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FFIRS 12/27/2010 13:30:18 Page 2
ESSENTIALS SERIESThe Essentials Series was created for busy business advisory and corporate professionals.
The books in this series were designed so that these busy professionals can quickly
acquire knowledge and skills in core business areas.
Each book provides need-to-have fundamentals for those professionals who
must:
� Get up to speed quickly, because they have been promoted to a new position or
have broadened their responsibility scope
� Manage a new functional area
� Brush up on new developments in their area of responsibility
� Add more value to their company or clients
Other books in this series include:
Essentials of Accounts Payable, Mary S. Schaeffer
Essentials of Balanced Scorecard, Mohan Nair
Essentials of Business Ethics, Denis Collins
Essentials of Business Process Outsourcing, Thomas N. Duening and Rick L. Click
Essentials of Capacity Management, Reginald Tomas Yu-Lee
Essentials of Cash Flow, H.A. Schaeffer, Jr.
Essentials of Corporate Fraud, Tracy L. Coenen
Essentials of Corporate Governance, Sanjay Anand
Essentials of Corporate Performance Measurement, George T. Friedlob, Lydia L.F.
Schleifer, and Franklin J. Plewa, Jr.
Essentials of Cost Management, Joe and Catherine Stenzel
Essentials of Credit, Collections, and Accounts Receivable, Mary S. Schaeffer
Essentials of CRM: A Guide to Customer Relationship Management, Bryan Bergeron
Essentials of Enterprise Compliance, Susan D. Conway and Mara E. Conway
Essentials of Financial Analysis, George T. Friedlob and Lydia L. F. Schleifer
Essentials of Financial Risk Management, Karen A. Horcher
Essentials of Foreign Exchange Trading, James Chen
Essentials of Licensing Intellectual Property, Paul J. Lerner and Alexander I. Poltorak
Essentials of Knowledge Management, Bryan Bergeron
Essentials of Managing Corporate Cash, Michele Allman-Ward and James Sagner
Essentials of Managing Treasury, Karen A. Horcher
Essentials of Patents, Andy Gibbs and Bob DeMatteis
Essentials of Payroll Management and Accounting, Steven M. Bragg
Essentials of Sarbanes-Oxley, Sanjay Anand
Essentials of Shared Services, Bryan Bergeron
Essentials of Supply Chain Management, Michael Hugos
Essentials of Trademarks and Unfair Competition, Dana Shilling
Essentials of XBRL, Bryan Bergeron
For more information on any of the above titles, please visit www.wiley.com.
FFIRS 12/27/2010 13:30:18 Page 3
ESSENTIALSof the Dodd-Frank Act
Sanjay Anand
John Wiley & Sons, Inc.
FFIRS 12/27/2010 13:30:19 Page 4
Copyright# 2011 by Sarbanes-Oxley Group. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, orotherwise, except as permitted under Section 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, orauthorization through payment of the appropriate per-copy fee to the Copyright ClearanceCenter, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)646-8600, or on the web at www.copyright.com. Requests to the Publisher for permissionshould be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 RiverStreet, Hoboken, NJ 07030, (201) 748-6011, f ax (201) 748-6008, or online at http://www.wiley.com/go/per missions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used theirbest efforts in preparing this book, they make no representations or warranties with respectto the accuracy or completeness of the contents of this book and specifically disclaim anyimplied warranties of merchantability or fitness for a particular purpose. No warranty maybe created or extended by sales representatives or written sales materials. The advice andstrategies contained herein may not be suitable for your situation. You should consult with aprofessional where appropriate. Neither the publisher nor author shall be liable for any lossof profit or any other commercial damages, including but not limited to special, incidental,consequential, or other damages.
For general information on our other products and services or for technical support, pleasecontact our Customer Care Department within the United States at (800) 762-2974,outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appearsin print may not be available in electronic books. For more information about Wileyproducts, visit our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Anand, Sanjay, 1969- author.Essentials of the Dodd-Frank Act/Sanjay Anand.p. cm. — (Essentials Series)
Includes index.ISBN 978-0-470-95233-7 (pbk.): ISBN 978-1-118-02831-5 (ebk);ISBN 978-1-118-02832-2 (ebk); ISBN 978-1-118-02833-9 (ebk)1. United States. Dodd-Frank Wall Street Reform and Consumer Protection
Act. 2. Financial services industry—Law and legislation—United States. 3. Financialinstitutions—Law and legislation—United States. I. Title.KF969.58201A2 2011346.73 0082—dc22
2010047242
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
FTOC 12/27/2010 13:25:45 Page 7
Contents
Foreword xi
Preface xv
Acknowledgments xvii
1 Introduction to the Dodd-Frank Act 1
2 History and Background 6
Financial Instability 7
Scope 8
Architects of the Dodd-Frank Act 9
The Plan and Proposal 10
Timeline 11
Key Goals of the Act 12
Summary 13
Notes 14
3 Key Titles and Sections 15
Title I: Financial Stability 16
Title II: Orderly Liquidation Authority 26
Title III: Transfer of Powers to the Office of
Comptroller of the Currency, Corporation,
and Board of Governors 39
vii
FTOC 12/27/2010 13:25:46 Page 8
Title IV: Regulation of Advisers to
Hedge Fund and Others 45
Title V: Insurance 51
Title VI: Improvements to the Regulation of
Bank and Savings Association Holding
Companies and Depository Institutions 59
Title VII: Wall Street Transparency and
Accountability 63
Title VIII: Payment, Clearing, and Settlement
Supervision 67
Title IX: Investor Protections and Improvements
to the Regulation of Securities 68
Title X: Bureau of Consumer Financial Protection 71
Title XI: Federal Reserve System Provisions 74
Title XII: Improving Access to Mainstream
Financial Institutions 76
Title XIII: Pay It Back Act 77
Title XIV: Mortgage Reform and Anti-Predatory
Lending Act 78
Title XV: Miscellaneous Provisions 80
Title XVI: Section 1256 Contracts 81
Summary 81
4 Institutions Impacted 84
Foreign Banking Organizations 85
Derivatives 86
Insurance Companies 88
Consumers and Mortgage Banking 88
Broker-Dealers 89
Banks, Thrifts, and Bank Holding Companies 89
viii C o n t e n t s
FTOC 12/27/2010 13:25:46 Page 9
Summary 91
Notes 92
5 Dodd-Frank Act Rulemaking 93
SEC and Rulemaking 94
Corporate Governance 96
Investment Advisers 96
Securities Lending 97
Arbitration 97
Swaps 97
Credit Rating Agencies 97
Securitization 98
Other Legislation 98
Summary 103
6 Role of New and Existing Agencies 104
Financial Stability Oversight Council 106
Office of Financial Research 106
Bureau of Consumer Financial Protection 107
Bank Holding Companies 107
Nonbank Financial Companies 108
Depository Institutions 108
Office of Thrift Supervision 109
Federal Deposit Insurance Corporation 109
Office of Comptroller of the Currency 110
Orderly Liquidation Authority 110
Securities Investor Protection Corporation 111
Securities and Exchange Commission 111
Federal Reserve Board 112
Commodity Futures Trading Commission 112
Government Accountability Office 114
C o n t e n t s ix
FTOC 12/27/2010 13:25:46 Page 10
Summary 115
Notes 116
7 Global Impact and Implications 117
Banking Industry 118
Investment Industry 124
Summary 127
Note 127
8 Advice for Specific Professions 128
Executive Management 128
Municipal Securities Markets 132
Broker-Dealers 133
Investment Advisers 134
Insurers 136
Summary 137
Note 138
9 Relationship with SOX and the Basel Accords 139
The Dodd-Frank Act and SOX 139
The Dodd-Frank Act and the Basel Accords 142
Summary 143
Appendix A: Contents of the Dodd-Frank Act 145
Appendix B: Effective Dates and Deadlines 172
Glossary of Key Acronyms 175
About SOX Institute and the GRC Group 181
Index 183
x C o n t e n t s
FBETW 12/27/2010 13:40:34 Page 11
Foreword
Great business leaders share many common positive attributes, such
as intellectual curiosity and a propensity to act. In periods of
significant business transformation, consummate business leaders
step out even further to train and explain new business and regulatory
developments to the masses.
I met Sanjay Anand at the beginning of last decade’s massive regula-
tory overhaul, triggered by the passage of the Sarbanes-Oxley Act of
2002 (SOX). This swift legislative reaction to major corporate and
accounting scandals, at Enron and other companies, caused those at
publicly held companies to scramble in an attempt to grasp the compli-
ance requirements for their organizations. Sanjay stepped up with his
book, Essentials of Sarbanes-Oxley (John Wiley & Sons, 2007), which
provided actionable information for those responsible for implementing
SOX. I reviewed and commented on his book, and witnessed his com-
mitment to professional development with his subsequent books and the
many courses sponsored by his SOX Institute.
In the aftermath of the 2008 credit crisis and related economic
downturn, once again Sanjay Anand has stepped forward to lead and
explain the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (Dodd-Frank Act) in this book.
It is crucial that everyone in business and proportionally every ‘‘con-
sumer’’ understand this new and far-reaching law of the land. The Act is
extensive, but even more significant are the expected regulations that
xi
FBETW 12/27/2010 13:40:34 Page 12
will follow. Unlike earthquakes, where aftershocks diminish as time
passes, the flow of regulations from the Dodd-Frank Act is anticipated
to be considerable and ever expanding.
Dodd-Frank addresses too-big-to-fail bailouts and includes recom-
mendations for risk committees at certain financial institutions. It gives
the Federal Deposit Insurance Corporation (FDIC) powers to ‘‘disaffirm
or repudiate any contract or lease to which the covered financial institu-
tion is a party’’ and recover or clawback compensation in certain
circumstances. The Act expands bounties for whistleblowers and gives
shareholders some ‘‘say on pay.’’ These are revolutionary changes of epic
proportions!
For the consumer, the Dodd-Frank Act establishes a new indepen-
dent watchdog agency within the Federal Reserve to make sure con-
sumers receive clear and accurate information regarding financial
products’ terms and costs. It creates a consumer hotline, a new office of
financial literacy, and generally expands accountability for consumer
protection.
As a business executive and board member whose business founda-
tion is as a CPA, I clearly see how important it is to update laws in order
to meet modern-day business conditions and velocities. It is incumbent
on all business owners and managers, and indeed all consumers, to
understand the Dodd-Frank Act. More important, as a business manager
and director, I call on readers to get involved in helping to shape the
regulations that are certain to follow from this new law. Too much
regulation—or the wrong kind of regulation—can be a drag on
businesses and the economy.
Dodd-Frank is also significant in that it implements the first amend-
ments to SOX. Who better to provide insights on Dodd-Frank than
Sanjay Anand, who was among the first responders of consummate busi-
ness leaders to explain SOX? You have chosen wisely, and I know you
will greatly benefit from reading this book.
Michael P. Cangemi, CPA
xii F o r e w o r d
FBETW 12/27/2010 13:40:34 Page 13
Michael P. Cangemi, CPA, an author and business advisor, is the former
president, chief executive officer, and director of Etienne Aigner Group, Inc.,
a leading designer of women’s accessories (1991–2004), and president, chief
executive officer, and director of Financial Executives International, the profes-
sional association for senior-level corporate financial executives (2007–8). He
currently serves as president of Cangemi Company LLC. Mr. Cangemi recently
completed a two-year term on the International Accounting Standards Board
Standards Advisory Council and a year as the FEI representative on the board of
COSO. For more information see www.canco.us.
F o r e w o r d xiii