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Washington and Regulatory Update

Washington and Regulatory Update. Iowa Trust Association Conference Thursday, October 2, 2014 Phoebe Papageorgiou American Bankers Association. aba.com 1-800-BANKERS. One Year Later…. IRS Guidance on Trustee Fees Dodd Frank Act Rulemaking Fiduciary and Investment-Related Developments.

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Washington and Regulatory Update

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  1. Washington and Regulatory Update Iowa Trust Association Conference Thursday, October 2, 2014 Phoebe Papageorgiou American Bankers Association aba.com1-800-BANKERS

  2. One Year Later… • IRS Guidance on Trustee Fees • Dodd Frank Act Rulemaking • Fiduciary and Investment-Related Developments

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. SEC Money Market Fund Final Rule 8

  9. 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.” 9

  10. 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 10

  11. 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 11

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. Questions? Phoebe Papageorgiou phoebep@aba.com

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