Washington & Regulatory
Update
Iowa Trust Conference
October 3, 2013
Phoebe Papageorgiou
Center for Securities, Trust and
Investments
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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
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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
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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 proceeds
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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
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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
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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.
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Tax: Type III Supporting Orgs
Type III Supporting Organizations are tax-exempt entities organized
under IRC 501(c)(3) and 509(a)(3)(B)(iii) that support other taxexempt 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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