GT - Banking & Securities Update - Fall 2012
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GT - Banking & Securities Update - Fall 2012

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Audit committees, management and boards of directors of banks and securities firms must keep pace with changing regulations, from the rules created under the Dodd-Frank Act to accounting ...

Audit committees, management and boards of directors of banks and securities firms must keep pace with changing regulations, from the rules created under the Dodd-Frank Act to accounting pronouncements.

Grant Thornton’s Banking & Securities Update series provides brief, need-to-know overviews of the major accounting, regulatory and tax issues facing the industry.

The Fall 2012 issue covers topics including:
•FASB’s proposed expanded liquidity risk and interest rate risk disclosures
•OCC’s updated guidance on common accounting issues for banks
•Dodd-Frank Act and JOBS Act implementation updates
•Amendments to SEC Rule 17a-5 and financial responsibility rules
•Basel III capital and liquidity requirements affecting broker dealers

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GT - Banking & Securities Update - Fall 2012 GT - Banking & Securities Update - Fall 2012 Document Transcript

  • FALL 2012Banking & Securities Update
  • In this issue 3 Banks News from the Hill Audit and accounting update 11 Dodd-Frank Act implementation 3 FASB: Proposed OCI reclassification guidance 11 JOBS Act implementation released for comment 12 Tax policy outlook for the presidential election 3 FAF seeks input on the implementation of Statement No. 141(R) 13 Broker-dealers 3 AICPA issues a Yellow Book independence practice aid Regulatory and corporate governance update 4 FASB proposed expanded liquidity risk and interest 13 PCAOB reports on its interim inspection program for rate risk disclosures auditors of brokers and dealers 4 FASB moves forward with alternative impairment 13 FINRA requests comment on proposed supplementary model for financial instruments schedule for derivatives and other off-balance-sheet items 5 FASB seeks feedback on private company reporting 14 Amendments to SEC Rule 17a-5 and financial framework responsibility rules 14 Regulatory Notice 12-36: FINRA and ISG delay effective Regulatory and corporate governance update date for enhanced Electronic Blue Sheets submissions 6 PCAOB releases inspection process guidance for 14 FINRA modifies proposed rule requiring carrying/clearing audit committees member firms to maintain certain records in a central 6 PCAOB issues revised standard on audit committee location and keep them current communications 15 FINRA Regulatory Notice 12-25: Additional guidance on 6 OCC releases guidance on troubled debt restructurings FINRA’s new suitability rule 7 OCC issues updated guidance on common 15 CFTC approves new financial rules submitted by NFA to accounting issues for banks strengthen the protection of customer funds held by FCMs 7 OCC issues guidance on investor-owned one- to four- 16 NFA submits proposed amendments to rules governing family residential properties direct reporting to regulators of customer segregated/ 7 SEC Regulations Committee publishes highlights of secured assets held at approved custody locations June 27 meeting 16 SEC approves consolidated audit trail to monitor and 7 OCC report discusses risks facing national banks analyze trading activity and federal savings associations 16 UK government issues LIBOR discussion paper 9 Agencies extend comment period on regulatory 16 Basel III capital and liquidity requirements affecting capital proposals broker-dealers 9 Joint release: Agencies issue proposed rule on 17 SEC adopts new compensation committee listing appraisals for higher-risk mortgages standards in compliance with Dodd-Frank Act 9 CFPB proposes new mortgage servicing rules 17 Public Comments on FINRA’s Proposed Regulation of 10 SEC staff publishes disclosure guidance for smaller Crowdfunding Activities Available financial institutions 10 SEC sample letter sent to certain financial institutions 18 Resources regarding structured note offering disclosures in prospectus supplements and Exchange Act reports 10 FDIC advisory on effective credit risk management practices for purchased loan participationsAbout this publicationThe responsibility for maintaining the integrity and reliability of an organization’s financial statements ultimately rests on the auditcommittee’s shoulders. Moreover, audit committees, management, and boards of directors at banks and securities firms mustkeep pace with emerging regulations such as current and upcoming accounting pronouncements, and new rules stemming fromthe Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Grant Thornton LLP’s quarterly Banking & SecuritiesUpdate provides brief updates on the key audit, accounting, regulatory and tax issues you need to be familiar with in order tosafeguard the integrity of your organization’s financial statements.
  • BanksAudit and accounting updateFASB: Proposed OCI reclassification FAF seeks input on the implementation The GAO’s revisions combine aguidance released for comment of Statement No. 141(R) Conceptual Framework (Framework)The FASB proposed for comment an The Financial Accounting Foundation with certain rules that are outrightAccounting Standards Update (ASU), (FAF), parent organization of the FASB, prohibitions. It provides morePresentation of Items Reclassified Out is looking for participants to complete adaptability in situations and givesof Accumulated Other Comprehensive a survey as part of the foundation’s auditors some “room” to assess uniqueIncome, which would improve the post-implementation review of FASB circumstances that cannot be addressedpresentation of reclassifications out of Statement No. 141(R), Business by rules. The new Framework isother comprehensive income (OCI) Combinations. The purpose of the consistent with AICPA and Internationalby requiring enhanced disclosures in survey is to evaluate the effectiveness of Federation of Accountants — a threatsthe financial statements. The proposed the accounting standard. and safeguards approach based onguidance is designed to provide financial Stakeholders can register to become facts and circumstances that may bestatement users with information survey participants on the FAF’s website. unique to specific audit environments,about the amounts reclassified from both individually and in the aggregate.accumulated OCI and with a road map AICPA issues a Yellow Book While the AICPA currently does notto related financial disclosures. The independence practice aid require threats to be evaluated in theproposal was developed in response The AICPA has presented a webcast to aggregate, the AICPA has an exposureto stakeholders’ concerns about the help participants understand the Yellow draft that will move their rules closer tosignificant costs to financial statement Book independence practice aid. View the GAO view. The GAO also requirespreparers to apply the guidance originally the webcast. documentation to support considerationissued in ASU 2011-05, Presentation of The Government Accountability of independence, which goes beyond theComprehensive Income. Office (GAO) issued standards revising AICPA’s requirements. The FASB has published an FASB the Yellow Book effective for financial The practice aid illustrates how toIn Focus article, “FASB Proposal on audits and attestation engagements for evaluate and document all nonauditImproving the Presentation Requirements periods ending on or after Dec. 15, 2012, services in one document for a particularfor Reclassifications Out of Accumulated and effective for performance audits engagement. It provides detailedOther Comprehensive Income,” to beginning on or after Dec. 15, 2011. instructions, as well as examples ofprovide additional information regarding nonaudit services and reference to thethis proposed ASU. particular paragraph in the Yellow Book Comments on the proposal are due that applies in order to evaluate threatsby Oct. 15, 2012. to independence (such as management3 Banking & Securities Update – Fall 2012
  • participation and self-review threats) that In addition, financial institutions The comment period on the proposedrequire safeguards, and how to apply would be required to disclose: disclosures ended on Sept. 25, 2012.those safeguards to eliminate threats or • carrying amounts of classes of To provide constituents withreduce them to an acceptable level. The financial assets and financial liabilities additional information related to thispractice aid also provides guidance and presented in a table and segregated proposal, the FASB has released anexamples in order to evaluate whether by expected maturities, including off- In Focus article, “FASB Proposal onmanagement possesses suitable skill, balance-sheet financial commitments Liquidity Risk and Interest Rate Riskknowledge or experience (similar to and obligations; and Disclosures,” and a podcast recorded byAICPA ET 101-3), and documentation • information presented in a table Board member Marc Siegel.of that assessment. about time deposit liabilities, View the complete article and In addition, the practice aid provides including the cost of funding, podcast.a decision flowchart to assist in the during the previous four quartersevaluation process, along with a glossary (depository institutions only). FASB moves forward with alternativeof common words and phrases used in impairment model for financialthe Yellow Book standards. Entities that are not financial instruments institutions would be required to Using key concepts agreed on jointlyFASB proposes expanded liquidity risk disclose expected cash flow obligations with the IASB, the FASB beganand interest rate risk disclosures segregated by their expected maturities developing an alternative to the three-The FASB issued a proposed ASU, but excluding financial assets. bucket impairment model for financialDisclosures about Liquidity Risk instruments at its Aug. 22, 2012, meeting.and Interest Rate Risk, to expose Interest rate risk disclosures The current expected credit losses modelfor comment-enhanced disclosure The following proposed interest rate risk would use a current single-measurementrequirements for certain risks related to disclosures would apply only to financial objective estimate of expected creditfinancial assets, liabilities, obligations and institutions: losses rather than the dual-measurementother financial instruments for public, • Carrying amounts of classes of approach taken in the three-bucketnonpublic and not-for-profit entities.1 financial assets and financial liabilities model. For more information, refer to according to time intervals based the FASB’s financial instruments projectLiquidity risk disclosures on the contractual repricing of the update page.The FASB has proposed certain financial instrumentsliquidity risk disclosures that would • An interest rate sensitivity table thatprovide information about the risk shows the effects of hypothetical,that a reporting entity will not meet its instantaneous shifts of interestfinancial obligations. The extent of some rate curves on net income andof these disclosures would vary by type shareholders’ equityof entity. All entities would be required • Quantitative or narrative disclosuresto disclose the following information: of the entity’s exposure to interest Entities that are not• Available liquid funds, including rate risk, including discussion about unencumbered cash, high-quality significant changes in the amounts and financial institutions liquid assets, and borrowing timing in the quantitative tables, and would be required availability, in a tabular format how the entity managed those changes to disclose expected• Additional quantitative or narrative during the current reporting period disclosure of the entity’s exposure to cash flow obligations liquidity risk, including discussion segregated by their about significant changes in expected maturities but the amounts and timing in the quantitative tables, and how the excluding financial assets. entity managed those changes during the current reporting period1 FASB material contained herein was used with permission and is available at www.fasb.org.4 Banking & Securities Update – Fall 2012
  • FASB seeks feedback on private The staff paper summarizes the The preliminary framework wascompany reporting framework following six factors that differentiate developed by the FASB staff afterThe FASB has released an invitation to financial reporting considerations for consultations with Board members andcomment on a FASB staff paper, Private private versus public companies: discussions with stakeholders who haveCompany Decision-Making Framework: • Types and number of financial had significant and diverse experienceA Framework for Evaluating Financial statement users with private company financialAccounting and Reporting Guidance • Access to management statements. The final framework will befor Private Companies, in order to • Investment strategies developed jointly by the FASB and thesolicit feedback on its proposed private • Ownership and capital structures Private Company Council.company decision-making framework. • Accounting resources The comment period ends Oct. 31, 2012.The framework project is not intended • Learning about new financialto create an entirely new conceptual reporting guidanceframework for private company financialreporting. Instead, it is designed to The staff paper also identifies fouridentify (1) the different needs of users areas in which financial accounting andof private company versus public reporting guidance might differ forcompany financial statements, and (2) private versus public companies:opportunities to reduce the complexity • Recognition and measurementand costs involved in preparing financial • Disclosuresstatements of private companies in • Display (presentation)accordance with U.S. GAAP. • Effective date5 Banking & Securities Update – Winter 2011 Fall 2012
  • BanksRegulatory and corporategovernance updatePCAOB releases inspection process The new communications OCC releases guidance on troubledguidance for audit committees requirements in AS 16, which remain debt restructuringsThe Public Company Accounting subject to SEC approval, will be effective The Office of the Comptroller of theOversight Board (PCAOB) released for audits and quarterly reviews of Currency (OCC) released OCC 2012-10,Information for Audit Committees financial statements for fiscal years Troubled Debt Restructurings, toAbout the PCAOB Inspection Process to beginning on or after Dec. 15, 2012 (that address numerous queries receivedassist audit committees in their oversight is, fiscal years ending Dec. 31, 2013, for from bankers and examiners on therole by clarifying the PCAOB audit calendar-year entities, including 2013 accounting and reporting for troubledinspection process. This document quarterly reviews). debt restructurings (TDRs), especiallyincludes information on the nature of The transitional amendments, which for loan renewals and extensions ofa PCAOB inspection of an audit firm are also subject to SEC approval, will substandard commercial loans.and provides questions about PCAOB make the communications requirements OCC 2012-10 reviews theinspections that audit committees in AU Section 380, Communication with authoritative guidance on identifyingmay want to ask their auditors. View Audit Committees, apply to audits of a TDR, including the changes codifiedadditional details about the guidance. brokers and dealers. Those amendments in ASU 2011-02, A Creditor’s will be effective for the periods that Determination of Whether aPCAOB issues revised standard on PCAOB standards become applicable Restructuring Is a Troubled Debtaudit committee communications to audits of brokers and dealers (upon Restructuring. It also discusses how toThe PCAOB released Auditing Standard adoption by the SEC of its amendments to account for the loan after it has been(AS) No. 16, Communications with Exchange Act Rule 17a-5), if such periods identified as a TDR.Audit Committees, which requires precede the effective date of AS 16.auditors to provide certain informationto audit committees on a timely basis.In conjunction with the related andtransitional amendments to existingPCAOB standards, AS 16 is expected toenhance auditor communications withaudit committees overall.6 Banking & Securities Update – Fall 2012
  • OCC issues updated guidance on SEC Regulations Committee publishes • Interaction of retrospectivecommon accounting issues for banks highlights of June 27 meeting adoption of new accountingThe views in the Bank Accounting The highlights of joint meetings between standards and registrationAdvisory Series represent interpretations the Center for Audit Quality’s SEC statement requirements — Theby the Office of the Chief Accountant Regulations Committee and the SEC SEC staff said that if a registrantand are neither official rules nor staff summarize issues discussed. The adopts a new accounting standardregulations of the OCC. highlights do not represent official positions retrospectively in its most recent The OCC updated its Bank of the AICPA or the CAQ and are not interim financial statements, butAccounting Advisory Series, which authoritative positions or interpretations does not revise its annual financialexpresses the views of the OCC’s Office issued by the SEC or its staff. statements prior to filing a new orof the Chief Accountant on accounting The Center for Audit Quality (CAQ) amended registration statementissues of interest to banks. issued the highlights of the June 27, 2012, (other than Form S-8), the registrant The updated series features the joint meeting of its SEC Regulations should expect a comment fromfollowing new or revised questions: Committee and the SEC staff. Practice the SEC asking for the basis for• Topic 2A, Troubled Debt issues discussed include the following: its conclusion that the impact is Restructurings, questions 36 immaterial. through 38 • Restricted cash classification• Topic 2B, Nonaccrual Loans, — According to the SEC staff, a View the highlights of the meeting. questions 31 and 32 registrant holding cash or short-term• Topic 2G, Acquired Loans, questions investments in a foreign jurisdiction OCC report discusses risks facing 5 through 8 where the indefinite reinvestment national banks and federal savings• Topic 4, Allowance for Loan and assertion has been made would associations Lease Losses, questions 51 and 52 not be required to classify the cash In July 2012, the OCC released its• Topic 5A, Other Real Estate Owned, and investments as restricted in the spring 2012 Semiannual Risk Perspective questions 2 and 34 balance sheet. report, which discusses top risks facing• Topic 5C, Other Miscellaneous national banks and federal savings Assets, questions 7 and 8 • Pension-related non-GAAP associations. The report addresses three financial measures — If registrants key challenges to the banking system:OCC issues guidance on investor- do not provide sufficient context the continuing effects of a weak housingowned one- to four-family residential with respect to pension-related market; revenue challenges related toproperties non-GAAP financial measures, thus ongoing market volatility and slowOn Sept. 17, 2012, the OCC issued making the measures potentially economic growth; and the possibilityguidance on appropriate credit risk misleading to investors, then those that banks, in an effort to improvemanagement practices for investor- registrants can expect to receive SEC profitability in a lackluster market, mayowned, one- to four-family residential staff comments. take on excessive risks. Key points raisedreal estate lending where the primary in the report included the following:repayment source for the loan is • Pro forma adjustments that meetrental income. This recent guidance the continuing-impact criterion — • Mortgage overhang — Large banksdiscusses policies and processes related The SEC staff indicated that a pro with extensive mortgage operationsto loan underwriting standards, loan forma adjustment to the statement continue to be challenged by theidentification and portfolio monitoring of operations that has more than burden of residential mortgages thatexpectations, allowance for loan and a one-time effect would meet the are severely delinquent or currentlylease losses (ALLL) methodologies, continuing-impact criterion in being foreclosed upon. This issueand internal risk assessment and rating Regulation S-X, Article 11, Pro continues to affect the economicsystems. View the article. Forma Financial Information, even if environment for all banks. the item has an impact for less than 12 months following the transaction.7 Banking & Securities Update – Fall 2012
  • • Operational risk — As banks try • Domino effects from the European addition, while allowances for loan losses to boost income and operating economy — Europe has experienced declined somewhat in 2011, they remain economies of scale, they may try to a sharp decline in economic growth historically high. Nevertheless, according spend less on systems and processes. given issues with its sovereign debt to the report, “The U.S. banking The use of third-party products and the potential breakup of the industry continues to emerge from the or distribution systems may also eurozone. Both of these issues have recession of 2007 [through] 2009 and to increase this risk. contributed to weak global economic adjust to significant shifts in its operating activity, increased uncertainty in and regulatory environments,”4 and• Asset quality risk — While asset financial markets and decreased credit banks of all sizes will continue to be quality indicators are showing quality. As a result, large European challenged by the operational risks improvement, it has come at a slow and U.S. financial institutions have imposed by these shifts. pace. The rate of delinquency for experienced an increase in the cost of The OCC’s Semiannual Risk home loans remains above average, long-term debt and equity financing, Perspective report will be released by the and although commercial real estate which is further hampering market OCC twice a year and will analyze four is showing improvement, it continues confidence and economic recovery.3 main areas: the operating environment; to be plagued by high vacancy rates the condition and performance of the and problem assets. The report also indicated that levels national banking system; funding, of capital across the industry, especially liquidity and interest rate risk; and• Weak loan growth — With the for larger banks, are strong and of better regulatory actions. The current report exception of commercial and quality than before the recession. In reflects data as of Dec. 31, 2011. industrial lending, loan growth remains weak for many banks. As a result, asset yields banks of all sizes have been squeezed. Furthermore, as banks compete for higher-earning assets, underwriting standards have also been under pressure.• Low interest rates — As interest rates remain low, margin upside has been limited because banks have been unable to further reduce funding costs. This environment is also making banks more susceptible to rate shocks. In an effort to obtain higher yields, many banks are adding to their investment portfolios and extending the durations of those portfolios. Furthermore, banks may face additional risks by entering into new or less familiar markets to offset declining revenues.22 Office of the Comptroller of the Currency. “OCC Report Discusses Risks Facing National Banks and Federal Savings Associations.” Available at www.occ.gov/news-issuances/news-releases/2012/nr-occ-2012-106.html.3 Ibid.4 Ibid.8 Banking & Securities Update – Fall 2012
  • Agencies extend comment period on Joint release: Agencies issue proposed – Provide the borrower with aregulatory capital proposals rule on appraisals for higher-risk statement saying that anyThe three federal banking regulators — mortgages appraisal is for the creditor’sthe Board of Governors of the Federal On Aug. 15, 2012, the six federal sole use and that the borrowerReserve Board (FRB), the Federal financial regulatory agencies — the FRB, may choose to have a separateDeposit Insurance Corporation (FDIC), the Consumer Financial Protection appraisal conducted at his orand the OCC — have extended the Bureau (CFPB), the FDIC, the Federal her expensecomment period on three notices of Housing Finance Agency, the National – Provide the borrower with aproposed rulemaking (NPRs) that would Credit Union Administration, and copy of the appraisal withoutrevise and replace the agencies’ current the OCC — proposed new appraisal charge at least three dayscapital rules.5 The comment period, requirements such as the following for before closingwhich was originally slated to end on higher-risk mortgage loans:Sept. 7, 2012, was extended until Oct. • Requiring a creditor to use22, 2012, to allow interested parties more • Defining a higher-risk mortgage loan reasonable diligence in determiningtime to understand, assess and comment as a residential mortgage loan that is whether a second appraisal must beon the proposals. secured by a principal dwelling and performed The NPR titled Regulatory that has an annual percentage rate thatCapital Rules: Regulatory Capital, exceeds the average prime offer rate by • Proposing a safe harbor of stepsImplementation of Basel III, Minimum 1.5%, 2.5% or 3.5%, depending on the the lender should take to confirmRegulatory Capital Ratios, Capital type of mortgage loan that appraisals are being conductedAdequacy, Transition Provisions, and according to regulatory and statutoryPrompt Corrective Action seeks to • Requiring a lender to take the requirementstrengthen risk-based and leverage following actions before originating acapital requirements. higher-risk mortgage loan: This proposed rule is mandated by The NPR titled Regulatory Capital – Obtain a written appraisal by the Dodd-Frank Act. The commentRules: Advanced Approaches Risk-Based a certified or licensed appraiser period for the proposal expires on Oct.Capital Rules; Market Risk Capital Rule who has physically visited the 15, 2012, and the rule is expected to bewould revise the advanced approaches interior of the mortgaged finalized by the end of 2012.risk-based capital rules consistent with propertyBasel III requirements. The proposal – Have another appraiser CFPB proposes new mortgagealso seeks to apply market risk capital conduct an appraisal that servicing rulesregulations to thrift institutions and analyzes any difference in On Aug. 10, 2012, the CFPB proposedthrift holding companies. the sales price, changes new mortgage servicing rules to help The NPR titled Regulatory Capital in market conditions, and protect consumers. Among other things,Rules: Standardized Approach for Risk- improvements made to the the new rules would require mortgageWeighted Assets; Market Discipline property if the collateral was servicers to provide timely mortgageand Disclosure Requirements proposes acquired by the seller within statements, give earlier notice of interestrevisions to rules for computing risk- 180 days of the current rate increases and guidance about whatweighted assets and was developed in transaction and the property is to do if payments are not affordable,response to issues raised by the financial being sold at a higher price than correct credit full payments promptly,crisis. Additionally, consistent with the seller paid and offer options to help borrowersDodd-Frank Act mandates, this NPR avoid foreclosures and costly force-seeks to eliminate reliance on credit placed hazard insurance. The CFPB willratings. View the original notice. be accepting comments until Oct. 9, 2012. View the CFPB’s summary of the proposals.5 Federal Deposit Insurance Corporation. “Agencies Seek Comment on Regulatory Capital Rules and Finalize Market Risk Rule.” Available at www.fdic.gov/news/news/press/2012/pr12068.html.9 Banking & Securities Update – Fall 2012
  • SEC staff publishes disclosure guidance SEC sample letter sent to certain FDIC advisory on effective credit riskfor smaller financial institutions financial institutions regarding management practices for purchasedThe statements in the CF Disclosure structured note offering disclosures in loan participationsGuidance represent the views of the staff prospectus supplements and Exchange The FDIC issued a Financial Institutionin the Division of Corporation Finance. Act reports Letter discussing recommended practicesThis guidance is not a rule, regulation, or In April 2012, the SEC’s CorpFin for purchased loan participationsstatement of the Securities and Exchange Office of Capital Markets Trends including:Commission. Further, the Commission issued to certain financial institutions anhas neither approved nor disapproved illustrative letter that addresses common • Loan Policy Guidelines forits content. issues the SEC staff has noted regarding Participations – Procedures The staff of the SEC’s Division of structured note offering disclosures in for originating and purchasingCorporation Finance has published CF registration statements and, in some participation loans, requirements forDisclosure Guidance: Topic 5, “Staff instances, in Securities Exchange Act of thorough borrower due diligence,Observations Regarding Disclosures of 1934 reports. and a review of the purchasing bank’sSmaller Financial Institutions,” which The illustrative letter highlights contractual rights and obligationssummarizes the staff’s observations after the following areas in which financial should be included in loan policies.reviewing financial statement disclosures institutions might enhance theirfiled by smaller financial institutions. disclosures regarding future structured • Loan Participation Agreements –These observations cover Management’s note offerings: A description of the responsibilitiesDiscussion and Analysis, as well as • Product names of the lead institution, requirementsaccounting policy disclosures, and the • Product pricing and value for procuring borrower creditfollowing topics: • Use of proceeds and reasons for information, procedures for offerings addressing defaults and dispute• Allowance for loan losses • Plans of distribution resolution practices should• Charge-off and non-accrual policies • Liquidity be contained in a written loan• Commercial real estate • Issuer credit risk participation agreement.• Loans measured for impairment • Tax consequences based on collateral value • Referenced asset or index disclosures • Independent Credit and Collateral• Credit risk concentrations • Disclosure formats Analysis – Institutions that purchase• Troubled debt restructurings and • Exhibits participation loans should follow the modifications same credit and collateral analysis• Other real estate owned For further information, refer to the procedures it would execute if it• Deferred taxes SEC staff’s sample letter. originated the loan.• FDIC–assisted transactions • Due Diligence and Monitoring of Participations in Out-of- Territory or Unfamiliar Markets – Management may need to perform additional due diligence for participations comprising “out-of- territory” loans or credit facilities.In April 2012, the SEC’s CorpFin Office of Capital View the letter.Markets Trends issued to certain financial institutionsan illustrative letter that addresses common issues theSEC staff has noted regarding structured note offeringdisclosures in registration statements and, in someinstances, in Securities Exchange Act of 1934 reports.10 Banking & Securities Update – Fall 2012
  • BanksNews from the HillDodd-Frank Act implementation JOBS Act implementation For banks and bank holdingRegulatory agencies continue to The Jumpstart Our Business Startups companies, the threshold for triggeringimplement the nearly 400 rulemaking (JOBS) Act passed by Congress and Exchange Act Section 12(g) registrationrequirements and various studies signed into law by President Barack has been raised from 500 shareholders tooutlined in the Dodd-Frank Act. As of Obama is one of the most significant 2,000. The higher threshold will allowSept. 4, 2012, the SEC, the Commodity changes in securities law in quite some smaller banks to raise capital by sellingFutures Trading Commission (CFTC), time. The primary beneficiaries of the stock to new shareholders withoutbank regulators and other agencies had JOBS Act reforms are a new class of having to register with the SEC. Infinalized 131 rules and proposed 135; issuers known as emerging growth addition, employees who have receivedhowever, 132 rulemaking requirements companies (EGCs). Title I of the JOBS their shares in an exempt transaction asneeded to be proposed.6 Act defines EGCs and covers, among part of an employee compensation plan The SEC has been charged with other things, the reduced regulatory are excluded from the shareholder count.implementing most of the rules and disclosure alternatives available to Of course, banks and bank holdingmandated by the Dodd-Frank Act but them. The provisions of Title I became companies that are EGCs and want tohas frequently cited lack of resources as effective upon enactment of the JOBS raise capital through an IPO now havea reason for failing to complete the work Act, which is expected to greatly the option of going public with a lighteron time. As of Sept. 4, 2012, the SEC had improve many companies’ access to compliance burden. They can follow lessfinalized 30 rules, proposed 45 and had capital. Many banks have been on a stringent financial statement reportingyet to propose 21. quest for additional capital since the and disclosure requirements in their Bank regulators have finalized only financial crisis began in 2008. The JOBS initial equity registration statement.31 of 135 rules. While 56 rules have been Act provides a number of opportunities They will also be subject to fewerproposed, another 48 have not. that boards of directors and management Sarbanes-Oxley reporting requirements. of community banks should evaluate. These looser standards will apply until the institution no longer qualifies as an EGC. Either option should aid in raising much-needed capital.6 Davis Polk & Wardwell LLP. Dodd-Frank Progress Report, Sept. 4, 2012. Available at www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report/.11 Banking & Securities Update – Fall 2012
  • One of the most notable aspects A number of new rules have yet to The JOBS Act also instructed theof the JOBS Act for banks and bank be promulgated by the SEC. These SEC to study the impact on IPOs of:holding companies is the increase in rules would: • the transition to decimalization — inthe threshold under which they may this context, the trading and quotingderegister with the SEC from 300 • increase the offering threshold for of securities in penny increments; andshareholders to 1,200 (the threshold Regulation A filings from $5 million • decimalization relative to theremains at 300 for all other types of to $50 million or create a new liquidity of small- and middle-companies). SNL Financial estimates exemption similar to Regulation A capitalization securities.that there are approximately 300 with the $50 million threshold beforereporting banks in the United States SEC registration is required (there is In addition, the SEC was asked tothat currently have fewer than 1,200 no deadline for rulemaking); determine whether there is sufficientshareholders and thus are eligible to • end an SEC ban on small company economic incentive to support the tradingderegister with the SEC and cease advertisements to solicit capital of small- and middle-capitalizationadhering to the agency’s reporting in private offerings that rely on securities. The SEC report, issued on Julyobligations.7 This increased threshold Regulation D or Rule 144A (rules 20, 2012, opposed increasing tick sizesreduces annual costs for qualifying were required by July 4, 2012, and but recommended further study of thebanks and bank holding companies SEC proposed rules were issued on issue. Read the report.because they won’t have to file Aug. 29, 2012);periodic forms such as Forms 10-Q or • allow the solicitation of funds over Tax policy outlook for the presidential10-K under the Exchange Act. Some the Internet, known as crowdfunding electionsmaller banks that are publicly held (rules are required by December 2012), Taxes are emerging as a major campaignmay consider deregistration to avoid through the Capital Raising Online issue, and the outcome of the election willthe time and expense involved with While Deterring Fraud and Unethical likely affect how tax matters are addressed.SEC reporting. In the two weeks after Non-Disclosure Act of 2012 or the Pertinent legislative action remains unlikelyPresident Obama signed the JOBS Act, ‘‘CROWDFUND Act” ; and during the campaign.three banks announced their intent • raise the mandatory registration View a comparison of the candidates’to deregister as reporting companies, requirement for private issuers from tax platforms.thereby reducing their annual reporting 500 to 2,000 shareholders or 500and compliance costs. non-accredited investors (there is no deadline for rulemaking).Key Dodd-Frank Act timeline for the rest of 2012/early 2013September–December• Five banking regulators will try to finalize the Volcker rule by the end of 2012, according to news reports.• The FRB plans to finish writing stricter standards for systemically important financial institutions, or SIFIs.• The FRB expects to release a proposal to impose new fees on SIFIs, whether the institutions are banks or not.• The FRB plans to release proposals to implement two oversight requirements for SIFIs other than banks.September–January• Final rules on credit risk retention may be released. The CFPB may finish the ability-to-repay rule before then; that rule is expected to be finalized by January 2013.September–October• Banking regulators are expected to issue a report that will describe allowable investment activities for banks; this report is required by Section 620 of the Dodd-Frank Act.October–December• Rules on margin standards for swaps are expected from the CFTC, the SEC and bank regulators.7 SNL Financial. www.snl.com/.12 Banking & Securities Update – Fall 2012
  • Broker-dealersRegulatory and corporate governanceupdatePCAOB reports on its interim inspection The resultant PCAOB Report on FINRA requests comment on proposedprogram for auditors of brokers the Progress of the Interim Inspection supplementary schedule for derivativesand dealers Program Related to Audits of Brokers and other off-balance-sheet itemsOn Aug. 20, 2012, the PCAOB released and Dealers describes deficiencies On Feb. 9, 2012, the SEC approvedits first report on the progress of its observed in the following areas: Financial Industry Regulatory Authorityinterim inspection program for auditors • Audit procedures related to the (FINRA) Rule 4524, Supplementalof brokers and dealers, providing an computation of customer reserve and FOCUS Information, under whichoverview of the new program and the net capital requirements applicable carrying and clearing firmsaudit deficiencies identified in the initial • Audits of financial statements must file operational or financialgroup of inspected audits. • Auditor independence schedules or reports that FINRA In this first assessment, carried out believes to be necessary or appropriateover a five-month period from October During the interim inspection to protect investors or the public interest2011 through February 2012, PCAOB program, the PCAOB expects to review as supplements to FOCUS reports.inspectors reviewed 10 audit firms, approximately 100 audit firms and Accordingly, on May 4, 2012, FINRAcovering portions of 23 audits of brokers cover portions of more than 170 audits issued Regulatory Notice 12-23, whichand dealers registered with the SEC. The of brokers and dealers through 2013. called for comment on the authority’sPCAOB identified deficiencies in all of The program is currently designed to proposed supplementary schedule forthe audits inspected. include a cross-section of audits of derivatives and other off-balance-sheet These audits were required to be SEC-registered brokers and dealers. items (OBS schedule). This scheduleconducted under GAAS as issued by The PCAOB will continue the interim would need to be filed within 22 businessthe AICPA and not under PCAOB inspection program until new rules for a days of calendar quarter-end.standards. permanent program become effective. View the full article and the complete interim report.13 Banking & Securities Update – Fall 2012
  • After the financial crisis hit, FINRA Amendments to SEC Rule 17a-5 and Regulatory Notice 12-36: FINRA andbegan monitoring carrying and clearing financial responsibility rules ISG delay effective date for enhancedfirms’ leverage and liquidity closely, and Although the effective date that was Electronic Blue Sheets submissionsgathering other information pertinent originally proposed — Dec. 31, 2011 — FINRA and the other interested membersto these firms’ proprietary positions and has passed, the SEC, in consultation of the Intermarket Surveillance Grouptheir financing and off-balance-sheet with the PCAOB, has yet to issue its (ISG) have extended the effective datestransactions. FINRA’s aim in proposing final amendments to SEC Rule 17a-5. for firms to submit new data elements forthe OBS is to obtain more consistent Comment letters from industry Electronic Blue Sheets. These extensionsand comprehensive information professionals seeking clarification on correspond to the recent SEC extensionabout carrying and clearing firms’ off- the proposed amendments have raised of the compliance dates for Rule 13h-1balance-sheet assets, liabilities and other concerns. The SEC has asked industry (the Large Trader reporting rule).commitments. Ultimately, FINRA is groups to develop a workable framework Effective Nov. 30, 2012, and May 1,looking to make more effective ongoing for addressing some of those concerns. 2013, firms must begin submitting theassessments of the impact that off- One of the outstanding issues is additional formats of Blue Sheets databalance-sheet activities have on clearing how to create a framework for defining specified in Regulatory Notice 11-56 toand carrying firms’ leverage, capital, material noncompliance under the FINRA and the other ISG interestedliquidity and ability to protect customers. financial responsibility rules, along with members. These extensions will allow Under the proposed reporting the concept of material weakness as it broker-dealers additional time to develop,requirements, firms would have to relates to the net capital calculation, the test and implement the enhancements.disclose their gross exposures in financing customer reserve formula, possessiontransactions such as collateral swaps, or control standards, SEC Rule 17a-13 FINRA modifies proposed rule requiringalong with repurchase agreements, mandates, and customer statements. carrying/clearing member firms toreverse repurchase agreements and other The net capital and customer maintain certain records in a centraltransactions whose values are netted under reserve calculations are derived from location and keep them currentGAAP or held to maturity. Firms would the firm’s financial information, and FINRA has modified Proposed Rulereport their interests in and exposures noncompliance may be easiest to 4516 requiring each carrying or clearingto variable interest entities. In addition, measure within those two categories. member firm to maintain certain recordsthe OBS schedule would require firms Different views have arisen with in a central location and keep themto disclose their non-regular way settling regard to what constitutes material current in order to facilitate a fastertransactions, including those involving noncompliance. Some constituents and more orderly transfer of customerto-be-announced securities and those believe that noncompliance or material accounts to another broker-dealerwith delayed settlement or delivery. Firms noncompliance occurs only if a broker- should the member firm no longerwould also have to report underwriting dealer fails the net capital test or fails continue to operate.and other financing commitments, and to make the deposit that is required to Industry concern regarding thegross notional amounts in centrally and satisfy its customer reserve formula, original version of Proposed Rule 4516non-centrally cleared derivatives contracts resulting in a hindsight deficiency. surfaced after the Lehman Brothersinvolving commodities, equities, interest The financial responsibility rules bankruptcy. More recently, FINRAand foreign exchange rates, and credit do not have quantitative requirements has taken issue with MF Global, whichdefault swaps. such as those pertaining to possession has had a number of problems with the The comment period ended June 4, or control, quarterly security transfer of information such as customer2012. Implementation is expected in verification, or mailing and reporting statements and positions, and otherearly 2013.8 of customer statements. Frameworks client information. View the notice and comments to measure noncompliance or materialsubmitted. noncompliance may involve benchmarks such as excess capital or total securities as a percentage of securities held by the depository institution. Discussions about these topics are continuing.8 Financial Industry Regulatory. “Supplemental FOCUS Information.” Available at www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p126237.pdf.14 Banking & Securities Update – Fall 2012
  • The original version of Proposed CFTC approves new financial rules (2) Controls over the treatment ofRule 4516 generated a high volume of submitted by NFA to strengthen excess segregated and Part 30 securedresponses by brokers who disagreed with the protection of customer funds held customer fundsFINRA about the need for this mandate, by FCMs • FCMs must maintain writtenwhich would have required all brokers On July 13, 2012, the CFTC approved policies and procedures regardingto have a system to document where all new financial rules submitted by the the maintenance of excess (i.e.,of their books and records were located National Futures Association (NFA) proprietary or residual) funds inrelative to the transfer of customers’ that enhance the protection of customer customer segregated accounts andpositions. In response to brokers’ funds held by futures commission Part 30 secured accounts.concerns, the rule has been modified to merchants (FCMs). The new rules are set • Any withdrawals that are in excessapply only to firms whose total customer forth in NFA Financial Requirements of 25% of the excess segregated orreserve formula credits exceed $100 Section 16 and in an Interpretive Notice Part 30 secured funds that are notmillion as determined pursuant to SEC titled NFA Financial Requirements for the benefit of customers mustRule 15c3-3. Section 16 FCM Financial Practices be preapproved in writing by senior and Excess Segregated Funds/Secured management.FINRA Regulatory Notice 12-25: Amount Disbursements. • FCMs must inform the NFA of anyAdditional guidance on FINRA’s new The new NFA rules require FCMs withdrawal of 25% or more of thesuitability rule to strengthen their controls over the excess segregated or Part 30 securedIn May 2012 FINRA issued Regulatory treatment and monitoring of funds held amounts that are not for the benefitNotice 12-25 to provide additional for customers trading on U.S. contract of customers.guidance on the rule in response markets (excess segregated accounts)to industry questions prior to the and funds held for foreign futures (3) Reporting and recordkeepingimplementation on July 9, 2012. FINRA and foreign option customers trading • FCMs must file segregation and Part 30Regulatory Notice 12-25 discusses on foreign contract markets (Part 30 secured amount computations withthe new FINRA Rule 2111 that secured accounts). Three areas of reform the NFA each day.requires, in part, that a broker-dealer included in the NFA rules are as follows: • FCMs must file detailed informationor associated person “have a reasonable with the NFA regarding thebasis to believe that a recommended (1) Part 30 secured accounts depositories holding customer fundstransaction or investment strategy FCMs must hold sufficient funds in Part and the investments made withinvolving a security or securities is 30 secured accounts to meet their total customer funds as of the 15th and lastsuitable for the customer, based on obligations to customers who trade on business days of each month.the information obtained through foreign markets. FCMs should calculate • FCMs must file additional monthlythe reasonable diligence of the [firm] total balances owed to customers using net capital and leverage informationor associated person to ascertain the the net liquidating equity method. FCMs with the NFA.customer’s investment profile.” In will no longer be permitted to use thegeneral, FINRA’s new suitability rule alternative method, which had allowed In addition, Section 16 and theretains the core features of the previous them to hold a smaller amount of funds Interpretive Notice outline the processNASD suitability rule, NASD Rule that represented the margin on foreign by which the NFA can initiate a2310. In addition, Rule 2111 codifies futures. Membership Responsibility Actionseveral important interpretations of the against an FCM that may not havepredecessor rule and imposes a few new sufficient funds to maintain targetedor modified obligations. View the notice. amounts of excess segregated and Part 30 secured funds. View the article.15 Banking & Securities Update – Fall 2012
  • NFA submits proposed amendments SEC approves consolidated audit trail UK government issues LIBORto rules governing direct reporting to to monitor and analyze trading activity discussionregulators of customer segregated/ On July 11, 2012, the SEC approved a On Aug. 10, 2012, the UK governmentsecured assets held at approved new rule requiring the national securities launched a discussion paper outliningcustody locations exchanges and FINRA to establish a initial proposals for reforming theThe NFA submitted proposed marketwide consolidated audit trail framework for setting and governingamendments to Financial Requirements that will enhance regulators’ ability to LIBOR. The paper sought responsesSection 4 to the CFTC. These monitor and analyze trading activity. from a variety of market experts andamendments would require FCMs to The new rule requires the exchanges international stakeholders over a four-provide their designated self-regulatory and FINRA to jointly submit a week period that ended on Sept. 7, 2012.organization (SRO) with online read- comprehensive plan detailing how they The paper offered preliminary analysisonly access to bank accounts containing would develop, implement and maintain concerning:FCM customer segregated/secured funds. a consolidated audit trail that must • the role that LIBOR plays in theFurther, the proposed amendments would collect and accurately identify every financial markets;add Regulation 1.49 to the list of CFTC order, cancellation, modification and • the flaws in the current structure ofregulations that are also considered to trade execution for all exchange-listed setting LIBOR and its governancebe NFA requirements in the event of a equities and equity options across all and oversight; andviolation by FCMs, retail foreign exchange U.S. markets. • a range of options for reform,dealers or introducing brokers. The Currently, there is no single including the issue of transition.NFA’s board of directors approved both database of comprehensive and readilyamendments on Aug. 16, 2012. The NFA accessible data regarding orders and The UK government was expectedsubmitted the proposed amendments to executions. Each SRO instead uses its to report in time for changes to bethe CFTC on Aug. 21, 2012. The CFTC own separate audit trail system to track addressed in legislation. It continues tois currently in the process of reviewing the information relating to orders in its work in concert with its internationalproposed amendments. View the complete respective markets. Existing audit trail partners to formulate a globallyNFA letter. requirements vary significantly among consistent solution. View the full article. markets, which means that regulators must obtain and merge large volumes Basel III capital and liquidity of disparate data from many types of requirements affecting broker-dealers entities when analyzing market activity. Grant Thornton hosted a broker- FINRA will work with other SROs dealer symposium on June 19, 2012, at to submit a national market system plan which several broker-dealer industry that will help close regulatory data gaps. professionals discussed the effects of View the SEC article. the recent financial crises on the global regulatory framework for financial firms. The Basel Committee on Banking Supervision has adopted the global regulatory standard known as Basel III, which covers bank capital adequacy, stress testing and market liquidity risks. The Basel III initiative will put additional pressure on broker-dealers’ profitability, and particularly on returns on equity (ROE), given the increased capital and margin requirements. Balance sheet assets will also be reduced because of increased leverage requirements.16 Banking & Securities Update – Fall 2012
  • One of the challenges broker-dealers SEC adopts new compensation Public Comments on FINRA’s Proposedare facing under Basel III is how to committee listing standards in Regulation of Crowdfunding Activitiesreplace or increase their revenues to compliance with Dodd-Frank Act Availablemaintain the ROE that shareholders have The SEC approved a final rule directing When the JOBS Act was signed intocome to expect. From a sales practice national securities exchanges and law, it established provisions forperspective, regulators are concerned national securities associations to crowdfunded securities under thethat new products originally developed establish listing standards that require Capital Raising Online While Deterringfor institutional clients are now being an issuer’s compensation committee to Fraud and Unethical Non-Disclosuresold — perhaps inappropriately — to consist only of independent members of Act of 2012 or the ‘‘CROWDFUNDretail customers. the board of directors. Act.” The CROWDFUND Act permits Regulators have been challenged to Additionally, listing standards are issuers to sell up to $1,000,000 worth offind the appropriate model to determine required to address the following matters securities via crowdfunding within athe amount of capital that has to be related to an issuer’s compensation 12-month period without registeringmaintained by broker-dealers. The committee: with the SEC. Furthermore, undervalue-at-risk model for trading assets • The committee’s authority to retain the new law, intermediaries operatingis currently in use. As a result, the SEC compensation advisers “funding portals” are exempt fromand the CFTC have set minimum capital • The committee’s consideration of the registering with the SEC as a broker.requirements. Under its Consolidated independence of any compensation However, they are subject to theSupervised Entity program, the SEC adviser SEC’s examination, enforcementrequires that broker-dealers have at • The committee’s responsibility for and rulemaking authority, and theyleast $5 billion in tentative net capital the appointment, compensation and must register with an applicable self-(i.e., net liquid assets). However, this oversight of the work done by any regulatory organization.proved to be insufficient in the case of compensation adviser In June 2012, FINRA issued aLehman Brothers in 2008, when a lack of regulatory notice seeking commentsliquidity exposed the firm’s inability to This final rule was issued to comply on the proposed regulation ofrealize its measured fair value. FINRA with Section 952 of the Dodd-Frank Act crowdfunding activities. The commentis now focusing much more closely and became effective on July 27, 2012. period expired on August 31, 2012. Readon liquidity, asking firms to maintain View the final rule. the Full Notice and comments receivedsufficient liquidity at the broker-dealer by FINRA.level rather than at the holding companyand to perform stress testing to ensureliquidity is available when needed.While there are currently no definitiveSEC rules governing liquidity, industryexperts expect to see some liquidityrules for securities-based swaps dealersproposed by the end of the year.Regulators have beenchallenged to find theappropriate model todeterminethe amount of capital thathas to be maintained bybroker-dealers.17 Banking & Securities Update – Fall 2012
  • ResourcesWe provide a number of articles and webcasts on financial reform and other topics affecting the banking and securities industries.Our thought leadership includes the following:• Top 10 ways banks can grow in 2012 — During recent years, consumers and businesses alike have been in survival mode. Many industries, including banking, have cut costs to weather the recession. However, austerity alone will not lead to long- term growth. This Grant Thornton white paper asserts that even in the midst of challenges, banks can take steps to grow.• Broker-dealer industry update — Articles provide highlights of Grant Thornton roundtable events that focus on hot topics in the broker-dealer industry.• Banking industry hot topics — Articles summarize roundtable events hosted by Grant Thornton to discuss important developments in the banking industry.• Merger and acquisition services for banks — As advisers to the banking industry, we help clients initiate and execute M&A transactions in today’s dynamic global market.• Financial Bulletin — This electronic publication covers regulations and developments affecting the financial services industry.• Continual stress tests: Peace of mind for banks and regulators —The Federal Reserve Bank has required 19 of the country’s largest banks to file comprehensive capital plans and perform stress testing in order to evaluate how their operations would hold up during another economic crisis. This paper details additional key actions decision-makers can use to help manage liquidity and solvency expectations throughout many types of economic cycles.• Making ERM work for your institution — In the wake of the financial crisis, corporate risk has received unprecedented national exposure, with stakeholders, rating agencies, governance organizations, stock exchanges and the media all sharpening their focus on enterprise risk management (ERM) and its role within institutions today. Despite this sharpened focus, though, many institutions are still struggling to implement ERM successfully. This issue of Currency outlines steps you can take to establish an ERM program that fits the needs of your institution.• New Developments Summary — Periodic bulletins provide detailed summaries of recent technical developments and accounting pronouncements.• Currency — Grant Thornton’s electronic newsletter for bank executives is published periodically and covers issues and trends affecting financial institutions.• Allowance for loan and lease losses (ALLL) adjustment factors — The ALLL for a bank has several components. The primary components consist of loans collectively evaluated for impairment (the FAS 5 component), loans individually evaluated for impairment (the FAS 114 component), and loans acquired with deteriorated credit quality (the SOP 03-3 component). This paper focuses on the FAS 5 component of the allowance.Visit www.GrantThornton.com/financialservices for more information.18 Banking & Securities Update – Fall 2012
  • About the publication This Grant Thornton LLP bulletin providesBanking and Securities practice upcoming events information and comments on current accounting issues and developments.Date and time Name Type It is not a comprehensive analysis ofOct. 24, 2012 4:30–7 p.m. EST Broker-Dealer Industry Hot Topics Symposium (New York, N.Y.) Event the subject matter covered and is not intended to provide accounting or otherOct. 25, 2012 3–4:30 p.m. EST The JOBS Act and tick sizes: Decimalization, public policy Webcast advice or guidance with respect to and the impact on banks the matters addressed in the bulletin. All relevant facts and circumstances,Nov. 1, 2012 2–3:30 p.m. EST Compliance, BASEL III, and beyond Webcast including the pertinent authoritative literature, need to be considered toNov. 9, 2012 2–4 p.m. EST Regulatory risk for bank executives Webcast arrive at conclusions that comply with matters addressed in this document.Nov. 28, 2012 4:30–7 p.m. EST Banking Industry Hot Topics Symposium (New York, N.Y.) Event AcknowledgementsNov. 30, 2012 2:00–3 p.m. EST M&A for banks: Maximizing opportunity as a buyer or a seller Webcast Molly Curl, Kendra Decker, Karen Elliott, Richard Flowers, Debra Hahn, Peter Ladas,Dec. 6, 2012 2–4 p.m. EST Banking Industry Update Webcast Kristen Malinconico, Jamie Mayer, Tariq Mirza, Mary Moore Hamrick,Dec. 7, 2012 2–4 p.m. EST Broker-Dealer Industry Update Webcast Jeff Moskowitz, Eric Stone. Contact For additional information about the topics covered in this document, please contact your Grant Thornton adviser or one of the professionals listed below: Jack Katz National Managing Partner Financial Services T 212.542.9660 E jack.katz@us.gt.com Nichole Jordan National Banking and Securities Industry LeaderThe information contained herein is general in nature and based on authorities that are subject to change. It is not intended T 212.624.5310and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This E nichole.jordan@us.gt.commaterial may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax andother tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. © Grant Thornton LLPGrant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect All rights reservedinformation contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in anyform or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or Grant Thornton LLP is the U.S. member firmusing any information storage and retrieval system without written permission from Grant Thornton LLP. of Grant Thornton International Ltd.Tax professional standards statementThis document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at theparticular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thorntonor their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothingherein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matteraddressed. To the extent this document may be considered written tax advice, in accordance with applicable professional regulations,unless expressly stated otherwise, any written advice contained in, forwarded with, or attached to this document is not intended orwritten by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may beimposed under the Internal Revenue Code.19 Banking & Securities Update – Fall 2012