Summary of Dodd-Frank Wall Street Reform and Consumer Protection Act

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

On July 21, 2010 President Obama signed into law a sweeping overhaul of how financial services are regulated in the United States. The law has significant implications for all the sectors of the financial services industry. A summary of the law’s titles (i.e., sections) is below.

TITLE I: Financial Stability
Creates the Financial Stability Oversight Council and the Office of Financial Research, imposes heightened federal regulation on large bank holding companies and “systemically risky” nonbank financial companies.

TITLE II: Orderly Liquidation Authority
Establishes a liquidation fund supported by future assessments on large banks and requires submission of “living wills” detailing how to unwind failing nonbank financial companies.

TITLE III: Transfer of Powers to the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve.
One year after enactment the Office of Thrift Supervision (OTS) will transfer its functions as follows:

  • Savings and loan holding companies: To be regulated by the Federal Reserve Board of Governors.
  • Federal savings associations: To be regulated by the OCC.
  • State savings associations: To be regulated by the FDIC

TITLE IV: Regulation of Advisors to Hedge Funds and Others
Requires registration and recordkeeping requirements for private advisers, with limited exemptions.

TITLE V: Insurance
Establishes the Federal Insurance Office (while maintaining state regulation of insurance) within the Department of Treasury, headed by a Director appointed by the Secretary of Treasury.

  • Office Functions: The office will handle all insurance (with the exception of health insurance) and will have authority to monitor the insurance industry, identify regulatory gaps or systemic risk, deal with international insurance matters and monitor the extent to which underserved communities have access to affordable insurance products (except health insurance).
  • Financial Stability Oversight Council (FSOC) Recommendations: May make recommendations to the FSOC on whether an insurer (including reinsurers) poses a systemic risk under Title I and should therefore be placed under the supervision of the Federal Reserve.
  • New Authority to Negotiate and Enforce Narrow International Agreements on Insurance: The Office has the authority to jointly enter into agreements, with the U.S. Trade Representative, which cover prudential measures related to the business of insurance and reinsurance. In doing so, the Office has limited preemption authority over state law in cases where it is determined that the state law is inconsistent with a negotiated international agreement and treats a non-U.S. insurer less favorably than a U.S. insurer. The power of preemption is further limited by a savings clause, which states that the Office has no authority to preempt state laws on insurer’s rates, premiums, underwriting, sales practices, capital, solvency or state antitrust laws.
  • The Federal Insurance Office Reporting: Annual Reports to the President and Senate Banking Committee are expected of the Office.
  • Insurance Study: A study must be completed on how to improve insurance regulation in the United States, including state insurance, due no more than 18 months after enactment.

An amendment to the Act stipulates that equity indexed annuities will continue to be regulated by state insurance commissioners.

TITLE VI: Improvement to Regulation of Bank and Savings Association Holding Companies and Depository Institutions
Expands the authority of the Federal Reserve to regulate subsidiaries of bank holding companies, sets a 10 percent concentration limit for bank mergers and creates the “Volcker Rule,” prohibiting banks from proprietary trading, with notable exceptions.

TITLE VII: Wall Street Transparency and Accountability
Introduces significant requirements for derivatives, including mandatory clearing of nonexempt OTC derivatives and limitations on bank involvement in derivative activities.

TITLE VIII: Payment, Clearing and Settlement Supervision
Authorizes the Financial Stability Oversight Council to designate financial market utilities or payment, clearing and settlement activities as systemically important.

TITLE IX: Investor Protection and Improvements to the Regulation of Securities
Imposes risk retention requirements, corporate governance standards, executive compensation requirements and a study on broker-dealer fiduciary duties.

TITLE X: Bureau of Consumer Financial Protection
Establishes the Consumer Financial Protection Bureau, with consumer regulatory authorities consolidated from other banking agencies. Also introduces interchange fee restrictions for debit card payments. The bureau is located in, but is autonomous from, the Federal Reserve .

TITLE XI: Federal Reserve System Provisions
Restricts the Federal Reserve’s emergency lending powers and debt guarantees while further authorizing a one time Government Accountability Office-conducted audit of the Fed.

TITLE XII: Improving Access to Mainstream Financial Intuitions
Encourages initiatives to provide financial products and services for Americans with low and moderate incomes.

TITLE XIII: Pay it Back Act
Reduces the TARP spending authority, limiting any future purchase of troubled assets to amounts collected through the Pay It Back Act, and further directs that all amounts collected from the subsequent sale of such assets be directed towards deficit reduction.

TITLE XIV: Mortgage Reform and Anti-Predatory Lending Act
Provides consumer protection through reform on mortgage issuance, mortgage related fees and various mortgage practices.

TITLE XV: Miscellaneous Provisions
Addresses bailouts of foreign governments.

Source: The Financial Services Roundtable and the Insurance Information Institute.

(Note: The Financial Services Roundtable has a more detailed summary of the bill and a rulemaking chart here.)