Washington & Regulatory Update

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Washington & Regulatory Update

Iowa Trust ConferenceOctober 3, 2013

Phoebe PapageorgiouCenter for Securities, Trust and

Investmentsaba.com 1-800-BANKERS


Dodd-Frank Act Rulemaking

• SEC Money Market Fund Proposal

• SEC Municipal Advisor Final Rule

• Consumer Financial Protection Bureau

• SEC Unresponsive Payee Rule

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DFA: SEC Money Market Fund Proposal

• Alternative One– Floating NAV for Institutional Prime Funds– Stable NAV for Government Funds and

Retail Prime Funds

• Alternative Two– “Fees” and “gates” on Prime Funds that do not

meet certain liquidity requirements

• Additional Disclosures– On sponsor support, material events, etc.

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DFA: Municipal Advisor Final Rule

• Must register if providing “advice” to municipal entity on:– issuance of municipal securities or – “municipal financial products” (e.g., investment

strategies, GICs, municipal derivatives)

• “Investment strategies” = investment of proceeds from sale of municipal securities


DFA: Municipal Advisor Final Rule

• Exemptions for:– Public Officials and Employees, Underwriters,

RIAs, attorneys, engineers– Banks providing advice on:• deposit accounts, extensions of credit, or bond

indenture trustee services

• Registration under final rules effective July 1, 2014

• MSRB to draft rules on fiduciary duty, continuing education, record keeping requirements


DFA: Consumer Financial Protection Bureau

Regulation E – Final Remittance Rule– Banks must provide certain disclosures and

rights to individual customers requesting foreign wire transfers.

– Could apply to requests made to wire money from custody accounts, investment management accounts

– Compliance deadline: October 28, 2013

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DFA: Consumer Financial Protection Bureau

Report on Senior Designations for Financial Advisers• Conclusion: Variety of designations indicating

expertise in the provision of financial advice to seniors is confusing to the public

• Recommendations to SEC and other policy makers to improve: – dissemination of information about senior designations; – standards for the acquisition of senior designations; – standards for senior designee conduct; and – enforcement related to the misuse of senior

designations

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DFA: SEC Unresponsive Payee Rule• Unresponsive Payee is a security holder who does

not negotiate a check before earlier of:– paying agent’s sending next regularly scheduled check– elapsing of 6 months after sending non-negotiated

check

• Paying Agent:– Applies to custodians, investment advisers, indenture

trustees, and those who receive payments from issuer and distribute payments to holders of security

– At least one written notification to unresponsive payee, no later than 7 months after sending first check

– “Payments” include dividends, litigation proceeds8


DFA: SEC Unresponsive Payee Rule• Can send electronic notices if the security

holder has elected to receive them.

• Exemption for Payments less than $25

• No effect on state escheatment laws.

• Compliance date 1/23/2014.

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Tax Laws and Regulations• Status of IRS Guidance

– Cost Basis Reporting of Debt Instruments and Options– Net Investment Income Tax– Section 67(e) Rulemaking– Type III Supporting Organization Final/Temporary Rules

• Congress– House and Senate Tax Reform Efforts

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Tax: Cost Basis Reporting of Debt• Brokers must presumes that taxpayer elected to

amortize taxable bonds, unless told otherwise

• Short-term debt instruments are exempt from reporting

• Brokers must transfer detailed information to receiving broker if account moves to new institution

• Reporting commences on debt acquired:– After 1/1/14 for fixed maturity date/yield debt– After 1/1/16 for complex debt

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Tax: Net Investment Income Tax• Section 1411 imposes a 3.8% tax on certain net investment

income above specified threshold amounts

• Threshold for trusts: $11,650 for tax year 2012

• If trust distributes all income, NIIT potentially imposed on beneficiary not trust

• NII does not include wages, operating income from a non-passive business, Social Security benefits, alimony, tax-exempt interest, and distributions from certain defined contribution plans

• Does not apply to charitable trusts, grantor trusts (may be imposed on grantor), bank common/collective funds


Tax: Section 67(e), “Unbundling” Fee Rule

• September 2011 proposal looks to whether an individual would commonly/customarily incur a particular expense

• If trustee fee imposed on a non-hourly basis (e.g., assets under management), only need to “unbundle” the portion of fee for investment management services

• Unbundled portion subject to the 2% floor

• IRS: no requirement to “unbundle” trustee fees until a final rule is issued. No final rule issued yet.


Tax: Type III Supporting OrgsType III Supporting Organizations are tax-exempt entities organized under IRC 501(c)(3) and 509(a)(3)(B)(iii) that support other tax-exempt organizations, usually public charities.

• Final/Temporary rules require:– 3.5% annual payout to supported organizations

– Trustee must give charitable organization beneficiaries a “significant voice” in the investment policies and the selection of grant recipients

– Trustee must meet quarterly with charitable beneficiaries. May be telephonic meetings.

• IRS to issue further guidance on trusts that have specific provisions in governing document on selection and timing of grants

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House and Senate Tax Reform Efforts• House Ways and Means Committee

Discussion Draft on Taxation of Financial Products– Expansion of Wash Sales Rules– Mandatory Average Basis for Lot Selection

Method

• Senate Finance Committee Tax Reform Option Papers

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Washington & Regulatory Update

Documents

Transcript of Washington & Regulatory Update