2011, the appropriate Federal regulators will jointly issue regulations or guidelines that prohibit any type of incentive-based compensation arrangement or any feature of any such arrangement, that encourages inappropriate risks (i) by providing excessive compensation, fees or benefits; or (ii) that could lead to material financial loss. Any covered financial entity with less than $1 billion in assets will not be subject to the above requirements. V. Recovery of Executive Compensation

The SEC must enact rules directing national securities exchanges and associations to implement policies enabling the recovery of incentive-based compensation from both current and former executive officers following a restatement of financial statements due to material noncompliance with any financial reporting requirement, during the 3-year period preceding the date on which the company was required to prepare the restatement. The amount of compensation subject to clawback is the amount in excess of what would have been paid to the officer according to the restated results. VI. Disclosure Regarding Employee and Director Hedging

Title IX also requires the SEC to establish rules directing issuers to disclose in any proxy or consent solicitation for an annual meeting whether any employee or member of the board of directors, or any designee of such employee or member, is permitted to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of equity securities (i) granted to the employee or member by the issuer as part of a compensation package or (ii) held, directly or indirectly, by the employee or member.

53

VII.

Voting by Brokers

Title IX amends the Exchange Act to prohibit brokers from using discretionary authority when voting proxies in connection with shares held in street name for the election of directors, executive compensation, or any other significant matter (as determined by the SEC). STRENGTHENING CORPORATE GOVERNANCE I. Proxy Access

Title IX provides that the SEC may issue rules permitting a shareholder to use an issuers proxy solicitation materials for the purpose of nominating individuals to an issuers board. On August 25, 2010, the SEC adopted Rule 14a-11 under the Exchange Act, which requires an issuer to include a shareholder nominee for director in the issuers proxy materials if the nominating shareholder or shareholders acting together own at least 3% of the voting power of securities that are entitled to vote; provided, that the shares have been held for at least 3 years. A shareholder may include no more than one nominee or a number of nominees that represent up to 25% of the issuers board of directors. II. Chairman and CEO Structure

Not later than December 2010, the SEC will issue rules requiring an issuer to disclose in its annual proxy the reasons why the issuer has chosen the same person or alternatively, different persons, to serve as chairman of the board and CEO of the issuer. MUNICIPAL SECURITIES AND RISK COMMODITIES I. Registration of Municipal Securities Dealers and Advisers

Title IX makes it unlawful for a municipal adviser or municipal securities dealer to provide advice to a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, unless the municipal adviser registers under the Exchange Act. II. Increase in Authority and Independence of Municipal Securities Rulemaking Board

Title IX expands the regulatory authority of the Municipal Securities Rulemaking Board (MSRB) over brokers and dealers, municipal securities dealers and municipal advisers with respect to the issuance of municipal securities, investment of proceeds of municipal offerings or derivates on municipal securities. The MSRB is authorized to assist the SEC and FINRA in examination and enforcement actions involving MSRB rules, and to retain a portion of the fines collected in such actions. The MSRB may establish information systems as repositories of information from municipal market participants, and may fund this with fees assessed from users of these systems.

54

Title IX also increases the independence of the MSRB by requiring that a majority of the board members consist of members that are independent of brokers or dealers, municipal dealers or municipal advisers. III. Fiduciary Duty

A municipal adviser will have a fiduciary duty to any municipal entity for whom it acts as municipal adviser, and no municipal adviser may engage in any act, practice or course of business which is not consistent with this fiduciary duty or that is in contravention of any rule of the MSRB. IV. Office of Municipal Securities

An Office of Municipal Securities is established within the SEC, which will, in coordination with the MSRB, administer the rules of the SEC with respect to the practices of municipal securities brokers and dealers, municipal securities advisers, municipal securities investors, and municipal securities issuers. OTHER MATTERS I. Public Company Accounting Oversight Board (the PCAOB)

Title IX amends the Sarbanes-Oxley Act of 2002 (SOX) to facilitate the PCAOBs ability to share information with foreign auditor oversight authorities and enhances the PCAOBs authority to oversee audits of brokers and dealers. Title IX also establishes professional standards for broker-dealer audits and empowers the PCAOB to require a program of inspection of audit reports. The disciplinary authority vested in the PCAOB under SOX is also expanded to include issuers, brokers or dealers. II. Portfolio Margining

The Dodd-Frank Act expands the protection under the Securities Investor Protection Act of 1970 (SIPC) to include as a protected customer: (i) any person who has deposited cash with the debtor for purposes of purchasing securities; (ii) any person who has a claim against the debtor for cash, securities, futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the SEC; and (iii) any person who has a claim against the debtor arising out of sales or conversions of such securities. III. Senior Investor Protections

The Dodd-Frank Act requires the Office of Financial Literacy of the Bureau (OFLB) to establish a program under which the OFLB may make grants to States or eligible entities to educate and protect senior citizens against misleading or fraudulent marketing in the sale of financial products and services.

55

IV.

Council of Inspectors General on Financial Oversight

A Council of Inspectors General on Financial Oversight (the Council of Inspectors General) is established to discuss the ongoing work of each inspector general who is a member, with a focus on concerns that may apply to the broader financial sector and ways to improve financial oversight. The Council of Inspectors General shall be comprised of the inspectors general of (i) the Federal Reserve; (ii) the CFTC; (iii) the Department of Housing and Urban Development; (iv) the Treasury; (v) the FDIC; (vi) the Federal Housing Finance Agency; (vii) the National Credit Union Administration; (viii) the SEC; and (ix) TARP, until its termination. V. SEC Match Funding

Title IX provides that the SEC shall collect transaction fees and assessments in connection with SEC filings that are designed to recover the Congresss annual appropriation to the SEC.

56

Title X - Bureau of Consumer Financial Protection I. Establishment of the Bureau of Consumer Financial Protection

The Dodd-Frank Act establishes the Bureau of Consumer Financial Protection (the Bureau) as an independent bureau in the Federal Reserve, which shall regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws. A covered person under Title X means any person that engages in offering or providing a consumer financial product or service; and any affiliate of such a person acting as a service provider to such person. A. Consumer Financial Product or Service

A consumer financial product or service means any financial product or service that is described below and is offered or provided for use by consumers primarily for personal, family or household purposes or is delivered, offered or provided in connection with a consumer financial product or service. B. Financial Product or Service

A financial product or service includes: (i) extending credit and servicing loans, including acquiring, purchasing, selling, brokering or other extensions of credit (other than solely extending commercial credit to a person who originates consumer credit transactions); extending or brokering leases of personal or real property that are the functional equivalent of purchase finance arrangements; providing real estate settlement services, except services related to the business of insurance and electronic conduit services, or performing appraisals of real estate or personal property; engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer; selling, providing, or issuing stored value or payment instruments; providing check cashing, check collection or check guaranty services; providing payments or other financial data processing products or services to a consumer by any technological means (not including merchants, retailers, or sellers who engage in financial data processing exclusively for purposes of initiating payment instructions by a consumer to pay for a nonfinancial good or service provided directly to the consumer);

(ii) (iii)

(iv)

(v) (vi) (vii)

57

(viii) (ix) (x) (xi)

providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services; collecting, analyzing, maintaining or providing consumer report information or other account information; collecting debt related to any consumer financial product or service; and such other financial product or service as may be defined by the Bureau, by regulation, for the purposes of Title X. C. Relationship with the Federal Reserve

The Federal Reserve may delegate to the Bureau the authorities to examine persons subject to the jurisdiction of the Federal Reserve for compliance with Federal consumer financial laws. The Federal Reserve may not (i) intervene in any matter or proceeding before the Director of the Bureau, including examinations or enforcement actions, unless otherwise specifically provided by law; (ii) appoint, direct or remove any officer or employee of the Bureau; or (iii) merge or consolidate the Bureau, or any of the functions or responsibilities of the Bureau, with any division or office of the Federal Reserve or the Federal Reserve banks. No rule or order of the Bureau shall be subject to approval or review by the Federal Reserve and the Federal Reserve may not delay or prevent the issuance of any rule or order of the Bureau. D. Consumer Advisory Board

The Director of the Bureau shall establish a Consumer Advisory Board to advise and consult with the Bureau in the exercise of its functions under the Federal consumer financial laws and to provide information on emerging practices in the consumer financial products or services industry, including regional trends, concerns and other relevant information. E. Coordination

The Bureau shall coordinate with the SEC, the CFTC, the Federal Trade Commission and other Federal agencies and State regulators, as appropriate, to promote consistent regulatory treatment of consumer financial and investment products and services. F. Funding

Each quarter, the Federal Reserve shall transfer from the earnings of the Federal Reserve System to the Bureau the amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law. Such amount shall not exceed a fixed percentage of the total operating expenses of the Federal Reserve, equal to (i) 10 percent of such expenses in fiscal year 2011; (ii) 11 percent of such expenses in 2012; and (iii) 12 percent of such expenses in fiscal year 2013 and in each year thereafter.

58

II.

Powers of the Bureau A. Purpose, Objectives and Functions of the Bureau

The Bureau shall seek to implement and enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent and competitive. The Dodd-Frank Act authorizes the Bureau to exercise its authorities under Federal consumer financial law for the purposes of ensuring that: (i) consumers are provided with timely and understandable information to make responsible decisions about financial transactions; (ii) consumers are protected from unfair, deceptive or abusive acts and practices and from discrimination; (iii) outdated, unnecessary or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; (iv) Federal consumer financial law is enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition; and (v) markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation. The Bureau primarily serves to (i) conduct financial education programs; (ii) collect, investigate and respond to consumer complaints; (iii) collect, research, monitor and publish information relevant to the functioning of markets for consumer financial products and services to indentify risks to consumers and the proper functioning of such markets; (iv) supervise covered persons for compliance with Federal consumer financial law, and take appropriate enforcement action to address violations of Federal consumer financial law; (v) issue rules, orders and guidance implementing Federal consumer financial law; and (vi) perform such support activities as may be necessary or useful to facilitate the other functions of the Bureau. B. Rulemaking Authority

The Bureau is generally authorized to exercise its authorities under Federal consumer financial law to administer, enforce and otherwise implement the provisions of Federal consumer financial law. The Director may prescribe rules and issue orders and guidance to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws. The Bureau may exempt any class of covered persons, services providers or consumer financial products or services from any provisions of Title X or from any rule issued thereunder, as the Bureau determines necessary in consideration of the following factors: (i) the total assets of the class of covered persons; (ii) the volume of transactions involving consumer financial products or services in which the class of covered persons engages; and; (iii) existing provisions of law which are applicable to the consumer financial product or service and the extent to which such provisions provide consumers with adequate protections. To support its rulemaking and other functions, the Bureau shall monitor the risks to consumers in the offering of consumer financial products or services taking into consideration the following factors: (i) likely risks and costs to consumers associated with buying or using a 59

type of consumer financial product or service; (ii) understanding by consumers of the risks of a type of consumer financial product or service; (iii) the legal protections applicable to the offering or provision of a consumer financial product or service, including the extent to which the law is likely to adequately protect consumers; (iv) rates of growth in the offering or provision of a consumer financial product or service; (v) the extent, if any, to which the risks of a consumer financial product or service may disproportionately affect traditionally underserved consumers; or (vi) the types, number and other pertinent characteristics of covered persons that offer or provide the consumer financial product or service. The Bureau shall have the authority to gather information from time to time regarding the organization, business conduct, markets and activities of covered persons and service providers; provided, however, that the Bureau may not obtain information for the purposes of gathering or analyzing the personally identifiable financial information of consumers. C. Review of Bureau Regulations by the Financial Stability Oversight Council

The Financial Stability Oversight Council (the Council) upon petition by one of its member agencies, may stay or set aside a final regulation prescribed by the Bureau if the Council decides that the regulation would put the safety and soundness of the U.S. banking system or the stability of the financial system of the U.S. at risk. D. Supervision of Nondepository Covered Persons

The Bureau shall require reports and conduct examinations on a periodic basis of any nondepository covered person who: (i) offers or provides origination, brokerage or servicing of loans secured by real estate for use by consumers primarily for personal, family or household purposes or loan modification or foreclosure relief services in connection with such loans; (ii) is a larger participant of a market for other consumer financial products or services, as defined by the Bureau in consultation with the Federal Trade Commission; (iii) the Bureau has reasonable cause to determine, by order, after notice to the covered person to respond, based on complaints collected by the Bureau regarding consumer financial products or services or information from other sources, that such covered person is engaging or has engaged in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; (iv) offers or provides to a consumer any private education loan as defined in the Truth in Lending Act; or (v) offers or provides to a consumer a payday loan. The purpose of these reports and examinations shall be to (i) assess the compliance with the requirements of Federal consumer financial law; (ii) obtain information about the activities and compliance systems or procedures of such person; and (iii) detect and assess risks to consumers and to markets for consumer financial products and services. The Bureau shall exercise its authority over nondepository covered persons in a manner designed to ensure that such exercise is based on the assessment by the Bureau of the risks posed to consumers in the relevant product markets and geographic markets, and taking into consideration: (i) the asset size of the covered person; (ii) the volume of transactions involving consumer financial products or services in which the covered person engages; (iii) the risks to consumers created by the provision of such consumer financial products or services; (iv) the extent to which such institutions are subject to oversight by State authorities for consumer

60

protection; and (v) any other factors that the Bureau determines to be relevant to a class of covered persons. E. Supervision of Very Large Banks, Savings Associations and Credit Unions

This section shall apply to any covered person that is (i) an insured depository institution with total assets of more than $10 billion and any affiliate thereof; or (ii) an insured credit union with total assets of more than $10 billion and any affiliate thereof. The Bureau shall have the exclusive authority to require reports and conduct examinations of insured covered persons for purposes of assessing (i) compliance with the requirements of Federal consumer financial laws; (ii) obtaining information about the activities subject to such laws and the associated compliance systems or procedures of such persons; and (iii) detecting and assessing associated risks to consumers and to markets for consumer financial products and services. The Bureau shall have primary authority to enforce a Federal consumer financial law with respect to any insured covered person. Any Federal agency, other than the Federal Trade Commission, that is authorized to enforce a Federal consumer financial law may recommend to the Bureau that the Bureau initiate an enforcement proceeding. If the Bureau fails to initiate an enforcement proceeding within 120 days of such recommendation, the recommending Federal agency may initiate an enforcement proceeding. F. Smaller Banks, Savings Associations and Credit Unions

This section shall apply to any covered person that is (i) an insured depository institution with total assets of $10 billion or less; or (ii) an insured credit union with total assets of $10 billion or less. The Director of the Bureau may require reports from a person described in the paragraph above, as necessary to support the role of the Bureau in implementing the Federal consumer financial law, to support its examination of activities (described below) and to assess and detect risks to consumers and consumer financial markets. Except for requiring such reports, the prudential regulator is authorized to enforce the requirements of Federal consumer financial laws and, with respect to a person covered in this section, shall have the exclusive authority (relative to the Bureau) to enforce such laws. The Bureau, may, at its discretion, include examiners on a sampling basis of the examinations performed by the prudential regulator to assess compliance with the requirements of Federal consumer financial law of persons described in this section. A prudential regulator means (i) in the case of an insured depository institution or depository institution holding company (as defined under the Federal Deposit Insurance Act) or subsidiary of such institution or company, the appropriate Federal banking agency, as that term is defined under the Federal Deposit Insurance Act; and (ii) in the case of an insured credit union, the National Credit Union Administration.

61

G.

Carveouts from the Bureaus Authority

Title X excludes the Bureau from exercising any rulemaking, supervisory, enforcement or other authority over: (i) real estate brokerage activities; (ii) manufactured home retailers and modular home retailers; (iii) accountants and tax preparers; (iv) the practice of law; (v) persons regulated by a State insurance regulator; (vi) employee benefit and compensation plans and certain other arrangements under the Internal Revenue Code; (vii) persons regulated by a State securities commission; (viii) persons regulated by the SEC; (ix) persons regulated by the CFTC; (x) persons regulated by the Farm Credit Administration; (xi) activities relating to charitable contributions; and (xii) auto dealers. III. Specific Bureau Authorities A. Prohibiting Unfair, Deceptive or Abusive Acts or Practices

The Bureau may take any action authorized under Title X to prevent a covered person or service provider from committing or engaging in an unfair, deceptive or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service or the offering of a consumer financial product or service. The Bureau may prescribe rules applicable to a covered person or service provider with respect to such unfair, deceptive or abusive acts or practices. For the purposes of this section, an act or practice is unfair if: (i) the act of practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (ii) such substantial injury is not outweighed by countervailing benefits to consumers or to competition. For the purposes of this section, an act or practice is abusive if: the act or practice (i) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (ii) the takes unreasonable advantage of (A) a lack of understanding on the part o the consumer of the material risks, costs or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. In prescribing rules under this section, the Bureau shall consult with the Federal banking agencies or other Federal agencies, as appropriate, concerning the consistency of such rules with prudential, market or systemic objectives administered by such agencies. B. Disclosures

The Bureau may prescribe rules to ensure that the features of any consumer financial product or service are fully, accurately and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits and risks associated with the product or service. The Bureau may accompany a final rule under this section with model disclosures that may be used at the option of the covered person. Any covered person that uses a model form shall be deemed to be in compliance with the disclosure requirements of this section with respect to such model form.

62

C.

Consumer Access to Information

Subject to rules prescribed by the Bureau, a covered person shall make available to a consumer, upon request, information in its control or possession concerning the consumer financial product or service that the consumer obtained from such covered person. Such information shall be made available in an electronic form usable by consumers. A covered person is not required by this section to make available to the consumer: (i) confidential information; (ii) any information collected for the purpose of preventing fraud or money laundering, or detecting or making any report regarding other unlawful or potentially unlawful conduct; (iii) any information required to be kept confidential by any other provision of law; or (iv) any information that the covered person cannot retrieve in the ordinary course of business. D. Response to Consumer Complaints and Inquiries

The Bureau shall establish, in consultation with the appropriate Federal regulatory agencies, reasonable procedures to provide a timely response to consumers to complaints against, or inquiries concerning, a covered person, including: (i) steps that have been taken by the regulator in response to the complaint or inquiry of the consumer; (ii) any responses received by the regulator from the covered person; and (iii) any follow-up actions or planned follow-up actions by the regulator in response to the complaint or inquiry of the consumer. A covered person subject to supervision and primary enforcement by the Bureau shall provide a timely response to the Bureau, the prudential regulators and any other agency having jurisdiction over such covered person concerning a consumer complaint or inquiry, including: (i) steps that have been taken by the covered person to respond to the complaint or inquiry of the consumer; (ii) responses received by the covered person from the consumer; and (iii) follow-up actions or planned follow-up actions by the covered person to respond to the complaint or inquiry of the consumer. E. Prohibited Acts

It shall be unlawful for (i) any covered person or service provider to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law or otherwise commit any act or omission in violation of Federal consumer financial law; (ii) any covered person or service provider to engage in any unfair, deceptive or abusive act or practice; (iii) any covered person or service provider to fail or refuse, as required by Federal consumer financial law, or any rule or order issued by the Bureau thereunder to permit access to or copying of records, to establish or maintain records, or to make reports or provide information to the Bureau; or (iv) any person to knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of this Title X or any rule or order issued thereunder.

63

IV.

Preservation of State Law A. Relation to State Law

Title X may not be construed as exempting any person subject to the provisions of this Title X from complying with the statutes, regulations, orders or interpretations in effect in any State, except to the extent that any such provision of law is inconsistent with the provisions of this Title X and then only to the extent of the inconsistency.

64

Title XI - Federal Reserve System Provisions I. Debt Guarantee Program for Emergency Financial Stabilization A. FDIC Authorized To Establish Debt Guaranty Program to Address Economic Distress

During times of severe economic distress, if, upon the request of the Treasury Secretary, the FDIC and the Federal Reserve Board determine that a liquidity event exists and failure to take action would have serious adverse effects on the financial stability of the U.S., then the FDIC is authorized to create a widely available program to guarantee the obligations of solvent insured depository institutions and depository institution holding companies (including their affiliates). A liquidity event is defined as: (i) an exceptional and broad reduction in the general ability of financial participants to sell financial assets without an unusual and significant discount, or to borrow using financial assets as collateral without an unusual and significant increase in margin, or (ii) an unusual and significant reduction in the ability of financial market participants to obtain unsecured credit. B. Restrictions on Debt Guaranty Program

The FDIC must, in consultation with the Treasury Secretary, establish policies and procedures for the issuance of debt guarantees, which may include a requirement of collateral as a condition of any guarantee. Also, guarantees of obligations may not include the provision of equity in any form. In addition, the Treasury Secretary, in consultation with the President, must establish a maximum amount of debt that the FDIC may guaranty, which maximum amount must be approved by a joint resolution of Congress. C. Funding of Debt Guaranty Program

The funding for the debt guarantee program will come from fees and assessments from participants in the program and the FDIC may also, in its discretion, borrow funds from the Treasury Department (though it is prohibited from borrowing funds from the Deposit Insurance Fund). D. Defaults Under the Debt Guaranty Program

In the event a participant in the debt guarantee program defaults on a guaranteed obligation, the FDIC must, in the case of a participant that is an insured depository institution, appoint itself as receiver, and in the case of any other participant, must consider whether the company should be resolved under Title II liquidation or required to file a voluntary bankruptcy petition or whether the FDIC should file an involuntary bankruptcy petition in respect of the company.

65

II.

Amendments to Emergency Lending Authority of Federal Reserve A. Policies and Procedures for Emergency Lending

The Federal Reserve will, in consultation with the Treasury Secretary, establish policies and procedures for emergency lending under Section 13(3) of the Federal Reserve Act in order to ensure that (i) any emergency lending is for the purpose of providing liquidity rather than to aiding a failing financial company; (ii) that the security for emergency loans is sufficient to protect taxpayers from losses; and (iii) that any such emergency program is terminated in a timely and orderly fashion. In addition, under the new policies, insolvent institutions will not be eligible for emergency lending programs. B. Approval and Reporting Requirements

The Federal Reserve will be required to obtain approval from the Treasury Secretary for any emergency lending program or facility. In addition, the Federal Reserve is required to provide initial and periodic reports to Congress regarding all emergency lending programs and facilities, including the identity of recipients, the material terms of the assistance such as duration, pledged collateral, interests and fees, and the expected cost to taxpayers. C. Audits by the GAO

The Government Accountability Office (GAO) is granted authority to conduct audits of credit facilities and covered transactions established under Section 13(3) of the Federal Reserve Act and certain open market transactions or discount window advances in order to assess the (i) operational integrity, accounting, financial reporting and internal controls of the programs, facilities or covered transactions; (ii) effectiveness of the security and collateral in mitigating risk to the Federal Reserve and taxpayers; (iii) whether the credit facility or covered transaction favors participants over other eligible institutions; and (iv) policies governing the use, selection or payment of third-party contractors for any credit facility or covered transaction. The GAO must report the results of such audits to Congress and make recommendations for legislative or administrative action. The GAO must also a one-time conduct an audit of all loans and other financial assistance provided by the Federal Reserve beginning December 1, 2007 through July 22, 2010 though the emergency programs created under Section 13(3) of the Federal Reserve Act (such as TALF), to assess the above-listed factors, and must report its findings to Congress. The GAO will conduct an audit of the governance of the Federal Reserve, and will: (i) examine the extent to which the current system of appointing Federal Reserve bank directors effectively represents the public without discrimination; (ii) examine whether there are actual or potential conflicts of interest created when Federal Reserve bank directors, who execute supervisory functions of the Board of Governors of the Federal Reserve, are elected by member banks; (iii) make recommendations for changes for selection procedures for Federal Reserve bank directors; and (iv) examine establishment and operation of all federal assistance facilities instituted by the Federal Reserve since December 1, 2007 through July 22, 2010.

66

D.

Public Disclosure of Information

The Federal Reserve will be required to publish on its website certain information, including GAO audit reports, annual financial statements prepared by an independent auditor and reports to Congress on Section 13(3) programs, facilities or covered transactions. In addition, the Federal Reserve will be required to publish on its website certain information regarding financial assistance provided by it during the period of December 1, 2007 through July 22, 2010 though the emergency programs created under Section 13(3) of the Federal Reserve Act (such as TALF), including to whom such assistance was provided, the type and value of financial assistance, and specific terms of repayment. The Federal Reserve will also be required to publicly disclose certain information regarding credit facilities (one year after the facility is terminated) and covered transactions (four fiscal quarters after the transaction occurs), including borrowers, participants or counterparties, amount borrowed or transferred, interest rate or discount, and type and amount of collateral pledged.

67

Title XII - Improving Access to Mainstream Financial Institutions The Treasury Secretary is authorized to establish multiyear programs to (i) promote initiatives to enable low and moderate income individuals to establish accounts in federally insured depository institutions, and (ii) provide to such individuals alternatives to costly payday loans.

68

Title XIII - Pay It Back Act Title XIII of the Dodd-Frank Act, entitled the Pay It Back Act, reduces the amount of funding authorized under TARP to $475 billion (from $700 billion) and prohibits establishment of any new TARP programs. This authorized amount will not be reduced by repaid TARP funds, committed guarantees that became or become uncommitted, or realized losses. The Pay It Back Act also provides that proceeds from the sale of Fannie, Freddie and Federal Home Loan Bank debt purchased by the Treasury under its emergency authority, and unused funds under the American Recovery and Reinvestment Act of 2009, must be used solely for deficit reduction.

69

Title XIV - Mortgage Reform and Anti-Predatory Lending Act I. Residential Mortgage Loan Origination Standards

Title XIV enacts various amendments to the Truth in Lending Act for the purpose of assuring that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive. A. Duty of Care for Loan Originators

Mortgage originators are currently required to be licensed or registered under state or federal law, as applicable; however, Title XIV imposes the additional requirement that they must be qualified, which will presumably mean meeting standards of competence and integrity (the term qualified will be defined in implementing regulation). All depository institutions will be subject to new regulations requiring them to establish and maintain procedures designed to assure and monitor compliance by such institutions, their subsidiaries, and their respective employees with the new duty of care requirements. A mortgage originator is any person who either receives compensation for or represents to the public that they take residential mortgage loan applications, assist consumers in obtaining residential mortgage loans, or negotiate terms of residential mortgage loans. A mortgage originator includes mortgage brokers and mortgage loan officers at banks, as well as mortgage banking companies, but does not include: (i) a person who performs purely administrative or clerical tasks for a mortgage originator, so long as he does not advise consumers on loan terms; (ii) a person who performs only real estate brokerage activities and is licensed or registered under state law to do so, so long as he is not compensated by a lender, mortgage broker, mortgage originator, or their agents; (iii) loan servicers and their employees and agents; (iv) the creditor itself, other in a table-funding transaction (which is a process of originating loans with internal capital of a mortgage company or lender until there is sufficient number of loans to package them for sale in the secondary market); and (v) any person or entity that provides sellerfinancings (which meet certain criteria) of up to three properties in any 12-month period. B. Regulation of Steering by Mortgage Originators

Mortgage originators may not receive, and no person may pay, directly or indirectly, compensation that varies based on the terms of a residential mortgage loan (other than the principal amount of the loan). Mortgage originators will be prohibited from: (i) steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to pay or which has predatory characteristics or effects; (ii) steering any consumer from a residential mortgage loan for which the consumer is qualified under the Truth in Lending Act to one for which the consumer is not qualified; (iii) mischaracterizing the credit history of a consumer, the residential mortgage loans available to a consumer, or the appraised value of the property; (iv) if only able to offer a loan that is more expensive than what the consumer qualifies for, discouraging the consumer from seeking a mortgage loan from another mortgage originator. 70

C.

Restructuring of Financing Origination Fee

For any residential mortgage loan, if a mortgage originator is receiving any compensation directly from the consumer (the borrower in the loan transaction), the mortgage originator may not also receive compensation from the lender or any other person. In addition, the lender and any other person may not pay any compensation to the mortgage originator if they know or have reason to know that the mortgage originator is receiving fees directly from the consumer. However, the lender or another person may pay bona fide third-party charges not retained by the creditor, mortgage originator, or any of their respective affiliates. The new rule contains an exception which allows mortgage originators to receive compensation from the creditor or another person if (i) the mortgage originator is not receiving any compensation directly from the consumer, and (ii) the consumer does not make any upfront payment of discount points, origination points, or fees (other than third-party charges not retained by the creditor, mortgage originator, or any of their respective affiliates). D. Liability for Mortgage Originators

The Truth in Lending Act is amended to extend civil liability to mortgage originators, which liability is capped at a maximum of the greater of actual damages or three times the total amount of direct or indirect compensation or gain accruing to the mortgage originator, plus costs including attorneys fees. E. Prohibition Against Predatory Mortgage Practices

The Federal Reserve must enact regulation to prohibit mortgage practices that it finds to be abusive, unfair, deceptive and predatory. Such regulations will apply to all residential mortgage loans (whether or not the security property is owner-occupied). The Federal Reserve must also ensure that responsible, affordable mortgage credit remains available to consumers. II. Minimum Standards for Mortgages A. Ability to Repay

The Truth in Lending Act is amended to prohibit creditors from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, and, in the case of multiple residential mortgage loans secured by the same dwelling, the creditor must make a determination regarding ability to make combined repayments. Creditors must verify income by reviewing W-2s, tax returns, payroll receipts, financial institution records or other third-party documents. Federal departments or agencies making or guaranteeing loans under a streamlined refinancing will be subject to less stringent verification requirements. A creditor may presume a consumers ability to repay if residential mortgage loan is a qualified mortgage, which means it meets various requirements, which may be altered by the Federal Reserve, including: (i) regular period repayments of the loan may not result in an increase of the principal balance or allow the consumer to defer repayment of principal (with 71

certain exceptions); (ii) there may not be a balloon payment (that is a scheduled payment that is more than twice as large as the average of earlier scheduled payments); (iii) fixed rate loans and adjustable rate loans for which the underwriting is based on the maximum rate during the first 5 years must be fully amortized over the term; (iv) compliance with regulations to be established by the Federal Reserve relating to ratios of total monthly debt to income, or alternative measures of ability to repay; (v) total points and fees must not exceed 3% of the total loan amount; and (v) the term of the loan may not exceed 30 years. The Federal Reserve may establish adjusted criteria for smaller loans. B. Defense to Foreclosure

When a creditor, assignee or other holder of a residential mortgage loan initiates a judicial or nonjudicial foreclosure, or any other action to collect the debt, a consumer may assert a violation of the new ability to repay or anti-steering as a defense to foreclosure. C. Prohibition on Prepayment Penalties

A residential mortgage loan that is not a qualified mortgage may not provide for a prepayment penalty for prepaying all or part of the principal after the loan is consummated. A qualified mortgage may provide for prepayment penalties; however, such penalties may not be in excess of limits set by Title XIV. For purposes of this prohibition, the definition of qualified mortgage is narrowed to exclude loans with an adjustable rate or with rate that exceeds the average prime rate (the Federal Reserve will publish, at least weekly, average prime rates offered) by 1.5% or 2.5% for a first lien residential mortgage loan, depending on the loan amount, and by 3.5% for a subordinated lien residential mortgage loan. D. Prohibition Against Financing Single Premium Credit Insurance

Creditors are prohibited from financing single premium credit insurance products except on a monthly basis. Credit unemployment insurance is exempted from this prohibition, so long as the premiums are reasonable, the creditor receives no compensation (direct or indirect), and premiums are paid pursuant to another insurance contract and not paid to an affiliate of the creditor. E. Prohibition Against Mandatory Arbitration Provisions

Residential loan and home equity lines of credit secured by principal dwellings may not contain a mandatory arbitration provision. F. Limitations on Negative Amortization

Creditors may not make any residential loan secured by a dwelling (other than a reverse mortgage) with negative amortization, unless certain disclosures are given and, in the case of a first-time borrower of a non-qualified mortgage, the creditor must have documentation that the consumer received counseling from a HUD-certified counselor.

72

G.

New Disclosure Requirements 1. Monthly Statement

Creditors, assignees and servicers with respect to any residential mortgage loan must send to borrowers a monthly statement setting forth information including principal balance, interest rate, the adjustable rate mortgage reset date (if applicable), and a description of the prepayment penalties and late fees, as well as the servicers contact information. 2. Anti-Deficiency Laws

Several states have anti-deficiency laws; that is, laws which provide that in the event of foreclosure on residential property, the consumer is not liable for any deficiency between sale price obtained at foreclosure and the outstanding balance of the mortgage. Title XIV requires that a creditor making a loan subject to such anti-deficiency laws notify the borrower, and the significance for the consumer of loss of such protection. 3. Hybrid Adjustable Rate Mortgages

With respect to hybrid adjustable rate mortgages which have a fixed interest rate for an introductory period and than adjust or reset to a variable rate, creditors must provide borrowers, prior to the adjustment, information regarding how the new interest rate will be determined, an estimate of the amount of the new monthly payments, and a list of alternatives such as refinancing, renegotiating the terms, payment forbearances and pre-sale foreclosure. H. Civil Liability under the Truth in Lending Act

Civil liability for violations of the Truth in Lending Act is increased to $200 to $2,000 (from $100 to $1,000) for individual actions regarding open-end credit, and to $1,000,000 (from $500,000) for open end and closed-end credit for class action civil liability. Creditors and their assignees are shielded from civil liability if the borrower has been convicted of obtaining the residential mortgage loan by actual fraud. III. High-Cost Mortgages A. Definition of High-Cost Mortgage Expanded

Title XIV makes significant changes to the high-cost loans (aka high-cost, high-fee, HOEPA or Section 32 loans) provisions of the Truth in Lending Act. The definition of high-cost mortgage is greatly expanded from its current definition, and includes any consumer credit transaction that is secured by a consumers principal dwelling (excluding reverse mortgages) and that (i) for a first lien loan, the APR exceeds by more than 6.5% (8.5% if the dwelling is personal property and the loan is for less than $50,000) the average prime offer rate for a comparable transaction; (ii) for a subordinate lien, the APR exceeds by more than 8.5% the average prime offer rate for a comparable transaction; (iii) the total points and fees (other than third-party charges not retained by the mortgage originator, creditor or an affiliate of either) exceed 8% of the total transaction amount (or 5% if the transaction is less than $20,000); or (iv)

73

there are prepayment fees or penalties more than 36 months after transaction closing or that have an aggregate amount of more than 2% of the amount prepaid. B. Restrictions of Terms of High Cost Mortgages

No prepayment penalties may be imposed on high-cost mortgages under any circumstances. Balloon payments (defined as twice as large as the average of earlier scheduled payments) are also prohibited throughout the term of the high cost mortgage, although there is a limited exception for a payment schedule that is adjusted to seasonal or irregular consumer income. Acceleration clauses are prohibited in high-cost mortgages unless it is an acceleration by reason of (i) default in payment; (ii) due-on-sale provision; or (iii) material violation of a provision of the loan documents other than the payment schedule. Creditors may not charge fees to modify, renew, extend or amend a high-cost mortgage or to defer any payment. Creditors also may not charge a fee for a payoff statement (which states the balance due to pay off the highcost mortgage), other than previously disclosed transaction fees (i.e., for faxing or courier). Late fees or charges may not exceed 4% of the amount of the payment past due and late charges may not be imposed unless the loan documents specifically authorize the charge. Creditors are prohibited from recommending or encouraging a default on an existing mortgage or other loan that will be refinanced in whole or in part by a new high-cost mortgage. A high-cost mortgage may not directly or indirectly finance (i) any prepayment fee or penalty payable by a consumer in a refinance transaction if the creditor or its affiliate is the debtholder of the debt being refinanced; or (ii) any points and fees. Creditors may not make a high-cost mortgage unless they receive documentation that the customer has received counseling regarding the advisability of the mortgage from a HUDapproved counselor. Title XIV contains cure provisions, whereby a creditor has the opportunity to cure violations of the new high-cost mortgage provisions if it acts in good faith. IV. Office of Housing Counseling and Neighborhood Reinvestment Corporation

Title XIV establishes, in the Department of Housing and Urban Development (HUD), an Office of Housing Counseling for the purpose of providing financial counseling and information to consumers of mortgages, including informing homebuyers of the availability and importance of obtaining an independent home inspection and warning consumers about foreclosure rescue scams. V. Mortgage Servicing A. Escrow or Impound Accounts

Creditors must establish an escrow or impound account for the payment of taxes and hazard insurance (and, if applicable, flood insurance), mortgage insurance, ground rent and any other periodic payment if it is required by federal or state law, or if the loan is made, guaranteed or insured by a state or federal agency, and the transaction is secured by a first lien on the

74

consumers principal dwelling. The consumer may waive the escrow requirement, in which case the creditor must give written notice to the consumer regarding the consumers responsibilities and the implications of failure to make required payments. B. Restrictions on Force-Placed Insurance

Services of federally insured mortgages are prohibited from obtaining hazard insurance on the borrowers behalf (referred to as force-placed insurance) unless there is a reasonable basis to believe that the borrower failed to comply with loan provisions requiring borrower to maintain property insurance. If force-placed insurance is obtained, the servicer is prohibited from imposing a charge on the borrower unless the services has twice written to the borrower requesting evidence of insurance. VI. Appraisal Activities

Creditors are prohibited from making a higher risk mortgage without first obtaining a written appraisal of the property based on a physical property visit by a certified or licensed appraiser. Creditors are also prohibited from engaging in any act or practice that violates appraisal independence. If a creditor believes an appraiser is violating any standard, the creditor must refer the matter to the state licensing agency and cannot extend credit based on an appraisal which the creditor knows violates set standards. A creditor found to have willfully failed to obtain such an appraisal will be liable to the borrower for $2,000. A higher risk mortgage is a residential mortgage loan secured by a principal dwelling that is not a qualified mortgage and has an annual percentage rate that exceeds the prime offer rate for a comparable transaction by 1.5% if a first lien mortgage that does not exceed the prescribed minimum amount, by 2.5% of a first lien mortgage that exceeds the prescribed minimum amount, and by 3.5% for a subordinate mortgage. Title XIV also establishes appraisal company requirements and standards for automated valuation models used to estimate collateral value. Broker price opinions may not be used as a primary basis to determine property value. VII. Mortgage Resolution and Modification

HUD is required to develop a Multifamily Mortgage Resolution Program to insure the protection of current and future tenants and at-risk multi-family properties, by creating sustainable financing of such properties, maintaining federal, state and local subsidies for such properties, providing funds for rehabilitation and facilitating transfer of such properties. Title XIV provides $1 billion to HUD for use in redevelopment of abandoned and foreclosed homes, and also requires HUD to establish a program for making grants to provide a full range of foreclosure legal assistance to low and moderate income homeowners and tenants.

75

Title XV - Miscellaneous Provisions I. Restrictions on U.S. Funds for Foreign Governments A. Loans by the International Monetary Fund

The Dodd-Frank Act requires the U.S. Executive Director at the International Monetary Fund to evaluate any proposed loan to a middle-income country if that countrys public debt exceeds its annual gross domestic product (GDP). If such evaluation indicates that the proposed loan is not likely to be repaid in full, the U.S. Executive Director at the International Monetary Fund must use the voice and vote of the U.S. to oppose the proposal. B. Conflict Minerals

The Dodd-Frank Act amends section 13 of the Exchange Act to impose new reporting requirements on public companies that manufacture products with conflict minerals. Conflict minerals include columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives and other minerals determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo (the DRC). These requirements will greatly impact the manufacturing industry because such minerals are used in the production of electronics and other products. A company that manufactures products in which conflict minerals are necessary to their functionality or production must report to the SEC and disclose on their websites annually whether any such materials originated in the DRC or an adjoining country. If so, then the company must submit a detailed report describing the use of conflict minerals to the SEC. Companies that report taking no action to minimize or avoid using conflict minerals in their products do not face any penalties; however, companies must publicly disclose on their websites their use of conflict minerals. The Dodd-Frank Act requires the SEC to finalize regulations pursuant to this section by April 17, 2011. C. Reporting Requirements Regarding Coal or Other Mine Safety

The Dodd-Frank Act establishes new disclosure obligations for any reporting company that is an operator, or that has a subsidiary that is an operator, of a coal or other mine. Coal or other mine means: (A) an area of land from which minerals are extracted in nonliquid form or, if in liquid form, are extracted with workers underground; (B) private ways and roads appurtenant to such area; and (C) lands, excavations, underground passageways, shafts, slopes, tunnels and workings, structures, facilities, equipment, machines, tools, or other property including impoundments, retention dams, and tailings ponds, on the surface or underground, used in, or to be used in, or resulting from, the work of extracting such minerals from their natural deposits in nonliquid form, or if in liquid form, with workers underground, or used in, or to be used in, the mining of such minerals, or the work of preparing coal or other minerals, and includes custom coal preparation facilities. Effective July 21, 2010 (the date of the Dodd-Frank Acts enactment), each issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine shall file a current 76

report on Form 8-K, which discloses the following: (i) the receipt of an imminent danger order issued under the Federal Mine Safety and Health Act of 1977 (the MSHA); or (ii) the receipt of written notice from the Mine Safety and Health Administration that the coal or other mine has (A) a pattern of having significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under the MSHA; or (B) the potential to have such a pattern. Additionally, mine operators and their subsidiaries that are required to file reports pursuant to section 13(a) or 15(d) of the Exchange Act must provide similar information in each periodic report filed with the SEC. D. Disclosure of Payments by Resource Extraction Issuers

The Dodd-Frank Act adds section 13(q) to the Exchange Act, which will require the SEC to adopt final disclosure rules (by April 17, 2011) for reporting companies that engage in the commercial development of oil, natural gas or minerals. These rules will require such companies to disclose in their annual reports information relating to any payment made by the issuer, a subsidiary of the issuer or an entity under control of the issuer to the U.S. government or foreign governments for the purpose of the commercial development of oil, natural gas, or minerals. This new disclosure requirement aims to enhance transparency, particularly with regard to revenue payments to governments, in the extractive industries by increasing the information available to shareholders. The Dodd-Frank Act broadly defines the term payment for the purposes of this section to include: a payment that (i) is made to further the commercial development of oil, natural gas or minerals; (ii) is not de minimis; and (iii) includes taxes, royalties, fees (including license fees), production entitlements, bonuses and other material benefits, that the SEC, consistent with the guidelines of the Extractive Industries Transparency Initiative, determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas or minerals. The new rules will apply to the annual report relating to an issuers fiscal year ending one year after the issuance of the final rules by the SEC.

77

Title XVI - Section 1256 Contracts The Dodd-Frank Act amends section 1256(b) of the Internal Revenue Code of 1986 (the IRC) to recharacterize income as a result of exchange-trading of derivatives contracts by clarifying that such section does not apply to certain derivatives contracts transacted on exchanges. Section 1256 of the IRC provides special treatment of specified contract types. A section 1256 contract is required to be marked-to-market each year and any resulting gain or loss is treated as 60% long-term and 40% short-term capital gain or loss. One type of section 1256 contract is a regulated futures contract, which is defined as, among other requirements, a contract traded on or subject to the rules of a qualified board or exchange. The Dodd-Frank Act, in part, requires certain swaps to be cleared and traded through a clearing house - which would likely result in their being subject to the rules of a qualified board or exchange, thus presenting the problem that the Dodd-Frank Act could cause those swaps to be deemed section 1256 contracts. To address this issue, the Dodd-Frank Act provides that the term section 1256 contract does not include any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, or similar arrangement. Therefore, such instruments - even if centrally cleared or traded through a clearinghouse or exchange - would not be subject to mark-to-market tax accounting or the 60/40 rule for capital gain or loss treatment under section 1256.

78

Fourth Annual Capital Markets Symposium

Stephen Brodie Herrick, Feinstein LLP (212) 592-1452 sbrodie@herrick.com Jeff Klein Kensington Capital Advisors (704) 644-3681 jklein@kensington-advisors.com Irwin Latner Herrick, Feinstein LLP (212) 592-1558 ilatner@herrick.com

Matthew Musselman JPMorgan Chase (212) 270-1022 matthew.f.musselman@jpmchase.com Scott Shay Signature Bank (646) 822-1472 sshay@signatureny.com Patrick Sweeney Herrick, Feinstein LLP (212) 592-1547 psweeney@herrick.com