Washington & Regulatory Update

1. Washington & Regulatory Update Iowa Trust Conference October 3, 2013 Phoebe Papageorgiou Center for Securities, Trust and Investments aba.com1-800-BANKERS

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

3. 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

4. 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

5. 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

6. 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, 2013 6

7. 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

8. 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

9. 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 1/23/2014. 9

10. 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

11. 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

12. 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

13. 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.

14. 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

15. 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