SEC Proposes Rule To Curtail Pay To Play Practices By Investment Advisers Seeking To Manage Money For State And Local Governments
Developments Of Note
SEC Proposes Rule To Curtail "Pay To Play" Practices
By Investment Advisers Seeking To Manage Money For State And Local
Governments
Treasury Submits Proposed Legislation For Various Elements of
Financial Regulatory Reform Program
Proposed Legislation On Consolidated Supervision And Regulation
Of Large, Interconnected Financial Firms
Proposed Legislation To Establish National Bank Supervisor;
Terminate Federal Thrift Charter
Proposed Legislation To Revise Certain Changes To Statutory
Framework For BHCs And Banks
Proposed Legislation Creating Office Of National Insurance
Proposed Legislation For Public Company Executive Compensation
Reform
Appeals Court Sends Fixed Index Annuity Rule Back to the
SEC
Other Item Of Note
Federal Banking Agencies Issue Final Revisions To Flood
Insurance Q&As
DEVELOPMENTS OF NOTE
SEC Proposes Rule To Curtail "Pay To Play" Practices
By Investment Advisers Seeking To Manage Money For State And Local
Governments
The SEC voted to propose a rule intended to curtail "pay to
play" practices where an investment adviser makes political
contributions or hidden payments to influence government officials
to select the adviser to manage money on behalf of public pension
plans, retirement plans and 529 plans. This summary is based on the
SEC press release announcing the proposed rule. A future edition of
the Alert will discuss the proposing release once it
becomes available.
The proposed rule would, among other things:
Prohibit direct political contributions by investment advisers
(including certain of their executives and employees) to elected
officials or candidates (or their associates), subject to certain
de minimis exceptions;
Bar an investment adviser who makes a political contribution to
an elected official (or candidate) in a position to influence the
selection of the investment adviser from providing advisory
services for compensation, either directly or through a fund, for
two (2) years;
Prohibit an investment adviser from soliciting contributions to
an elected official (or candidate) who can influence the selection
of the investment adviser and from soliciting payments to a
political party of the state or locality where the investment
adviser is seeking to provide advisory services to the
government;
Prohibit an investment adviser from paying a third party
(e.g., a solicitor or placement agent) to solicit a
government client on behalf of the investment adviser; and
Prohibit an investment adviser from directing or funding
contributions through third parties such as spouses, lawyers or
companies affiliated with the investment adviser if that conduct
would violate the rule if the investment adviser engaged in such
conduct directly.
Treasury Submits Proposed Legislation For Various Elements Of
Financial Regulatory Reform Program
The Obama Administration, through the Treasury, has been
releasing the text of proposed legislation for various elements of
its financial regulatory reform program (the "Program")
as they are submitted to Congress. The proposed legislation
provides significant detail concerning many segments of the Program
described in the Treasury's White Paper issued in June 2009 (as
discussed in the
June 23, 2009 Alert.) The proposed legislation on
hedge fund adviser registration was described in the
July 21, 2009 Alert. Some portions of the proposed
legislation concerning the Program are described in this issue of
the Alert. Other segments will be summarized in future
issues of the Alert. As reported in the financial press,
there is significant Congressional and industry opposition to
certain elements of the Program (e.g., the elimination of
the thrift charter, the selection of the Board of Governors of the
Federal Reserve System as the systemic risk regulator and the
establishment of a Consumer Financial Protection Agency), and some
or all of the elements of the Program may not be enacted. The
Treasury, however, is reportedly continuing to pursue these
initiatives in their current form. The Alert will continue
to cover developments in this area.
Proposed Legislation On Consolidated Supervision And Regulation
Of Large, Interconnected Financial Firms
As part of its financial regulatory reform program, the Obama
Administration, through the Treasury, submitted to Congress proposed legislation regarding the
consolidated supervision and regulation of large, highly leveraged
and substantially interconnected financial companies. As noted in
the proposed legislation, the inadequate consolidated supervision
and regulation of such companies was a key contributor to the
recent financial crisis. Accordingly, in order to mitigate systemic
risk and promote the stability of the U.S. financial system, the
proposed legislation authorizes the Board of Governors of the
Federal Reserve System (the "FRB") to designate certain
large, highly leveraged, and substantially interconnected financial
companies as "Tier 1 Financial Holding Companies" (or
"Tier 1 FHCs") and to subject such companies to
comprehensive and robust prudential supervision and regulation. The
proposed legislation is designed to implement recommendations made
in the Treasury's June 2009 White Paper on financial regulatory
reform (as discussed in the
June 23, 2009 Alert).
Designation of Tier 1 FHCs. Pursuant to the proposed
legislation, the FRB may designate any U.S. financial company as a
Tier 1 FHC if it determines that material financial distress at
such company could pose a threat to global or U.S. financial
stability or to the global or U.S. economy. In making these
determinations, the FRB will look at a number of factors, including
the amount and nature of a company's assets and liabilities,
its off-balance sheet exposures, the extent of the company's
transactions and relationships with other major financial
companies, and the company's importance as a source of credit
for households, businesses and State and local governments and as a
source of liquidity for the financial system. Similarly, the FRB
may designate any foreign financial company as a Tier 1 FHC if it
determines that material financial distress at such company could
pose a threat to U.S. financial stability or the U.S. economy,
taking into consideration the principles of national treatment and
equality of competitive opportunity and the amount of the foreign
company's U.S. assets, the leverage used to fund activities and
operations in the U.S., and other criteria related to the
company's U.S. activities and operations. Notably, the proposed
legislation does not limit Tier 1 FHCs to institutions that own
banking enterprises, or to domestic financial institutions. A
designation as a Tier 1 FHC is subject to reevaluation, rescission,
notice and an opportunity to be heard.
The proposed legislation provides that the FRB may require any
U.S. financial company that has: (i) $10 billion or more in assets;
(ii) $100 billion or more in assets under management; or (iii) $2
billion or more in gross annual revenue, to submit information for
the purpose of determining if such company is a Tier 1 FHC.
Similarly, the FRB may collect information for the same purposes
from any foreign financial company that has: (a) $10 billion or
more in assets in the U.S.; (b) $100 billion or more in assets
under management in the U.S.; or (c) $2 billion or more in gross
annual revenue in the U.S. In collecting such information, the FRB
must coordinate with any applicable federal regulatory agencies. In
addition, if necessary, the FRB may conduct a limited examination
of any U.S. financial company for the purpose of determining
whether to designate the company as a Tier 1 FHC. Despite criticism
from various members of Congress as well as other federal
regulators, the proposed legislation provides that, while the
Financial Services Oversight Council (the "Council"),
which would be created under Title I of the proposed legislation,
will have the ability to recommend that certain firms be designated
as Tier 1 FHCs, the final determination will rest solely with the
FRB.
Prudential Standards. The proposed legislation provides
that the FRB shall prescribe, after consultation with the Council,
prudential standards for Tier 1 FHCs that will be more stringent
than the standards applicable to bank holding companies to reflect
the potential risk posed to financial stability by Tier 1 FHCs.
Such prudential standards must include: (1) risk-based capital
requirements; (2) leverage limits; (3) liquidity requirements; and
(4) overall risk management requirements. These standards will be
set with a focus on the risks that these firms could pose to the
financial system as a whole, not just the risks to each
institution. The FRB may differentiate among Tier 1 FHCs taking
into consideration their risk, complexity, the financial activities
of the institution and its subsidiaries, as well as any other
factors the FRB deems appropriate.
Reporting. The FRB may require a Tier 1 FHC to submit
various reports, including with regard to: (i) its plan for rapid
and orderly resolution in the event of severe financial distress;
(ii) the nature and extent to which the Tier 1 FHC has credit
exposure to other Tier 1 FHCs; and (iii) the nature and extent to
which other Tier 1 FHCs have credit exposure to the Tier 1 FHC. The
proposed legislation requires the FRB to use existing reports
required by other federal regulatory agencies for these purposes
whenever possible.
Supervision/Examination. The proposed legislation also
gives the FRB the authority to supervise and examine a Tier 1 FHC
and all of its subsidiaries, including backstop authority over
functionally regulated subsidiaries, and also gives the Federal
Deposit Insurance Corporation (the "FDIC") back-up
authority over Tier 1 FHCs. The FRB may also prescribe, examine and
enforce more stringent prudential standards on functionally
regulated subsidiaries of Tier 1 FHCs if the FRB determines it is
necessary or appropriate to prevent or...
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