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Dodd-Frank Reform

January 01, 2017

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) is one of the most comprehensive pieces of legislation reforming federal financial institutions regulation in U.S. history. The Act affects a wide range of providers of financial products and services, as well as business and consumer customers.

Among the main features of the Act are:

  • Imposing federal regulation on systemically important nonbanks
  • Requiring new regulatory standards for large bank holding companies and systemically important nonbanks
  • Imposing restrictions under the “Volcker Rule” on banking entity proprietary trading and sponsorship of, and investment in, hedge funds and private equity funds
  • Authorizing federal takeovers of nonbanks and bank holding companies that pose a significant threat to U.S. financial stability
  • Establishing a new federal regulatory agency focused on consumer protection in regard to financial products and services
  • Overhauling the mortgage lending industry, including strong incentives for originators to offer mortgage loan products that meet certain federal standards
  • Developing a new regulatory structure for swaps and derivatives
  • Changing the legislative structure related to credit rating agencies and requiring risk retention in connection with certain asset-backed securities
  • Imposing new requirements involving investor protection, the registration of investment advisers, securities disclosures and securities enforcement
  • Creating a federal office focused on the insurance industry, potentially leading to broad federal regulation of the insurance industry

The Act, in many respects, is only a first step in achieving an enhanced federal regulatory structure. In many instances, the impact of the Act will ultimately be determined by a rulemaking process or the results of a congressionally-mandated study.

Dechert attorneys are focused on helping clients chart their course through this new and evolving regulatory structure. In addition, Dechert attorneys are preparing a series of legal updates to discuss important aspects of the Act, which will be compiled here. This site is designed to serve as a one-stop destination for those seeking to stay informed of the developments and implications related to financial services reform through legal updates, publications, webinars, conferences and other programs.

Title I: Regulation of Systemically Significant Companies

Title I of the Dodd-Frank Act creates a new independent federal regulatory body, the Financial Stability Oversight Council (the “Council”), that is responsible for identifying and addressing systemic risks to U.S. financial stability.

The Council has the authority to subject nonbank financial companies that are determined to be significant to U.S. financial stability (“Significant Nonbanks”) to comprehensive financial regulation and supervision and to recommend to the Federal Reserve Board (“FRB”) enhanced prudential standards for Significant Nonbanks and bank holding companies with consolidated assets of $50 billion or more (“Large BHCs”). The Council consists of ten voting members, principally comprised of the Federal financial regulatory agencies, and five nonvoting members. The Secretary of the Treasury is the chairman of the Council. The first meeting of the Council was held on October 1, 2010.

The FRB is given new authority to impose heightened prudential requirements on Significant Nonbanks and Large BHCs, including heightened capital and liquidity requirements a “living will” requirement and prompt corrective action-type provisions.

Dechert attorneys are focused on helping clients chart their course through the new and evolving regulatory structure created by the Dodd-Frank Act. This site will track developments relating to the regulation of Significant Nonbanks and Large BHCs.

Title II: Orderly Liquidation Authority

Title II of the Dodd-Frank Act is intended to ensure that Federal authorities will have the ability to address financial distress at companies that could have a significant impact on U.S. financial stability if they were resolved under otherwise applicable law, generally Federal bankruptcy law.

Under the Act, Federal authorities will be able to place bank holding companies and other nonbank companies that are predominantly engaged in financial activities in receivership under Federal control, generally under the administration of the Federal Deposit Insurance Corporation.

This approach creates significant uncertainties for companies that due to their size or interconnectedness with other major financial companies could potentially become the subject of a Federal receivership action. These companies and their equity holders, creditors, borrowers, customers, vendors and counterparties will have no assurance in advance as to whether financial distress at the company will be dealt with in a Chapter 11 reorganization or a Chapter 7 liquidation under the Bankruptcy Code, or a Federal receivership under Title II.

The FDIC has begun the process of issuing regulations and opinions regarding how it will implement the Orderly Liquidation Authority, including how Title II authorities will be applied to securitizations.

Dechert attorneys are focused on helping clients deal with the issues raised by Title II for companies that may be subject to a Title II receivership and their investors and counterparties

Title VI: The Volcker Rule

Section 619 of the Dodd-Frank Act, known as the Volcker Rule, is intended to limit risks to the financial system that Congress believes may be created by proprietary trading activities of insured depository institutions, foreign banks with certain U.S. operations, and affiliates of the foregoing entities (“banking entities”) and investments and certain relationships by and between banking entities and private equity funds and hedge funds. The Volcker Rule seeks to address these risks by imposing prohibitions and restrictions on proprietary trading activities by banking entities and by imposing prohibitions and restrictions on covered fund-related activities by banking entities.

The Volcker Rule requires five federal agencies—the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Commodity Futures Trading Commission (together, the “Agencies”)—to issue regulations to implement the Volcker Rule. The Agencies issued proposed implementing rules in late 2011 and early 2012.

On December 10, 2013, each of the Agencies approved final rules implementing the Volcker Rule (the “Regulations”). Banking entities have until July 21, 2015 to conform their activities and investments to the requirements of the Regulations.

Dechert attorneys are focused on helping clients respond to issues that the Volcker Rule will raise for the current and future operations as well as the opportunities it may provide for other market participants. This page will be updated regularly with our publications and seminars covering the Volcker Rule. As an initial resource, please click here to download our OnPoint(PDF) summarizing key changes and developments regarding the Regulations that have arisen since the proposed rules were issued.

To provide a comprehensive examination of the Rule, Dechert has published the 376-page book The Volcker Rule: Commentary and Analysis. The book outlines what the Rule requires and how it impacts the operations of a wide range of U.S. and non-U.S. banking and non-banking financial services companies, focusing on the challenges and opportunities it creates. The book is available through Thomson Reurtes.

Title IX: Asset Securitization

Title IX of the Dodd-Frank Act provides for a significant restructuring of the securitization process in the United States. Section 942 generally requires that a securitizer retain 5% of the credit risk related to a securitization. Rules proposed by the relevant federal agencies provide for exemptions from risk retention for certain classes of asset backed securities, including those that are composed of qualified residential mortgages. At the same time, the FDIC has been active in addressing the treatment of securitizations by insured depository institutions. In addition, there is increasing interest in legislative action to provide a regulatory structure for the issuance of covered bonds.

Dechert attorneys are focused on helping clients work with regulators as they chart the new rules for securitization and assisting them with developing the most effective ways to make transactions work within the new rules as they emerge.

Title X: Consumer Financial Protection Bureau

Title X of the Dodd-Frank Act creates the Consumer Financial Protection Bureau (the “CFPB”) as a new independent federal regulatory body responsible for consumer protection. It also significantly restricts the availability of preemption for federally chartered depository institutions.

The CFPB will issue rules for most federal consumer financial protection laws for a wide range of providers of consumer financial products and services. It will also have broad authority to curb practices it finds to be unfair, deceptive or abusive. In addition, the CFPB will have the authority to supervise, examine and take enforcement action with respect to depository institutions with more than $10 billion in assets, mortgage industry participants and certain nondepository covered persons.

The U.S. Treasury Department has announced that the designated transfer date on which the CFPB will assume its responsibilities under Title X will be July 21, 2011. Elizabeth Warren has been named as a special assistant to President Obama and a special advisor to U.S. Treasury Secretary Timothy Geithner to assist in the establishment of the CFPB.

Dechert attorneys are focused on helping clients chart their course through the new and evolving regulatory structure created by the Dodd-Frank Act. This site will track developments relating to the CFPB and preemption.

Title XIV: Mortgage Finance Reform — Ability-to-Repay and Qualified Mortgages

Title XIV of the Dodd-Frank Act calls for a substantial restructuring of the residential mortgage finance market in the United States. The Consumer Financial Protection Bureau (Bureau) was given the responsibility to issue a series of rules to implement Congress’ reforms contained in Title XIV. 

Foremost among these rules is the Bureau’s Ability-to-Repay (ATR) Rule which establishes a suitability standard for residential mortgage loans. Consumers may seek substantial damages in connection with a loan that does meet the ATR requirements and may assert a claim for recoupment or setoff in connection with a foreclosure action brought by a lender. The Bureau also established requirements for mortgage loans to be treated as qualified mortgages (QMs) that will be given certain protections from potential consumer claims and defenses. 

Among a number of other residential mortgage related rules issued by the Bureau is a comprehensive rule regarding the servicing of troubled mortgage loans. 

Dechert attorneys worked with the American Bankers Association to develop A Strategic Guide to the ATR/QM Rules. Dechert attorneys have also developed the ATR/QM Legal Stress Test in order to assist clients in making corporate strategy decisions regarding the programs they will offer upon the effective date of the ATR/QM rules in January 2014. Copies of A Strategic Guide to the ATR/QM Rules and the ATR/QM Legal Stress Test are available here.