Washington and Regulatory Update
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Transcript of Washington and Regulatory Update
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Washington and Regulatory
Update Iowa Trust Association Conference
Thursday, October 2, 2014
Phoebe PapageorgiouAmerican Bankers Association
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One Year Later…
• IRS Guidance on Trustee Fees
• Dodd Frank Act Rulemaking
• Fiduciary and Investment-Related Developments
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IRC 67(e) Final Rule
• General Rule: cost subject to 2% floor if– 67(b) itemized miscellaneous deduction, – Incurred by an estate & non-grantor Trust, and– “commonly” or “customarily” incurred by an
individual
• The type not the description of a product or service is determinative of whether it is commonly or customarily incurred
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IRC 67(e) Final Rule
• Ownership costs subject to 2% floor– condo fees, insurance premiums, certain
partnership costs
• Tax prep fees not subject to the 2% floor– estate and GST tax returns, fiduciary income
tax returns, and decedent’s final 1040
• Tax prep fees subject to the 2% floor – all other tax returns
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IRC 67(e) Final Rule
• General Rule: Investment Advisory Fees Subject to 2% Floor
• Exception for incremental fees:– Added solely because advice rendered to trust or
estate– For unusual investment objective – For specialized balancing of the interests of various
parties (beyond the usual balancing of the varying interests of current beneficiaries and remaindermen)
• Exception is limited to portion of fee that exceeds that which an individual normally incurs
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IRC 67(e) Final Rule
• Allocation Requirement for “Bundled” Fee– Components of fee must be allocated properly
between that which is subject to 2% floor and that which is not
• Exception – If fee not computed on an hourly basis, only
portion of fee that is attributable to investment advice is subject to the 2% floor
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IRC 67(e) Final Rule, Cont.
• Important Note: Rule only applies to the taxation of trusts/estates. Does not otherwise regulate or affect fiduciary fees
• Amended Effective Date: Tax years starting on or after January 1, 2015
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SEC Money Market Fund Final Rule
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Type NAV Permissible Investors
Liquidity Fees/Redemption
Rules Apply?
Government Funds
Stable All Permissible, not required
Retail Prime Funds
StableRetail Investors (i.e.,
“beneficial owners” are natural persons)
Yes
Institutional Prime Funds
Floating All Yes
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SEC Money Market Fund Final Rule
Omnibus Investments in Retail MMMFs: • Funds must have policies/procedures reasonably
designed to limit beneficial owners to natural persons
• Fund and intermediaries may engage in contractual arrangements or periodic certifications to meet the eligibility rules
• Intermediaries subject to liability for violations of “federal securities laws, including the antifraud provisions, where institutional investors are improperly funneled into retail funds.”
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SEC Money Market Fund Final Rule
Rules for Liquidity Fees and Redemption Gates • Apply to all Prime Funds. Permissible for
Government Funds
• If less than 30% of total assets in weekly liquid assets (WLA):– Discretionary Liquidity Fee of up to 2% on
redemptions– Suspension of redemptions allowed up to 10 days
• If less than 10% of total assets in WLA– Default Liquidity Fee of 1% on redemptions
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SEC Money Market Fund Final Rule
• New diversification and disclosure rules for MMMFs.
• IRS tax reporting relief for FNAV MMMFs
• Compliance Dates–Diversification/disclosure: 4/14/15– FNAV and Fees/Gates: 10/14/16
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Municipal Advisor Final Rule
• Must register if advising municipal entity on:– issuance of municipal securities or – municipal financial products (e.g., investment of
proceeds of municipal securities)
• SEC FAQs
• MSRB Proposals: Fiduciary duty; Professional qualifications; Supervision/Compliance
• Registration Deadline was July 1, 2014
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Volcker Final Rule
• Generally regulates Banking Entity’s proprietary trading and sponsorship/ownership of “Covered Funds”
• Exceptions for certain activity on behalf of fiduciary customers
• Definitions/Interpretations : What is a “Banking Entity,” “Covered Fund,” an “Illiquid Fund”?
• ABA Focus: examiner guidance; interpretive guidance/authority
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OCC Bulletin on Vendor Management
• Responsibility of board and senior management: ensure that 3rd party activity is performed in safe and sound manner and in compliance with applicable laws
• Elements of Appropriate Risk Management– Proper due diligence in selecting a third party– Monitoring of third party’s activities and performance– Independent reviews of risk management process
• Vendors include tax software/preparation companies, RIAs, appraisers
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Latest Uniform Law Developments
• Uniform Fiduciary Access to Digital Assets Act – expected to be approved this summer
• Trust Decanting Drafting Committee
• Trust Protector Study Committee
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ABA Comments on OCC Regulation 9
• Letter to OCC on Part 9 as part of the EGRPRA Review
• Recommended ways to modernize rules and provide reasonable relief
• Specific Comments on– 9.8, Recordkeeping– 9.10, Fiduciary Funds Awaiting Investment or Distribution– 9.13, Custody of Fiduciary Assets– 9.14, Deposit of Securities with State Authorities– 9.18, Collective Investment Funds