Wells Fargo 2014 Annual Report Download - page 108

Regulatory Reform
Since the enactment of the Dodd-Frank Act in 2010, the U.S. practices within covered banks and create certain risk
financial services industry has been subject to a significant oversight responsibilities for their boards of directors.
increase in regulation and regulatory oversight initiatives. This • The Collins Amendment. This provision of the Dodd-Frank
increased regulation and oversight has substantially changed Act phases out the benefit of issuing trust preferred
how most U.S. financial services companies conduct business securities by eliminating them from Tier 1 capital over a
and has increased their regulatory compliance costs. The three year period that began on January 1, 2013.
following highlights the more significant regulations and • Regulation of consumer financial products. The Dodd-
regulatory oversight initiatives that have affected or may affect Frank Act established the Consumer Financial Protection
our business. For additional information about the regulatory Bureau (CFPB) to ensure consumers receive clear and
reform matters discussed below and other regulations and accurate disclosures regarding financial products and to
regulatory oversight matters, see Part I, Item 1 “Regulation and protect them from hidden fees and unfair or abusive
Supervision” of our 2014 Form 10-K, and the “Capital practices. With respect to residential mortgage lending, the
Management,” “Forward-Looking Statements” and “Risk CFPB issued a number of final rules in 2013 implementing
Factors” sections and Note 26 (Regulatory and Agency Capital new origination, notification and other requirements that
Requirements) to Financial Statements in this Report. generally became effective in January 2014. In November
2013, the CFPB also finalized rules integrating disclosures
Dodd-Frank Act required of lenders and settlement agents under the Truth
The Dodd-Frank Act is the most significant financial reform in Lending Act (TILA) and the Real Estate Settlement
legislation since the 1930s and is driving much of the current Procedures Act (RESPA) effective August 1, 2015. These
U.S. regulatory reform efforts. The Dodd-Frank Act and many of rules combine existing separate disclosure forms under the
its provisions became effective in July 2010 and July 2011. TILA and RESPA into new integrated forms and provide
However, a number of its provisions still require final additional limitations on the fees and charges that may be
rulemaking or additional guidance and interpretation by increased from the estimates provided by lenders. With
regulatory authorities or will be implemented over time. respect to non-residential mortgage lending, in November
Accordingly, in many respects the ultimate impact of the Dodd- 2014, the CFPB issued a proposed rule to expand consumer
Frank Act and its effects on the U.S. financial system and the protections for prepaid products such as prepaid cards. The
Company remain uncertain. The following provides additional proposal would make prepaid cards subject to similar
information on the Dodd-Frank Act, including the current status consumer protections as more traditional debit and credit
of certain of its rulemaking initiatives. cards such as fraud protection and expanded access to
account information.
• Enhanced supervision and regulation of systemically In addition to these rulemaking activities, the CFPB is
important firms. The Dodd-Frank Act grants broad continuing its on-going supervisory examination activities
authority to federal banking regulators to establish of the financial services industry with respect to a number of
enhanced supervisory and regulatory requirements for consumer businesses and products, including mortgage
systemically important firms. The FRB has finalized a lending and servicing, fair lending requirements, student
number of regulations implementing enhanced prudential lending activities, and auto finance. At this time, the
requirements for large bank holding companies (BHCs) like Company cannot predict the full impact of the CFPB’s
Wells Fargo regarding risk-based capital and leverage, risk rulemaking and supervisory authority on our business
and liquidity management, and imposing debt-to-equity practices or financial results.
limits on any BHC that regulators determine poses a grave • Volcker Rule. The Volcker Rule, with limited exceptions,
threat to the financial stability of the United States. The FRB prohibits banking entities from engaging in proprietary
and OCC have also finalized rules implementing stress trading or owning any interest in or sponsoring or having
testing requirements for large BHCs and national banks. certain relationships with a hedge fund, a private equity
The FRB has also proposed, but not yet finalized, additional fund or certain structured transactions that are deemed
enhanced prudential standards that would implement single covered funds. On December 10, 2013, federal banking
counterparty credit limits and establish remediation regulators, the SEC and CFTC (collectively, the Volcker
requirements for large BHCs experiencing financial distress. supervisory regulators) jointly released a final rule to
In addition to the authorization of enhanced supervisory implement the Volcker Rule’s restrictions. Banking entities
and regulatory requirements for systemically important are not required to come into compliance with the Volcker
firms, the Dodd-Frank Act also established the Financial Rule’s restrictions until July 21, 2015. Banking entities with
Stability Oversight Council and the Office of Financial $50 billion or more in trading assets and liabilities such as
Research, which may recommend new systemic risk Wells Fargo, however, are required to report to the Volcker
management requirements and require new reporting of supervisory regulators certain trading metrics beginning
systemic risks. The OCC, under separate authority, has also June 30, 2014. Wells Fargo has begun submitting such
recently finalized guidelines establishing heightened metrics to the Volcker supervisory regulators. During the
governance and risk management standards for large conformance period, banking entities are expected to
national banks such as Wells Fargo Bank, N.A. The OCC engage in good-faith planning efforts, appropriate for their
guidelines require covered banks to establish and adhere to activities and investments, to enable them to conform all of
a written risk governance framework in order to manage their activities and investments to the Volcker Rule’s
and control their risk-taking activities. The guidelines also restrictions by no later than July 21, 2015. Limited further
formalize roles and responsibilities for risk management extensions of the compliance period may be granted at the
discretion of the FRB. The FRB has extended the rule’s
106