Financial Services Law

Fed Finalizes Capital Planning, Stress Test Requirements for 2017

Why it matters

Capital planning and stress tests for bank holding companies and other institutions with assets over $10 billion have been finalized by the Federal Reserve Board of Governors. For bank holding companies with more than $10 billion but less than $50 billion in total consolidated assets and savings and loan holding companies with consolidated assets of more than $10 billion, the final rule modifies certain capital assumptions in the stress test rules and delays the application of the company-run stress test requirements to savings and loan holding companies until January 1, 2017. For bank holding companies that have total consolidated assets of $50 billion or more the final rule delays the use of the supplementary leverage ratio for one year and indefinitely defers the use of the advanced risk-based capital framework in the capital plan and stress test rules. The delay was proposed in July and is intended to "allow banking organizations time to develop the systems necessary to project the supplementary leverage ratio under stressed conditions," the Fed explained in a statement. Other changes in the final rule include the elimination of the tier 1 common capital ratio requirement for the largest banks replaced by the Board's minimum common equity tier 1 capital requirement. As banks prepare to ensure compliance with the final rule, the Fed warned it may not be done. "[T]he Board continues to review a broad range of issues related to its capital planning and stress testing rules," the agency cautioned, adding that any modifications based on its review would be undertaken through a separate rulemaking and take effect no later than the 2017 cycle.

Detailed discussion

Included in the 2010 passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act were provisions mandating stress tests for the country's financial institutions. After issuing preliminary rules, the Federal Reserve Board of Governors published its final rules with an effective date of January 1, 2016.

The stress test mandate is meant to ensure that banks have sufficient capital and risk management practices in place in the event of an economic downturn, the Fed said. Pursuant to the final rule, banks with more than $50 billion in consolidated assets must calculate a supplementary leverage ratio, or the ratio of a bank's core costs to its total leverage exposure.

However, the Fed granted an extra year for covered entities to get up to speed on the new requirements, promising that enforcement will not begin until 2017. The final rule also pushed back use of the advanced approaches risk-based capital framework found in the stress test rules, under which banks would use an internal rating system, among other measurements, to calculate risk-based capital requirements for credit and operational risk. With that approach delayed indefinitely, banks should continue to use the generally applicable risk-based capital framework, the Board said.

In another change, the Federal Reserve eliminated another mandate for the biggest banks, the tier 1 common capital ratio requirement, which set parameters for how much capital was necessary to have on hand for the bank to absorb loss during different types of stress scenarios. Instead, the Board said the common equity tier 1 capital requirement will be fully phased in over the course of 2016 capital plan and stress testing cycles. "Generally, this ratio will require firms to hold more regulatory capital than the tier 1 common ratio," the Fed noted.

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Is New York's Proposal a Harbinger of Things to Come? Certification of BSA/AML Compliance and Personal Liability for Mistaken or False Certification

Why it matters

The New York Department of Financial Services (DFS) may have launched its strongest offensive yet against observed shortcomings in the Bank Secrecy Act and anti-money laundering (BSA/AML) compliance efforts at NY regulated entities. Citing "a lack of robust governance, oversight and accountability at senior levels" of these organizations, the DFS has formally proposed a new regulation to require the establishment of "Transaction Monitoring" and "Watch List Filtering" Programs by banks, money transmitters and check cashers—but not Bitlicense companies.

The program requirements themselves require close review due to the specificity of what the DFS proposes and the likely costs to implement. However, much of the buzz around the DFS proposal focuses on the requirement that the chief compliance officer must certify annually his or her institution's compliance with new requirements. And, an incorrect or false certification could result in criminal penalties for the CCO. While most banks presumably are already compliant with what is prescribed in the regulation, most money transmitters are likely to have a much more difficult time initially complying due to the level of specificity and the scope of work that will be required to put the required programs in place.

Detailed discussion

New York's Department of Financial Services (DFS) is taking compliance with the federal Bank Secrecy Act and anti-money laundering (BSA/AML) to a new level. Citing its awareness of "shortcomings" in both transaction monitoring and filtering programs in institutions it regulates as well as "a lack of robust governance, oversight and accountability at senior levels" that has contributed to such shortcomings, it is proposing to require certain regulated entities to develop and maintain formal Transaction Monitoring and Filtering Programs. It is also proposing that the chief compliance officer (or functional equivalent) certify that the entity is compliant with these requirements.

The DFS proposes that the entity would be subject to all applicable penalties for failing to maintain the required programs and for failing to file a certification. And, probably most controversial, the DFS proposes that the officer making such certification be subject to criminal penalties for an "incorrect or false" certification.

In the wake of the Paris terrorist attacks, New York Governor Andrew Cuomo announced the new regulatory proposal stating that "Money is the fuel that feeds the fire of international terrorism." Since "Global terrorist networks simply cannot thrive without moving significant amounts of money throughout the world" he said "it is especially vital that banks and regulators do everything they can to stop that flow of illicit funds."

Pursuant to the proposal, not only banks but also money transmitters and check cashers regulated by the DFS would be required to establish a Transaction Monitoring Program "for the purpose of monitoring transactions after their execution for potential BSA/AML violations and the Suspicious Activity Reporting." The proposed regulation sets out a detailed list of minimum required attributes of a compliant program. Among other things, the program must (1) be based on the Risk Assessment of the institution, (2) reflect all current BSA/AML laws, regulations, and alerts as well as information available from "related" programs and initiatives like KYC and enhanced customer due diligence or other "relevant areas, such as security, investigations and fraud prevention," (3) be a map of the BSA/AML risks to the bank's various businesses, products, services, and customers and (4) use BSA/AML detection scenarios based on the Risk Assessment to detect potential money laundering or other suspicious activities.

The program must also include (1) extensive "end-to-end, pre- and post-implementation testing" of the program, (2) documentation articulating the institution's detection scenarios and underlying assumptions, parameters and thresholds, and (3) investigative protocols about how alerts will be investigated and the decision-making involved if additional steps are necessary. The program must also be subject to an ongoing analysis to assess the continued relevance of the various elements of the program.

The Watch List Filtering Program attributes are similarly specific. The purpose of this program is "interdicting transactions, before their execution, that are prohibited by applicable sanctions, including OFAC and other sanction lists, politically exposed persons lists and internal watch lists. In addition to being based on the Risk Assessment, the program must be based on the technology or tools used for matching names and accounts and provide for "end-to-end testing" of the program.

Both programs must also "require" a number of very specific data related processes including identification of data sources with relevant data, validation of the integrity, accuracy and quality of the data to ensure accurate and complete data flows through the programs, and data extraction and loading processes. In addition the programs must require (1) governance and management oversight, (2) a vendor selection process if one is used for any aspect of the programs, (3) funding to design, implement and maintain the programs in compliance with the NY regulation, (4) qualified personnel or outside consultants and (5) periodic training of all stakeholders.

The regulation also includes a specific prohibition on making changes or alterations to the programs to minimize or avoid filing SARs or because the entity does not have the resources necessary to review the number of alerts generated by the program.

The annual certification of the CCO or functional equivalent must address two points. The first is that the CCO has "reviewed, or caused to be reviewed" the two programs for the year at issue. The second is a certification that the two programs comply with all of the detailed requirements of the regulation.

The proposal is currently open for a 45-day comment period. If enacted, the regulations would take immediate effect with enforcement beginning April 1, 2017.

To read the Transaction Monitoring and Filtering Program Requirements, click here.

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Out of Favor: Deals With Favored Investors, Federal Reserve Cautions

Why it matters

Deals with favored investors have fallen out of favor with the Federal Reserve Board of Governors, as evidenced by a new memorandum from the regulator. SR 15-15, issued on December 3, 2015, cautions banks that certain arrangements may pose safety and soundness concerns necessitating the deals to be modified or eliminated. Five arrangements were highlighted by the Fed as problematic: a company agrees to make payments to an investor if later investors are allowed to buy shares at a lower price; a company agrees to provide an investor additional shares at little to no cost if later investors are allowed to buy shares at a lower price; investors are allowed to buy additional shares at below market prices if any shareholder's interest crosses a percentage threshold; investors who control a holding company but do not have a majority interest in the company have a right to prevent the company from issuing more shares or the ability to restrict the company's ability to do so; or the company's board of directors can nullify share purchases, require the company to buy shares back from a purchaser, or take other steps "that would inhibit secondary market transactions in the company's shares." According to the Board, these types of arrangements give an advantage to current shareholders and are intended to protect their investments—not protect the viability of the company.

Detailed discussion

Banks and savings and loan holding companies, take note: the Federal Reserve Board of Governors has released a new memorandum expressing concern about deals with favored investors.

"[S]uch arrangements raise concerns because they could have negative implications on a holding company's capital or financial position, or limit the holding company's ability to raise capital in the future," the Fed wrote in SR 15-15. "A holding company, regardless of its asset size, should be aware that the Federal Reserve may object to a shareholder protection arrangement based on the facts and circumstances and the features of the particular arrangement."

What types of arrangements is the Fed keeping an eye on? The memo listed five examples of deals, including "down round" provisions, where the holding company agrees to provide an investor with cash payments reflecting the difference between the price paid by the investor and a lower price per share paid by investors in subsequent transactions as well as situations where the holding company agrees to provide an investor with additional shares of stock for minimal or no additional cost in the event that the holding company issues shares at a price below the price paid by the investor.

Also objectionable: "poison pill" provisions, allowing existing shareholders of the holding company to acquire additional shares at significant discounts to market value in a new offering if any shareholder crosses a specific ownership threshold and clauses that grant investors with less-than-majority control the contractual right to restrict or prevent the holding company from issuing additional shares.

Finally, the Fed frowned upon the ability of a holding company's board of directors to nullify share purchases under certain circumstances, require the holding company to repurchase the shares of the company from a new owner of the shares, or take other actions that would significantly inhibit secondary market transactions in the shares of the holding company, such as complete prohibitions on share transfers or rights of first refusal.

"Arrangements of these types (in whatever form) have the potential to impose additional financial obligations on a holding company or restrict in some way the primary or secondary market for the holding company's shares," according to the Federal Reserve. "Often, these arrangements serve to protect the value of the initial investment made by a particular subset of shareholders rather than the viability of the issuing holding company, or, in other ways, provide current shareholders with an advantage over future, similarly situated, investors."

If the Fed determines that a particular shareholder protection arrangement impairs the ability of a holding company to raise or maintain capital—particularly during a period of stress on the firm—or that a provision is in violation of applicable supervisory enforcement action, the regulator said the Board will determine the appropriate action.

"The Federal Reserve may direct a holding company's board of directors to modify or remove a shareholder protection arrangement that gives rise to safety-and-soundness concerns," the Board warned. "The corrective actions, if any, will vary depending on the facts and circumstances of the holding company, as well as applicable state and federal laws and regulations, corporate charter and by-laws, and other considerations."

To read SR 15-15, click here.

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Online Marketplace Lending on Review by California Regulator

Why it matters

Demonstrating the continuing regulatory interest in online lenders, the California Department of Business Oversight (DBO) announced an inquiry into the marketplace lending industry. While the agency expressed "no desire to squelch the industry or innovation," the DBO said it remained obligated to "protect California consumers and businesses," particularly as the industry grows. To gain insight, the DBO sent an online survey to 14 marketplace lenders specializing in both personal and small business loans with a request for five-year trend data about their loan and investor funding programs, as well as information about their business models and online platforms. In addition to assessing the size of the industry in California, the DBO said it hopes the information gathering will further understanding of the different types of programs used by marketplace lenders.

Detailed discussion

As the online lending marketplace grows, so does regulator interest. The most recent regulator taking a closer look at the industry: California's Department of Business Oversight (DBO), noting that the national online lending market grew from $1 billion to $12 billion in loans between 2010 and 2014.

"These online lenders are filling a need in today's economy, and we have no desire to squelch the industry or innovation," DBO Commissioner Jan Lynn Owen said in a statement about the inquiry. "We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows. We want to assess the effectiveness and proper scope of our licensing and regulatory structure as it relates to these lenders."

To that end, the DBO sent an online survey to 14 marketplace lenders, requesting five-year trend data about their loan and investor funding programs as well as information about their business models and online platforms.

Specifically, the regulator requested the total number of customers, loans, and dollar amount of loans, with information broken down between personal and business loans, for each year from 2010 to 2015 (through June 30). Questions about the median loan amounts (with the number of loans under $2,500) and median annual percentage rate (APR) as well as a breakdown of APR ranges were also included.

The DBO sought information about loan delinquency for loans past due 30 or more days as well as many details about investor funding (the total number of investors along with information about types of investors—institution or retail, for example—and the average percentage of loans held by investors). For each set of questions, the survey first requested national data and then an identical inquiry limited to California.

To complete the survey, the DBO asked online marketplace lenders to describe their business models and platforms. The description of the business model should include the types of products offered (such as loan originations or loan brokering services) and whether the company acquires or retains interest in loans made over the platform by others. For the company's platform, the regulator asked for an explanation of the parties to the transaction and the role each plays, as well as how the underwriting process works with a hypothetical loan and securities transaction from the borrower's application to the full repayment of the loan, complete with a flow of funds chart.

Recipients of the survey included companies that specialize in personal or small business loans, or both, with a response requested by March 9, 2016.

The DBO noted two primary objectives to the data and information collection. First, a better sense of the industry's size in California (where some of the largest marketplace lenders are headquartered), with an idea about how many consumers and businesses it touches in the state.

In addition, the regulator is seeking a better understanding of the various loan and investor funding programs used by marketplace lenders. "That knowledge, in turn, will help the DBO assess how the state's licensing and regulatory regime is working, and should work, when it comes to the industry," the agency said.

The DBO is not the first regulator to seek information about the burgeoning online marketplace lending industry. In July, the Department of the Treasury published a Request for Information, seeking public comment on the various business models and products offered by such lenders to both small businesses and consumers, the potential for the market to expand access to credit to historically underserved segments, and how the regulatory framework should evolve to support the "safe growth" of the industry. The agency is still in the process of reviewing the more than 100 comments received.

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Congress Takes the FAST Lane to Important Securities Reforms

This article originally appeared in the Securities Newsletter on December 21, 2015. Please click here to read the full issue.

Author: Katherine J. Blair

On December 4, 2015, the President signed the Fixing America's Surface Transportation Act, better known as the FAST Act, which had been approved by a bipartisan Congress. The FAST Act (also referred to in the media as the "Highway Bill") mainly addresses long-term funding needs for critical transportation projects, Amtrak, highway and boating safety and alternative fuel vehicles.1 However, the last part of the FAST Act, Division G, is comprised of a medley of unrelated but important amendments to financial services and securities laws.

On December 10, 2015, the Securities and Exchange Commission (SEC) issued an announcement entitled "Recently Enacted Transportation Law Includes a Number of Changes to the Federal Securities Laws." The SEC's announcement addresses the securities provisions of the FAST Act. The FAST Act's handful of securities provisions generally will make some important adjustments to existing laws—and most of them are effective already:

  • Codify the increasingly important but heretofore unwritten "Section 4(a)(1 1/2)" resale exemption
  • For Emerging Growth Companies (EGCs):
    • Shorten the pre-filing wait period for confidential draft initial public offering (IPO) filings to 15 days
    • Provide a grace period for change of EGC status
    • Permit omission of certain historical financial statements
  • Require the SEC to propose rules to permit so-called "forward incorporation by reference" in a Form S-1 registration statement
  • Provide express permission to use a 10-K Summary Page
  • Study how to simplify and modernize Regulation S-K
  • Include savings and loan holding companies in the mandatory registration regime of Section 12(g) of the Securities and Exchange Act of 1934, as amended (Exchange Act)

As noted above, some of the items became effective immediately while others have a later effective date or must be addressed by the SEC in its rules. At the end of this article is a quick-reference table with the effective dates for each provision. The SEC's announcement provides insight on how it intends to treat the new securities provisions enacted by the FAST Act. The SEC will also consider providing additional guidance (most likely in the form of Compliance and Disclosure Interpretations (CDIs)) as questions are presented. On December 10, the SEC issued two FAST Act CDIs.2

New Resale Exemption—Section 4(a)(7)

This provision was one of the most talked-about provisions (at least for securities lawyers) of the FAST Act because it essentially codifies the so-called Section "4(a)(1 1/2)" exemption3, which is an unwritten, informal holder-to-holder resale exemption that developed as accepted practice over time. The "4(a)(1 1/2)" exemption facilitates private resales from institutional or accredited investors of restricted securities (securities not issued further to an effective registration statement or further to an exemption under Section 4(a)(1) of the Securities Act of 1933 (Securities Act)) in a transaction that does not involve any general solicitation.4 Investment banks occasionally would use 4(a)(1 1/2) to facilitate trades between or among clients directly (since under Section 4(a)(1) the bank, as an underwriter or broker-dealer, could not be a party), provided the buyer signed a letter agreeing to perform its own due diligence. It has also been used as a liquidity device for issuer management members who are constrained by the volume or informational restrictions of Rule 144.

Section 4(a)(7) of the Securities Act creates greater legal certainty for these transactions, providing a new, statutory, resale exemption so that any security holder—rather than issuers—may sell restricted securities as long as the following conditions are satisfied:

(1) the purchaser is an accredited investor (as defined in Regulation D of the Securities Act);
(2) there is no general solicitation;
(3) if the issuer is not a reporting company or exempt from reporting, then the seller must obtain and provide to the prospective purchaser certain information from the issuer, including a description of the issuer's business and its most recent balance sheet and two-year profit and loss or similar financial statements, all of which must be prepared in accordance with GAAP or IFRS (Company Information);
(4) the sale is not by the issuer or a subsidiary;
(5) neither the seller nor any person being paid in connection with the sale is a bad actor, as described in Regulation D;
(6) the issuer is neither in bankruptcy or receivership, nor is it a blank check, blind pool or shell company;
(7) the transaction does not involve an unsold allotment to, or participation by, a broker or dealer as an underwriter or a redistribution; and
(8) the class of securities has been outstanding for at least 90 days prior to the transaction.

A transfer of securities pursuant to Section 4(a)(7) will be deemed to be a transaction not involving a public offering nor a distribution, and the securities will be considered "restricted securities" pursuant to Rule 144 under the Securities Act. Furthermore, the securities will be deemed a "covered security" for purposes of Section 18(b)(4) of the Securities Act, also known as NSMIA, which means the transfer enjoys the benefit of federal preemption: no separate state registration, qualification or exemption is required for a sale pursuant to Section 4(a)(7).5

The SEC did not comment on Section 4(a)(7) other than to note that it does not require rulemaking.

We believe that the adoption of Section 4(a)(7) will affect a number of practices in connection with resales of securities. Like the informal Section 4(a)(1 1/2) exemption which it codifies, Section 4(a)(7) has no required holding period. As such, it could be used by security holders, especially if the sale involves restricted shares of a public company, to sell securities sooner than the six month holding period required by Rule 144.

Unfortunately, non-accredited purchasers cannot use Section 4(a)(7), so unlike Rule 144, the securities may not be sold to just anyone. Plus, the seller will most likely require the purchaser to represent that it qualifies as an accredited investor.

Also, like informal Section 4(a)(1 1/2), new Section 4(a)(7) has advantages over Rule 144 for affiliates, as Section 4(a)(7) does not require Rule 144's pre-sale filing with the SEC nor does it impose any volume limitation. On the other hand, although a reseller may not have a waiting period nor be required to make filings with the SEC under Section 4(a)(7), unlike Rule 144, Section 4(a)(7) securities will continue to be restricted in the hands of the purchaser.

With regard to private companies, investors in negotiated purchases of restricted securities may start requiring those companies to covenant to provide Section 4(a)(7) Company Information (including financial statements) when requested to facilitate resales, which may well prompt those companies to resist or require confidentiality covenants from the parties to the transfer.6 Law firms, in turn, may start issuing Section 4(a)(7) resale opinions, with far more comfort than the previously issued Section 4(a)(1 1/2) opinions, with a likely caveat regarding the sufficiency or accuracy of any Company Information. Section 4(a)(7) also can be applied to securities in private funds, accredited crowdfunding and Regulation A resales among accredited investors. With respect to Regulation A, Section 4(a)(7) resolves a glitch in Title IV of the JOBS Act (known as Regulation A+) for at least accredited investors, as Title IV and subsequent rulemaking contained no resale exemption from registration.7

Emerging Growth Companies

Shorter Waiting Period. Previously, an EGC could confidentially file, for SEC review, a draft IPO registration statement as long as it publicly filed it 21 days before its IPO "road show." The FAST Act amended, effective immediately, Section 6(e)(1) of the Securities Act by shortening the period to publicly file a draft IPO registration statement prior to the commencement of a road show from 21 days to 15 days. The SEC has clarified that EGCs with filings pending prior to enactment of the FAST Act may also rely on this provision.

Grace Period. The FAST Act amended Section 6(e)(1) of the Securities Act so that if an issuer that previously qualified as an EGC at the time it initially filed its registration statement, either confidentially or publicly, no longer qualifies as an EGC, it will continue to be treated as an EGC until the earlier of (1) the date on which it completes its IPO, or (2) the end of the one-year period beginning on the date the company ceases to be an EGC. This provision is also effective immediately, and the SEC has stated that issuers with pending filings at the time of enactment may rely on this provision.

Permitted Omission of Certain Financial Statements. The FAST Act amended the JOBS Act by permitting EGCs to omit financial information for historical periods that the issuer reasonably believes will not be required in the registration statement at the time of the IPO, as long as, prior to distributing the preliminary prospectus, it is amended to include all required financial information. This affords relief with respect to prior period audited financial statements, including financial statements of an acquired business, however, the SEC clarified in its FAST Act CDIs that interim periods may not be excluded.

This financial statements provision has the practical impact of allowing an IPO filer near its fiscal year-end to omit the audited financial statements of its previous year(s) and instead only include financial statements from the most recently completed fiscal year (plus reviewed financial statements for any interim period). This could be helpful for issuers who have a legacy auditing firm in that earliest year, by eliminating the need for a review and consent by the legacy auditing firm.

Although the SEC is required, no later than 30 days after enactment of the FAST Act, to revise Form S-1 to include this provision, the SEC has stated that it will not object if EGCs apply this provision immediately.

Form S-1 Forward Incorporation by Reference

The FAST Act requires the SEC to amend registration statement Form S-1 to permit forward incorporation by reference. Currently, based on the Securities Act Reform adopted in 2005, Form S-1 permits a company to incorporate SEC filings made prior to the effective date of the Form S-1, shortening the length and complexity of the Form S-1 because it can incorporate filings that were already made, rather than having to actually include them in the registration statement.

It remains to be seen the extent of relief that will be afforded by the SEC in this area. Extending the benefit to allow issuers to incorporate filings made after the effective date of the registration statement—which is the meaning of forward incorporation—could provide a great benefit to issuers that register shares for resale but do not qualify for Form S-3 because, for example, they are not listed or quoted on a national securities exchange. Currently, these issuers must undergo the cumbersome process of updating the Form S-1 by filing prospectus supplements to the original Form S-1 and also filing post-effective amendments (which are subject to review by the SEC) to the original Form S-1 for each annual report. Using forward incorporation by reference, these reports will be automatically incorporated by reference without any further filings.

It will be interesting to see how this provision of the FAST Act relates to the existing statutory provisions regarding the use of Form S-3 for shelf and other continuous offerings. Currently, an issuer must satisfy several hurdles regarding market capitalization and other similar thresholds to qualify for the use of a Form S-3 shelf registration statement. It is unclear if the effect of this provision of the FAST Act would effectively limit or change any of these existing rules.

In the implementation of this provision, the SEC may include conditions to permit forward incorporation by reference that are similar to Form S-3, such as timely filing of Exchange Act reports. The SEC did not make any such indication in its announcement, but merely noted that it will require rulemaking.

10-K Summary Page

The FAST Act requires the SEC no later than 180 days after enactment to issue rules that permit issuers to include a summary page in their annual reports on Form 10-K as long as each item includes a cross-reference to the material contained in the form. The SEC notes that currently an issuer is not prohibited from including such a summary provided the summary fairly represents the material information in the report. The SEC stated that it will provide rulemaking to implement this provision.

Regulation S-K Improvement, Modernization & Simplification

The FAST Act requires the SEC to revise within 180 days the Securities Act's complex Regulation S-K disclosure rules to further scale back or eliminate requirements for EGCs, accelerated filers, smaller reporting companies and other small issuers and, for all issuers, to eliminate provisions that are duplicative, overlapping, outdated or unnecessary. However, this requirement does not apply to provisions as to which the SEC determines further study is necessary to determine the efficacy of the current provision.

Accordingly, to implement this mandate, the SEC is also required to study Regulation S-K, consulting with the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies, to determine how best to modernize and simplify its requirements but still provide all material information and to evaluate methods of delivery and presentation, discouraging repetition and disclosure of immaterial information. The SEC is required to issue a report within 360 days and, not later than 360 days after the report, release proposed rules implementing the recommendations. In its announcement, the SEC reported on these provisions of the FAST Act but did not provide any comment. However, on September 23, 2015, the Advisory Committee on Small and Emerging Companies provided Recommendations about Expanding Simplified Disclosure for Smaller Issuers, which includes providing the same disclosure exemptions for smaller reporting companies that are provided to EGCs. Based on the requirements of the FAST Act, the SEC's report and proposed rules, which are required to be issued in December 2017 at the latest, may very well cover many more disclosure requirements.

Inclusion of Savings and Loan Holding Companies in Section 12(g) Regime

Last on the list is the amendment, effective immediately, to Section 12(g) of the Exchange Act adding savings and loan holding companies to its mandatory registration, termination and suspension regime. Savings and loan holding companies were not specifically included in Section 12(g). As such, the registration, termination and suspension thresholds of Section 12(g) adopted in 2012 pursuant to the JOBS Act did not apply to savings and loan companies, causing disparate treatment as compared to banks, savings associations and bank holding companies. In its announcement, the SEC noted that it is evaluating the effect of this provision on its 2014 proposed rule release: Changes to Exchange Act Registration Requirements to Implement Title V and Title VI of the JOBS Act (Release No. 33-9693).

Fast Act: Adopted December 4, 2015
Table of Enactment Dates and Deadlines

FAST Act Section Provision Description Enactment Date/Deadline SEC Comment
71001 EGCs confidential filings wait period Immediately EGCs with IPOs pending before the FAST Act became law or at any time thereafter may take advantage of the provision
71002 Grace Period for Change of Status of EGCs Immediately EGCs with registration statements pending at the time of enactment may rely on the provision
71003 Omission of certain historical financial information for EGCs January 3, 2016 (30 days after the date of enactment) The SEC will not object if EGCs apply this provision immediately
72001 10-K Summary Page 180 days An issuer is currently not prohibited from including a summary in an annual report on Form 10-K provided the summary fairly represents the material information

Requires SEC rulemaking
72002 Regulation S-K improvements 180 days None
72003 Study on Modernization and Simplification of Regulation S-K Report due in 180 days
Proposed Rules are due 180 days after report
None
76001 Section 4(a)(7) Resale Exemption Immediately No SEC rulemaking required
84001 Form S-1 Forward Incorporation by Reference 45 days Requires SEC rulemaking
85001 Added savings and loan companies for Section 12(g) purposes Immediately The SEC is evaluating the effect of this provision on the SEC's current rule proposal issued on December 30, 2014 (Release No. 33-9693)

1The complete text of the FAST Act can be found by following this link: https://www.gpo.gov/fdsys/pkg/BILLS-114hr22enr/pdf/BILLS-114hr22enr.pdf.

2The complete text of the CDIs can be found by following this link: http://www.sec.gov/divisions/corpfin/guidance/fast-act-interps.htm.

3So called because it contains elements of Section 4(a)(1) of the Securities Act (the exemption from registration for transactions not involving an issuer, underwriter or broker-dealer) and Section 4(a)(2) (the exemption from registration for issuers not involving a public offering).

4The Section 4(a)(1 1/2) approach has not been eliminated, but the statutory version in Section 4(a)(7) will likely prove more popular and useful.

5Note that NSMIA does not preempt notice filings, and state law may require filing of a notice and payment of a fee.

6It remains to be seen where any potential liability would lie if for whatever reason the Company Information proved to be materially incorrect, inaccurate or misleading.

7This raises an interesting question of whether a freely-tradable security can become "restricted" by virtue of being sold in a Section 4(a)(7) transaction, which is generally the case when an affiliate privately sells securities. See alsoSEC CDI, Securities Act Rules, Q. 129.02 (January 26, 2009).

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