Washington & Regulatory Update Iowa Trust Conference October 3, 2013 Phoebe Papageorgiou Center for Securities, Trust and Investments aba.com BANKERS

Dodd-Frank Act Rulemaking SEC Money Market Fund Proposal SEC Municipal Advisor Final Rule Consumer Financial Protection Bureau SEC Unresponsive Payee Rule 2

aba.com BANKERS DFA: SEC Money Market Fund Proposal Alternative One – Floating NAV for Institutional Prime Funds – Stable NAV for Government Funds and Retail Prime Funds Alternative Two – “Fees” and “gates” on Prime Funds that do not meet certain liquidity requirements Additional Disclosures – On sponsor support, material events, etc. 3

aba.com BANKERS DFA: Municipal Advisor Final Rule Must register if providing “advice” to municipal entity on: – issuance of municipal securities or – “municipal financial products” (e.g., investment strategies, GICs, municipal derivatives) “ Investment strategies” = investment of proceeds from sale of municipal securities

aba.com BANKERS DFA: Municipal Advisor Final Rule Exemptions for: – Public Officials and Employees, Underwriters, RIAs, attorneys, engineers – Banks providing advice on: deposit accounts, extensions of credit, or bond indenture trustee services Registration under final rules effective July 1, 2014 MSRB to draft rules on fiduciary duty, continuing education, record keeping requirements

aba.com BANKERS DFA: Consumer Financial Protection Bureau Regulation E – Final Remittance Rule – Banks must provide certain disclosures and rights to individual customers requesting foreign wire transfers. – Could apply to requests made to wire money from custody accounts, investment management accounts – Compliance deadline: October 28,

aba.com BANKERS DFA: Consumer Financial Protection Bureau Report on Senior Designations for Financial Advisers Conclusion: Variety of designations indicating expertise in the provision of financial advice to seniors is confusing to the public Recommendations to SEC and other policy makers to improve: – dissemination of information about senior designations; – standards for the acquisition of senior designations; – standards for senior designee conduct; and – enforcement related to the misuse of senior designations 7

aba.com BANKERS DFA: SEC Unresponsive Payee Rule Unresponsive Payee is a security holder who does not negotiate a check before earlier of: – paying agent’s sending next regularly scheduled check – elapsing of 6 months after sending non-negotiated check Paying Agent: – Applies to custodians, investment advisers, indenture trustees, and those who receive payments from issuer and distribute payments to holders of security – At least one written notification to unresponsive payee, no later than 7 months after sending first check – “Payments” include dividends, litigation proceeds 8

aba.com BANKERS DFA: SEC Unresponsive Payee Rule Can send electronic notices if the security holder has elected to receive them. Exemption for Payments less than $25 No effect on state escheatment laws. Compliance date 1/23/

aba.com BANKERS Tax Laws and Regulations Status of IRS Guidance – Cost Basis Reporting of Debt Instruments and Options – Net Investment Income Tax – Section 67(e) Rulemaking – Type III Supporting Organization Final/Temporary Rules Congress – House and Senate Tax Reform Efforts 10

aba.com BANKERS Tax: Cost Basis Reporting of Debt Brokers must presumes that taxpayer elected to amortize taxable bonds, unless told otherwise Short-term debt instruments are exempt from reporting Brokers must transfer detailed information to receiving broker if account moves to new institution Reporting commences on debt acquired: – After 1/1/14 for fixed maturity date/yield debt – After 1/1/16 for complex debt 11

aba.com BANKERS Tax: Net Investment Income Tax Section 1411 imposes a 3.8% tax on certain net investment income above specified threshold amounts Threshold for trusts: $11,650 for tax year 2012 If trust distributes all income, NIIT potentially imposed on beneficiary not trust NII does not include wages, operating income from a non-passive business, Social Security benefits, alimony, tax-exempt interest, and distributions from certain defined contribution plans Does not apply to charitable trusts, grantor trusts (may be imposed on grantor), bank common/collective funds

aba.com BANKERS Tax: Section 67(e), “Unbundling” Fee Rule September 2011 proposal looks to whether an individual would commonly/customarily incur a particular expense If trustee fee imposed on a non-hourly basis (e.g., assets under management), only need to “unbundle” the portion of fee for investment management services Unbundled portion subject to the 2% floor IRS: no requirement to “unbundle” trustee fees until a final rule is issued. No final rule issued yet.

aba.com BANKERS Tax: Type III Supporting Orgs Type III Supporting Organizations are tax-exempt entities organized under IRC 501(c)(3) and 509(a)(3)(B)(iii) that support other tax- exempt organizations, usually public charities. Final/Temporary rules require: – 3.5% annual payout to supported organizations – Trustee must give charitable organization beneficiaries a “significant voice” in the investment policies and the selection of grant recipients – Trustee must meet quarterly with charitable beneficiaries. May be telephonic meetings. IRS to issue further guidance on trusts that have specific provisions in governing document on selection and timing of grants 14

aba.com BANKERS House and Senate Tax Reform Efforts House Ways and Means Committee Discussion Draft on Taxation of Financial Products – Expansion of Wash Sales Rules – Mandatory Average Basis for Lot Selection Method Senate Finance Committee Tax Reform Option Papers 15