Legislative & Regulatory Update

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1 Legislative & Regulatory Update ABA Trust & Wealth Management Conference Thursday, November 3, 2016 Cristeena Naser American Bankers Association

2 Legislative Developments Evolving Fiduciary Boundaries SEC Developments OCC Developments Tax & FinCEN Matters New Crop of State Laws

3 Legislative Developments H.R. 5983: Financial CHOICE Act Broad regulatory reform for banking industry. H.R. 6118: Financial Services Innovation Act Requires federal regulators to establish Financial Services Innovation Offices at which companies may apply for an enforceable compliance agreement to provide an innovative product or service under an alternative compliance plan, which waives or modifies regulation that is out-of-date or unduly burdensome. H.R. 4538, S. 2216: Senior$afe Act Provides safe harbor for FIs reporting to appropriate agency any suspected financial abuse of seniors, as long as reporting individual was employed by FI and had been provided required training.

4 DOL Final Rule on Fiduciary Definition Considerations for Trust Departments: Discussions of possible investment strategies before fiduciary relationship commences Rollover discussions before and during fiduciary relationship with client Advising client on investment objectives before and during fiduciary relationship ABA Briefing Paper on Bank Deposit IRAs

5 SEC Uniform Duty of Care SEC Chair White: Such a rulemaking should be a principles-based, based on current fiduciary standard for investment advisers. SEC to proceed carefully. Concerns noted: May dilute the existing standard for RIAs by harmonizing the rules and potentially increase investor confusion as to the duties of their financial service provider.

6 SEC Pay to Play Rules for RIAs Restricts RIA payments to third-parties for solicitation of advisory business from any municipal clients unless the third party is a regulated person Regulated person includes broker-dealers and municipal advisers subject to political contribution rule substantially equivalent or more stringent than Rule 206(4)-5 for RIAs SEC has approved FINRA and MSRB rules for B-Ds and MAs awaiting effective date for FINRA

7 OCC Proposes Changes to Fiduciary Rules 9.13: Custody of Fiduciary Assets Proposed investment advice without custody of assets. 9.18: Collective Investment Funds Electronic Recordkeeping and Communications OCC proposes to eliminate guidance on electronic recordkeeping of securities transactions due to effect of ESIGN Act. ABA: guidance on electronic recordkeeping and communication is still needed, especially when state law is silent. ABA s 2014 Comments on Part 9

8 OCC Proposal for Receivership of NTCs Proposed rules address OCC s receivership of failed uninsured national banks Currently, all uninsured national banks are limited purpose trust companies The proposal generally addresses: Appointment of a receiver Handling and priority of claims against the bank Powers, duties and administrative expenses of the receiver Disposition of fiduciary and custodial assets

9 Tax Matters: Consistent Basis Reporting Requires executors of estates filing a Form 706 to report basis of reportable assets on Form 8971 to IRS and estate beneficiaries Reporting applies to estates filing 706 after July 31, 2015 IRS delayed reporting until June 30, 2016

10 Tax Matters: Consistent Basis Reporting IRS proposal: No reporting required for cash, IRD, certain tangible personal property, property sold before distribution If an estate is liquidated before distribution, no basis reporting needed Note: If beneficiary receives reported property, the beneficiary also has obligation to report to IRS/beneficiary if the asset is later transferred as a gift

11 Tax Matters: Valuation Discounts IRS proposal under 2704: Places limitations on discounts for the valuation of family interests for transfer tax purposes Exception to the limitation for commercially reasonable restrictions, such as those included in a bank loan to a family entity May affect trustee decisions on the purchase or sale of interests in family entities

12 FinCEN Customer Due Diligence Rule FIs must identify beneficial owners of legal entity customers Beneficial owner: individual(s) with 25% equity interest in or individual with controlling authority Legal entity: corporations, LLCs, partnerships. (Excludes personal trusts, financial institutions, publicly-traded companies, governmental entities) Compliance date: May 11, 2018 In August, FinCEN proposed rules subjecting statechartered trust companies to BSA/AML, including CDD

13 New Crop of State Laws Drafting Committee: Uniform Directed Trust Act Drafting Committee: Revised Uniform Principal and Income Act Uniform Fiduciary Access to Digital Assets Act State Taxation of Bank Income from Fiduciary Activities

14 Cristeena Naser