(July 22, 2010) - Today, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, the most sweeping overhaul of financial market regulations since the Great Depression. The new act reforms many aspects of the financial system, acts made possible with the creation of two new bodies, the Consumer Financial Protection Bureau and the Financial Stability Oversight Council. Significantly, the act exempts small public companies from Sarbanes- Oxley section 404(b), causes auditors of broker- dealers to be affected by PCAOB regulation, changes the registration requirements for investment advisors, and addresses issues of executive compensation.

The Consumer Financial Protection Bureau will be lead by an independent director appointed by the President and will have an independent budget paid by the Federal Reserve System. The Bureau will write rules governing all financial institutions offering consumer financial services or products. Additionally, it will be able to examine and enforce regulations for banks and credit unions with assets of more than $10 billion, and for all mortgage- related businesses, payday lenders, student lenders and other non-bank financial companies, i.e. debt collectors and consumer reporting agencies.

The Bureau consolidates all consumer protection responsibilities that were distributed among eight federal agencies, including the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the FDIC, and the FTC. The Office of Thrift Supervision, which was the regulator for savings-and-loan financial institutions, will be eliminated, and savings-and-loan financial institutions will be regulated by the Office of the Comptroller of the Currency.

The Financial Stability Oversight Council includes heads of regulatory agencies, the chairman of the Federal Reserve, FDIC and SEC among others. The Treasury secretary will chair the council. This council will identify any company, product or activity that could threaten the stability of the financial system. The council may also submit comments to the SEC, or any standard- setting body, regarding any existing or proposed accounting principle, standard or procedure.

The Office of Financial Research, created within the Treasury, will support the council’s work by collecting financial data and conducting economic analysis. The staff will include economists, accountants, lawyers, former supervisors and other specialists to assist the council in identifying and monitoring emerging risks to the economy and make periodic reports.

The act amends Sarbanes- Oxley (SOX) and makes nonaccelerated filers, those with less than $75 million in market cap, permanently exempt from the section 404(b) requirement. The SEC is required to complete a study within nine months on how to reduce the burden of SOX 404(b) compliance for companies with market caps between $75 million and $250 million.

Additionally, the SOX amendment requires auditors of all broker- dealers to register with the PCAOB. The PCAOB can now require a program of inspection for those auditors, but can differentiate among broker-dealer classes and exempt introducing brokers who do not engage in clearing, carrying or custody of client assets. Any auditors not covered by the PCAOB’s inspection rules are not required to register.

The Investment Advisers Act of 1940 required investment advisors with over $30 million in assets under management to register with the SEC; however, under the new law, only investment advisors with more than $100 million in management need to register with the SEC. Investment advisors with less than $100 million in management are subject to state securities oversight, unless an advisor needs to register with 15 or more states, and can then register with the SEC. Furthermore, the private advisor exemption under the Investment Advisers Act of 1940 is eliminated.

The act now requires a nonbinding shareholder vote on executive pay and golden parachutes. The SEC can grant shareholders proxy access to nominate directors, ideally to shift management’s focus to long-term growth and stability. Directors on compensation committees must be independent of the company, and public companies must reclaim executive compensation if based on inaccurate financial statements that don’t comply with accounting standards.

The law, at more than 2,000 pages, makes significant changes in the United States financial system. A PDF of a comprehensive survey written by the House Committee on Financial Services is available here, and a PDF of the full text can be found by clicking here . Please contact your HEIN & ASSOCIATES LLP engagement partner if you have questions about how these new regulations will affect your business.

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