KeyBank 2015 Annual Report Download - page 29

Other Regulatory Developments under the Dodd-Frank Act
Consumer Financial Protection Bureau
Title X of the Dodd-Frank Act created the CFPB, a consumer financial services regulator with supervisory
authority over banks and their affiliates with assets of more than $10 billion, like Key, to carry out federal
consumer protection laws. The CFPB also regulates financial products and services sold to consumers and has
rulemaking authority with respect to federal consumer financial laws. Any new regulatory requirements
promulgated by the CFPB or modifications in the interpretations of existing regulations could require changes to
Key’s consumer-facing businesses. The Dodd-Frank Act also gives the CFPB broad data collecting powers for
fair lending for both small business and mortgage loans, as well as extensive authority to prevent unfair,
deceptive and abusive practices.
“Volcker Rule”
The Volcker Rule implements Section 619 of the Dodd-Frank Act. The Volcker Rule prohibits “banking
entities,” such as KeyCorp, KeyBank and their affiliates and subsidiaries, from owning, sponsoring, or having
certain relationships with hedge funds and private equity funds (referred to as “covered funds”) and engaging in
short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments.
The Volcker Rule excepts certain transactions from the general prohibition against proprietary trading, including
transactions in government securities (e.g., U.S. Treasuries or any instruments issued by the GNMA, FNMA,
FHLMC, a Federal Home Loan Bank, or any state or a political division of any state, among others); transactions
in connection with underwriting or market-making activities; and, transactions as a fiduciary on behalf of
customers. Banking entities may also engage in risk-mitigating hedges if the entity can demonstrate that the
hedge reduces or mitigates a specific, identifiable risk or aggregate risk position of the entity. The banking entity
is required to conduct an analysis supporting its hedging strategy and the effectiveness of the hedges must be
monitored and, if necessary, adjusted on an ongoing basis. Banking entities with more than $50 billion in total
consolidated assets and liabilities, like Key, that engage in permitted trading transactions are required to
implement enhanced compliance programs, to regularly report data on trading activities to the regulators, and to
provide a CEO attestation that the entity’s compliance program is reasonably designed to comply with the
Volcker Rule.
Although the Volcker Rule became effective on April 1, 2014, on December 18, 2014, the Federal Reserve
exercised its unilateral authority to extend the compliance deadline until July 21, 2016, with respect to covered
funds. The Federal Reserve further indicated its intent to grant an additional one-year extension of the
compliance deadline until July 21, 2017, and indicated it would re-evaluate its rules relating to the process by
which banking entities would be able to apply for further five-year extensions. Key does not anticipate that the
proprietary trading restrictions in the Volcker Rule will have a material impact on its business, but it may be
required to divest certain fund investments as discussed in more detail under the heading “Other investments” in
Item 7 of this report.
Enhanced prudential standards and early remediation requirements
Under the Dodd-Frank Act, the Federal Reserve must impose enhanced prudential standards and early
remediation requirements upon BHCs, like KeyCorp, with at least $50 billion in total consolidated assets.
Prudential standards must include enhanced risk-based capital requirements and leverage limits, liquidity
requirements, risk-management and risk committee requirements, resolution plan requirements, credit exposure
report requirements, single counterparty credit limits (“SCCL”), supervisory and company-run stress test
requirements and, for certain financial companies, a debt-to-equity limit. Early remediation requirements must
include limits on capital distributions, acquisitions, and asset growth in early stages of financial decline and
capital restoration plans, capital raising requirements, limits on transactions with affiliates, management changes,
and asset sales in later stages of financial decline, which are to be triggered by forward-looking indicators
including regulatory capital and liquidity measures.
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