eTrade 2010 Annual Report Download - page 9

Both our brokerage and banking entities are subject to the Bank Secrecy Act, as amended by the USA
PATRIOT ACT of 2001 (“BSA/USA PATRIOT Act”), which contains anti-money laundering and financial
transparency laws. In order to comply with the BSA/USA PATRIOT Act, we have established an Anti-Money
Laundering (“AML”) unit which is responsible for developing and implementing enterprise-wide programs for
compliance with the various anti-money laundering and counter-terrorist financing laws and regulations.
Brokerage Regulation
Our broker-dealers are registered with the SEC and are subject to regulation by the SEC and by self-
regulatory organizations, such as FINRA and the securities exchanges of which each is a member, as well as
various state regulators. Such regulation covers all aspects of the brokerage business, including, but not limited
to, client protection, net capital requirements, required books and records, safekeeping of funds and securities,
trading, prohibited transactions, public offerings, margin lending, customer qualifications for margin and options
transactions, registration of personnel and transactions with affiliates. Our international broker-dealers are
regulated by their respective local regulators such as the United Kingdom Financial Services Authority (“FSA”)
and Hong Kong Securities & Futures Commission.
Banking Regulation
Our banking entities are subject to regulation, supervision and examination by the OTS, the Federal Reserve
and the FDIC. Such regulation covers all aspects of the banking business, including lending practices,
safeguarding deposits, customer privacy and information security, capital structure, transactions with affiliates
and conduct and qualifications of personnel.
Under safeguarding deposits, each of our banking entities, as an insured depository institution, is a member
of the Deposit Insurance Fund (“DIF”), maintained by the FDIC. All members of the DIF are required to pay
assessed premiums, based on their institutional risk category and the amount of insured deposits held, to fund the
DIF. On December 31, 2009 the FDIC required all insured depository institutions to prepay deposit insurance
premiums for the fourth quarter of 2009 and for 2010, 2011, and 2012.
For customer privacy and information security, under the rules of the Gramm-Leach-Bliley Act, our banking
entities are required to disclose their privacy policies and practices related to sharing customer information with
affiliates and non-affiliates. The rules also give customers the ability to “opt-out” of having non-public
information disclosed to third parties or receiving marketing solicitations from affiliates and non-affiliates based
on non-public information received from our banking entities.
Financial Regulatory Reform Legislation and Basel III Accords
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into
law on July 21, 2010 and includes comprehensive changes to the financial services industry. Under the Dodd-
Frank Act, our primary regulator, the OTS, will be abolished and its functions and personnel distributed among
the Office of the Comptroller of the Currency (the “OCC”), FDIC and the Federal Reserve. Although the Dodd-
Frank Act maintains the federal thrift charter, it eliminates certain benefits of the charter and imposes new
penalties for failure to comply with the qualified thrift lender test. The Dodd-Frank Act also requires all
companies, including savings and loan holding companies, that directly or indirectly control an insured
depository institution to serve as a source of strength for the institution.
We believe the majority of the changes in the Dodd-Frank Act will have no material impact on our business.
We believe, however, that the implementation of holding company capital requirements is relevant to us as the
parent company is not currently subject to capital requirements. We fully expect that our holding company
capital ratios will exceed the “well capitalized” minimums well in advance of the effective date and we have no
plans to raise additional capital as a result of this new law. Our confidence in our ability to meet these
requirements is reinforced by: our trajectory toward sustainable profitability; anticipated additional conversions
of our convertible debt; and the utilization of our deferred tax asset as we deliver profitable results.
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