This new act signed into law by President Obama on July 21, is expected to have far reaching consequences for participants in the financial services industry. It is designed to “reform” Wall Street and to reshape the US financial services regulatory system by:
- subjecting all “systemically important” financial institutions to enhanced capital, leverage, liquidity and other prudential regulation
- providing a process to permit the “orderly liquidation” of financial institutions that would otherwise be considered “too big to fail”
- limiting the authority of the Federal Reserve to use its emergency authority to rescue failing financial institutions
- prohibiting or restricting under the Volcker Rule the authority of “banking entities” and “nonbank financial companies supervised by the [Federal Reserve Board]” to engage in “proprietary trading” and to invest in “hedge funds” or “private equity funds”
- stipulating which entities may engage in “swap” activities and providing a new regulatory regime for over‑the‑counter derivatives
- requiring the registration of advisers to hedge funds and private equity funds and imposing on them new record keeping and reporting requirements
- regulating securitizations and requiring issuers or originators of asset backed securities to keep “skin in the game” by retaining a limited amount of the credit risk related to such securities
- addressing conflicts of interest and other areas of concern about credit rating agencies
- addressing corporate governance and compensation matters
- expanding the SEC’s enforcement powers
The Act is designed to enhance “consumer protection” by establishing a “bureau” of the Federal Reserve with a broad mandate to regulate retail financial products and services.
The provisions of the Act become effective at various times and phase-in periods are provided for certain investments and activities to be brought into compliance with prohibitions and restrictions in the Act.
Click here for a table summarising the corporate governance and executive compensation provisions.