Fifth Third Bank 2012 Annual Report Download - page 169

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167 Fifth Third Bancorp
to register as a broker. In September 2007, the FRB and SEC
approved Regulation R to govern bank securities activities.
Various exemptions permit banks to conduct activities that would
otherwise constitute brokerage activities under the securities laws.
Those exemptions include conducting brokerage activities related
to trust, fiduciary and similar services, certain services and also
conducting a de minimis number of riskless principal
transactions, certain asset-backed transactions and certain
securities lending transactions. The Bancorp only conducts non-
exempt brokerage activities through its affiliated registered
broker-dealer.
Regulatory Reform
On July 21, 2010, President Obama signed into law the Dodd-
Frank Act, which is aimed, in part, at accountability and
transparency in the financial system and includes numerous
provisions that apply to and/or could impact the Bancorp and its
banking subsidiary. The Dodd-Frank Act implements changes
that, among other things, affect the oversight and supervision of
financial institutions, provide for a new resolution procedure for
large financial companies, create a new agency responsible for
implementing and enforcing compliance with consumer financial
laws, introduce more stringent regulatory capital requirements,
effect significant changes in the regulation of over-the-counter
derivatives, reform the regulation of credit rating agencies,
implement changes to corporate governance and executive
compensation practices, incorporate requirements on proprietary
trading and investing in certain funds by financial institutions
(known as the “Volcker Rule”), require registration of advisers to
certain private funds, and effect significant changes in the
securitization market. In order to fully implement many
provisions of the Dodd-Frank Act, various government agencies,
in particular banking and other financial services agencies are
required to promulgate regulations. Set forth below is a
discussion of some of the major sections the Dodd-Frank Act and
implementing regulations that have or could have a substantial
impact on the Bancorp and its banking subsidiary. Due to the
volume of regulations required by the Dodd-Frank Act, not all
proposed or final regulations that may have an impact on the
Bancorp or its banking subsidiary are necessarily discussed.
Financial Stability Oversight Council
The Dodd-Frank Act creates the Financial Stability Oversight
Council (“FSOC”), which is chaired by the Secretary of the
Treasury and composed of expertise from various financial
services regulators. The FSOC has responsibility for identifying
risks and responding to emerging threats to financial stability. On
March 15, 2012, the Department of Treasury issued a final rule to
establish an assessment schedule for the collection of fees from
bank holding companies with at least $50 billion in assets and
foreign banks with at least $50 billion in assets in the U.S. to
cover the expenses of the Office of Financial Research and
FSOC. The fees would also cover certain expenses incurred by
the FDIC. The initial assessment period commenced July 21,
2012 and ends March 31, 2013. The Bancorp paid approximately
$1 million for the initial assessment period. The next scheduled
assessment is set to occur on September 16, 2013.
Executive Compensation
The Dodd-Frank Act provides for a say on pay for shareholders of
all public companies. Under the Dodd-Frank Act, each company
must give its shareholders the opportunity to vote on the
compensation of its executives at least once every three years.
The Dodd-Frank Act also adds disclosure and voting
requirements for golden parachute compensation that is payable
to named executive officers in connection with sale transactions.
Pursuant to the Dodd-Frank Act, in June 2012, the SEC
adopted a final rule directing the stock exchanges to prohibit
listing classes of equity securities if a company’ s compensation
committee members are not independent. The rule also provides
that a company’ s compensation committee may only select a
compensation consultant, legal counsel or other advisor after
taking into consideration factors to be identified by the SEC that
affect the independence of a compensation consultant, legal
counsel or other advisor.
The SEC is required under the Dodd-Frank Act to issue rules
obligating companies to disclose in proxy materials for annual
meetings of shareholders information that shows the relationship
between executive compensation actually paid to their named
executive officers and their financial performance, taking into
account any change in the value of the shares of a company’ s
stock and dividends or distributions.
The Dodd-Frank Act provides that the SEC must issue rules
directing the stock exchanges to prohibit listing any security of a
company unless the company develops and implements a policy
providing for disclosure of the policy of the company on
incentive-based compensation that is based on financial
information required to be reported under the securities laws and
that, in the event the company is required to prepare an
accounting restatement due to the material noncompliance of the
company with any financial reporting requirement under the
securities laws, the company will recover from any current or
former executive officer of the company who received incentive-
based compensation during the three-year period preceding the
date on which the company is required to prepare the restatement
based on the erroneous data, any exceptional compensation above
what would have been paid under the restatement.
The Dodd-Frank Act requires the SEC to adopt a rule to
require that each company disclose in the proxy materials for its
annual meetings whether an employee or board member is
permitted to purchase financial instruments designed to hedge or
offset decreases in the market value of equity securities granted as
compensation or otherwise held by the employee or board
member.
Corporate Governance
The Dodd-Frank Act clarifies that the SEC may, but is not
required to promulgate rules that would require that a company’ s
proxy materials include a nominee for the board of directors
submitted by a shareholder. Although the SEC promulgated rules
to accomplish this, these rules were invalidated by a federal
appeals court decision. The SEC has said that they will not
challenge the ruling, but has not ruled out the possibility that new
rules could be proposed.
The Dodd-Frank Act requires stock exchanges to have rules
prohibiting their members from voting securities that they do not
beneficially own (unless they have received voting instructions
from the beneficial owner) with respect to the election of a
member of the board of directors (other than an uncontested
election of directors of an investment company registered under
the Investment Company Act of 1940), executive compensation
or any other significant matter, as determined by the SEC by rule.
Credit Ratings
The Dodd-Frank Act includes a number of provisions that are
targeted at improving the reliability of credit ratings. The SEC has
been charged with adopting various rules in this regard.