1. Butterworths Journal of International Banking and Financial Law November 2010 579
Spotlight
SPOTLIGHT
The global reach of the Dodd-Frank Act
INTRODUCTION
The enactment of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (‘Dodd-Frank’ or the ‘Act’)
marks one of the most far-reaching changes
across the financial regulatory landscape
in US history. The stated objective of the
Act is focused on addressing perceived
deficiencies and gaps in the regulatory
framework for financial services in the
US, reducing the risk of bank failures, and
mitigating any future crises; however, the
scope of the reform does not stop at the
US borders. Many of the Act’s provisions
will significantly affect non-US companies
with banking and, potentially, other
financial operations in the US, as well as
foreign private issuers with no business
ties to the financial sector. In addition,
parts of Dodd-Frank could be read to apply
extraterritorially.
Because many of the key reforms have in
effect been deferred to future rulemakings,
the full impact will not be known until
those are completed. However, while the
application of portions of the Act may
be limited to US financial institutions or
US activities either explicitly or through
subsequent rulemaking, much of the Act
may be expected to have at least some impact
outside the US. Highlighted below are four
topics that are likely to have a significant
impact on non-US financial and other
companies: (i) increases in and amendments
to regulation of banks and other financial
companies, including the Volcker Rule; (ii)
amendments to the regulation of investment
advisers; (iii) enhancements to the
enforcement capabilities of the US Securities
and Exchange Commission (‘SEC’) and
other US regulatory bodies; and (iv) revised
corporate governance, disclosure and other
rules and standards.
BANKS & NONBANK FINANCIAL
COMPANIES
Designation of Non-US Nonbank Financial
Companies as Systemic. A non-US financial
company with US operations, regardless
of the size of its US operations, may be
designated by the newly established US
Financial Stability Oversight Council (the
‘Council’) as ‘systemically important’ and
therefore subject to supervision by the Board
of Governors of the Federal Reserve System
(the ‘FRB’) if the company is ‘predominantly
engaged’ in financial activities and material
distress at the company, or the scope,
interconnectedness and mix of the company’s
activities, could pose a threat to US financial
stability. Such entities (and similarly
designated US companies) are referred to
as ‘Covered Nonbank Companies.’ Under
Dodd-Frank, a company is ‘predominantly
engaged’ in financial activities if 85 per cent
or more of its annual gross revenues are
derived from, or 85 per cent or more of its
consolidated assets are related to, activities
that are ‘financial in nature,’ as defined in
the Bank Holding Company Act of 1956
(the ‘BHC Act’). These activities generally
include lending and other credit-related
activities, investment advisory activities,
securities underwriting and dealing,
insurance underwriting and brokerage, and
merchant banking.
Supervision, Examination and Regulation
of Covered Nonbank Companies. Financial
companies that the Council designates as
Covered Nonbank Companies, including
those that are non-US entities, will be subject,
among other things, to: enhanced prudential
standards, registration requirements,
examination by the FRB, the FRB’s
enforcement authority, and prohibitions on
management interlocks (when two companies
share a board director or officer) applicable
to depository institution holding companies
as if they were bank holding companies
(‘BHCs’). Covered Nonbank Companies are
also subject to monitoring and information
gathering by the Council as well as a
general concentration limit prohibiting any
acquisition that would result in one company
having more than 10 per cent of the aggregate
consolidated liabilities of all financial
companies, where liabilities are defined
as risk-weighted assets minus regulatory
capital. This may be of particular interest
to non-US financial companies, which may
not otherwise calculate risk-weighted assets.
Further, the FRB is required to examine any
non-banking subsidiary of a BHC, including
non-US BHCs with US operations, that are
engaged in activities permissible for banking
subsidiaries. This examination requirement
is, by its terms, not limited to nonbanking
subsidiaries within the US.
When exercising its supervisory authority
over, or gathering information in respect of
non-US Covered Nonbank Companies, to
the extent possible, the Council is meant
to work in co-ordination with the Office of
Financial Research and with the relevant non-
US regulators, relying, where available, on
information collected in the ordinary course
by such regulators.
Enhanced Standards for Covered Nonbank
Companies and Covered BHCs. Dodd-
Frank imposes a number of new prudential
standards and requirements on Covered
Nonbank Companies and certain large BHCs.
KEY POINTS
 Portions of the Act may be limited to US financial institutions or US activities, but much
of the Act may be expected to have an impact outside the US.
 A non-US financial company with US operations, regardless of the size of its US
operations, may be designated by the newly established US Financial Stability Oversight
Council as ‘systemically important’ and therefore subject to supervision.
 The US legislation departs from the historically applied principle of national treatment
and requires the application of US capital standards for intermediate US bank holding
company subsidiaries of non-US banks.
 Some provisions of the Act are immediately effective, but many of the required hundreds
of rulemakings will be completed over the one, two or four years following enactment, and
still others have time horizons longer than one decade for full implementation.
This article considers the impact of the Dodd-Frank Act on non-US financial and other
companies.
Authors George H White, Alan PW Konevsky and Jessica King

2. November 2010 Butterworths Journal of International Banking and Financial Law580
SPOTLIGHT
Spotlight
These standards and requirements must be
more stringent than those that apply to other
financial companies and BHCs, and must
include: risk-based capital requirements and
leverage limits, liquidity requirements, risk
management requirements, resolution plans
(so-called ‘living wills’) and credit exposure
reports, concentration limits to a single
organisation (not greater than 25 per cent
of capital stock and surplus of the banking
organisation), periodic stress tests, and
establishment of a risk committee (applicable,
in the case of BHCs, only to publicly traded
BHCs with $10bn or more in assets). In
addition, the standards may, at the discretion
of the FRB, include: contingent capital
requirements, enhanced public disclosures,
short-term debt limits, and other prudential
standards the FRB deems appropriate.
These heightened standards and
requirements apply to all banking
organisations that have $50bn or more in
assets, and, read literally, this would include
non-US banks with worldwide assets of
$50bn even if their US assets are well below
$50bn. Accordingly, this new regime could
be read to apply to: (i) a non-US bank with
worldwide assets of at least $50bn that is
a BHC because it owns a US depository
institution (irrespective of its size) and any
non-US company that controls such a non-US
bank: and (ii) a non-US bank with worldwide
assets of at least $50bn that is treated as a
BHC because it has US branches, agencies
or commercial loan subsidiaries (irrespective
of their size) and any non-US company that
controls such a non-US bank (collectively,
‘Covered BHCs’). The legislation departs
from the principle of national treatment
historically applied by the FRB and now
requires the application of US capital
standards for intermediate US bank holding
company subsidiaries of non-US banks.
Capital Requirements. Of particular
interest to non-US entities are the leverage
and risk-based capital requirements
imposed by the Act. Those requirements
currently applicable to insured depository
institutions are expanded by the Act to
apply to all Covered Nonbank Companies
and all US depository institution holding
companies (BHCs and savings and loan
holding companies (‘SLHCs’)), including all
US BHCs owned or controlled by non-US
banking organisations (but not to the non-US
banking organisations themselves), and not
just those with $50bn or more in assets. Non-
US banking organisations with intermediate
US BHCs have five years after the Act’s
enactment to meet the new capital standards.
Application to Non-US Entities. For a non-
US entity, a key question is how the FRB will
apply this new enhanced regulatory regime to
it. There are two provisions in Dodd-Frank
that give the FRB flexibility in administering
this regime for non-US entities. First, the FRB
may tailor the requirements and apply them
in a graduated manner based on the risks,
size, complexity, activities or other factors of a
company or category of companies. Secondly,
and of even more relevance, the FRB must
give due regard to the principle of national
treatment and the equality of competitive
opportunity, taking into account the extent
to which the non-US entity is subject on a
consolidated basis to home country standards
that are comparable to those applied to
financial companies in the US.
The FRB currently assesses the capital
status and management of non-US banking
organisations for various US regulatory
purposes on the basis of the home country
supervisor’s assessment if the FRB has found
that the home country satisfies the FRB’s
standards for consolidated supervision and has
adopted risk-based capital standards that are
consistent with the Basel Committee Capital
Accord. The question raised by the legislation
is whether the FRB will continue this policy if
the home country rules do not provide for the
enhanced risk-based capital, leverage, liquidity,
concentration and other prudential standards
required for US BHCs with $50bn or more in
assets. A similar question arises as to whether
the FRB would or could rely on home country
standards for non-US Covered Nonbank
Companies. The answer to these questions will
likely turn, at least to an extent, on the size and
interconnectedness of the US operations of the
non-US company.
In addition, it is not clear how the FRB
will be able to adapt certain of these standards
to non-US companies in a meaningful way.
For example, the preparation of a resolution
plan by such an organisation to satisfy US
supervisors, even though the company would
be unlikely to be resolved under US law,
may not be a useful supervisory exercise. In
addition, it is unclear how the FRB would
subject a company to stress tests when the
majority of the operations are overseas.
Implementing these requirements will likely
require substantial co-ordination with non-
US regulators and may be partially alleviated
if the FRB uses the authority provided in
Dodd-Frank to give due regard to national
treatment and equality of competitive
opportunity.
VOLCKER RULE
The so-called Volcker Rule prohibits a
banking entity from engaging in ‘proprietary
trading’ and acquiring or retaining any
equity or other ownership interest in, or
sponsoring, a ‘hedge fund or a private equity
fund’. A ‘banking entity’ is defined to include
non-US banks with US branches or agencies
as well as non-US banks that are BHCs or
SLHCs. There are other provisions of the
Act relating to regulation of swaps and other
derivatives and asset backed securities and
related activities and businesses that operate
in addition to the Volcker Rule.
There are a series of exceptions to the
Volcker Rule for ‘permitted activities.’ To
address the extra-territorial application of the
Volcker Rule, there are, among these permitted
activities, exemptions for activities conducted
pursuant to ss 4(c)(9) and (13) of the BHC Act
by non-US institutions ‘solely outside the United
States’. In the case of sponsoring or investing in
private equity and hedge funds, the exemption
is only available if interests in the fund are not
sold or offered for sale to any US resident.
The impact of the Volcker Rule on the non-
US operations of non-US banks will depend
on how the FRB interprets these exceptions,
including particularly the ‘solely outside’ the US
requirement, which is not used elsewhere in the
BHC Act. Among other important questions is
whether the underlying funds can invest in US
businesses and, if so, to what extent. Sections
4(c)(9) and (13) of the BHC Act, which exempt
most non-US operations of non-US banks,
permit activities in the US that are incidental to
the non-US operations.

3. Butterworths Journal of International Banking and Financial Law November 2010 581
Spotlight
SPOTLIGHT
The Council has released a request
for information seeking public input on
implementation of the Volcker Rule. The
FRB and the other federal regulatory agencies
are required to issue implementing rules
within nine months after completion of the
Council’s study on the Volcker Rule, which is
to be completed within six months after the
enactment of Dodd-Frank.
INVESTMENT FUNDS
In addition to the potential applicability
of the Volcker Rule discussed above,
Dodd-Frank amends the rules governing
registration and record-keeping of
investment advisers, broadening those rules
to reach categories of advisers that were
previously exempt from SEC requirements.
In short, all investment advisers to private
equity and hedge funds with more than
$150m of assets under management must
register with the SEC, and, depending on
their client base, certain of these investment
advisers will be required to register with
either the SEC or state authorities if their
assets under management reach lower
thresholds. While some investment advisers,
including advisers to venture capital funds,
may take advantage of exemptions to
registration, all investment advisers with
US clients will be subject to heightened
recordkeeping requirements.
Registration. Dodd-Frank removes two
major exemptions from registration, record-
keeping and SEC inspection requirements
under the Investment Advisers Act of 1940
(the ‘Advisers Act’). The Act repeals the
‘private adviser’ exemption, which currently
exempts investment advisers with fewer
than 15 clients. Dodd-Frank also limits the
exemption for intrastate investment advisers
by removing from its scope those advisers
who provide advice to ‘private funds’, or
issuers that would be investment companies
under the Investment Company Act of 1940
but for the exemptions provided by ss 3(c)(1)
or 3(c)(7) of that law (which exempt from
registration those issuers whose securities are
held (i) by fewer than 100 beneficial holders
or (ii) exclusively by ‘qualified purchasers’,
respectively). Private equity, venture capital,
real estate and hedge funds often rely upon
these exemptions (as well as certain SEC
no-action letters that provide broader relief to
non-US issuers by analogy to these statutory
exemptions).
The Act then establishes the framework
for a series of new exemptions, the details
and scope of which are subject to final SEC
rulemaking. Of most direct interest to
non-US investment advisers, Dodd-Frank
establishes an exemption from registration
for any adviser that is a ‘foreign private
adviser’, defined to include advisers with
no place of business in the US, who do not
hold themselves out in the US as investment
advisers and who meet certain criteria
regarding their client base and amount of
assets under management. This provision
retains the traditional limit of 14 clients,
but modifies it by requiring that investors
in the US in private funds advised by the
adviser also be counted against the limit.
The provision raises the threshold for SEC
registration from $25m to $100m of assets
under management, but also imposes a new
ceiling of $25m of assets under management
attributable to clients in the US and investors
in the US in private funds. Further, the Act
specifies an exemption for any investment
adviser to a ‘venture capital fund’, as it will
be defined by the SEC within one year of
Dodd-Frank’s enactment, and contemplates
a general exemption for investment advisers
who solely advise ‘private funds’ (as defined
above), provided the adviser has less than
$150m in assets under management. These
requirements will become effective one year
from the date of enactment, with earlier
registration expressly permitted.
The requirement to count US investors
in private funds towards the conventional
numerical limit and the imposition of a dollar
cap on assets under management appears
likely to trigger the registration requirement
for many non-US advisers that already
manage substantial US assets without being
required to register.
Recordkeeping. Regardless of any
applicable exemption from SEC registration,
investment advisers with US clients will
be subject to expanded recordkeeping
rules. Required records will be subject to
SEC inspection; however, subject to the
SEC’s determination of what constitutes
proprietary information and which should
therefore enjoy confidential treatment, the
records will generally be exempt from public
disclosure under the Freedom of Information
Act.
ENFORCEMENT
In addition to strengthening and
supplementing the US regulatory bodies’
supervisory capabilities, Dodd-Frank also
enhances both governmental and private
parties’ ability to enforce US securities laws
in certain respects.
Information Gathering: Two provisions
heighten the ability of the SEC and
other regulators to accumulate and share
information in furtherance of enforcement
actions. Both provisions strongly relate to
international activity and are designed to
apply equally to non-US entities that are
subject to US securities laws, whether or not
they are financial institutions.
Dodd-Frank takes a unique new approach
to encouraging whistleblowing activity,
providing a mandatory reward to those who
voluntarily provide original, independently
derived information to the SEC or the US
Commodity Futures Trading Commission
relating to violations of the securities laws,
including the Foreign Corrupt Practices
Act. The Act also provides broad protection
to employees who provide information or
testimony to the newly created Bureau of
Consumer Financial Protection housed
within the Federal Reserve system. Dodd-
Frank extends the whistleblower provisions
of s 806 of the Sarbanes-Oxley Act of 2002
to cover employees of certain affiliates and
subsidiaries of publicly traded companies.
Further, the Act amends and clarifies the
False Claims Act (‘FCA’) to provide a cause
of action to ‘an employee contractor, agent or
associated others’ against whom an adverse
employment action has been taken because of
lawful actions undertaken to stop a violation
of the FCA.
Rules permitting exchanging privileged
information with non-US authorities have
also been expanded to promote greater
information sharing between international
authorities. The SEC and the US Public

4. November 2010 Butterworths Journal of International Banking and Financial Law582
SPOTLIGHT
Spotlight
Company Accounting Oversight Board
(‘PCAOB’) may share information with non-
US authorities without being deemed to waive
privilege. At the same time, these entities
cannot be compelled to disclose information
obtained by non-US authorities when that
information is covered by legal privilege.
Extraterritorial Jurisdiction: The jurisdiction
of the US Department of Justice and the SEC
under the antifraud provisions of the Securities
Act of 1933 (the ‘Securities Act’), the Securities
Exchange Act of 1934 (the ‘Exchange Act’)
and the Advisers Act has been expanded to
include ‘conduct within the United States that
constitutes significant steps in furtherance of
the violation, even if the securities transaction
occurs outside the United States and involves
only foreign investors,’ as well as ‘conduct
occurring outside the United States that has
a foreseeable effect within the United States’.
This provision comes in the wake of the
Supreme Court’s recent decision in Morrison
v National Australia Bank Ltd, which limited
the reach of the antifraud provisions to
transactions occurring only in the US.
The expanded extraterritorial jurisdiction
does not include a grant of a private right
of action in respect of actions by non-US
plaintiffs suing non-US and US defendants
for misconduct in connection with securities
traded on non-US exchanges. However,
included in the long list of topics the SEC
is directed to study in the months following
the enactment of Dodd-Frank is the extent
to which a private right of action should be
expanded.
Foreign Accounting Firms. Two provisions
of Dodd-Frank affect foreign public
accounting firms specifically. First, when
a domestic registered public accounting
firm relies upon the material services of a
foreign public accounting firm, that firm
must produce any work papers and other
documents that the SEC or PCAOB request.
The firm must also submit to the jurisdiction
of US courts for any enforcement that results
from such request. Second, in order for the
SEC and PCAOB to effect service of any
request for documents on a foreign public
accounting firm that performs work for a
domestic registered public accounting firm,
such a firm must furnish an irrevocable
consent and power of attorney designating
the domestic firm as its agent in the US.
Expanded Liability. Dodd-Frank expands
both enforcement authority and substantive
reach of the relevant provisions in a number
of ways that impose greater liability under
a variety of securities laws. First, not only
private parties, but also now the SEC has
authority to bring actions under s 20(a) of
the Exchange Act based on ‘control person’
liability, which imposes joint and several
liability upon control persons for the acts of
those under their control.
Secondly, the SEC can bring actions for
aiding and abetting securities law violations
under the Securities Act, the Investment
Companies Act and the Advisers Act, in
addition to its existing authority under the
Exchange Act. These actions may also now
be based on ‘knowing’ or ‘reckless’ conduct.
Thirdly, the anti-manipulation provisions
of s 9 of the Exchange Act, which formerly
applied only to exchange-traded securities,
are expanded to reach all securities, except
government securities.
Remedies. Dodd-Frank also expands the
remedies available to the SEC. The SEC
may impose monetary penalties in cease
and desist proceedings against any person.
The SEC may also impose collateral bars
against association with any broker-dealer,
investment adviser, transfer agent, or credit
rating agency for violations of the Exchange
Act and the Advisers Act. This expands the
SEC’s enforcement options beyond their
current reach, which permitted only bars
against association with entities regulated
under the same securities law provisions as
those which were violated.
CORPORATE GOVERNANCE AND
OTHER MATTERS
Dodd-Frank establishes several new
requirements relating to corporate
governance and disclosure. Many of these
requirements apply only to US entities
that are subject to US proxy rules, while
others cast a wide net that may be narrowed
by implementing regulations. Outlined
here are those most likely to directly
affect non-US entities. In addition to the
matters discussed below, there are detailed
provisions with respect to credit rating
agencies and the use of ratings in the
marketing and sale of securities.
Private Placement Exemption. Effective
immediately, the value of a primary residence
must be excluded from the calculation of net
worth of a natural person for the purpose of
determining qualification as an ‘accredited
investor’ to whom securities may be sold in
an exempt US private placement.
Compensation Committee Independence.
All US stock exchanges must require that
listed companies limit membership of their
compensation committees exclusively to
independent directors. Foreign private
issuers may continue to follow the corporate
governance practices of their home countries,
provided they disclose to their shareholders
(and the SEC in an Annual Report on Form
20-F) the ways those practices differ from
the US listing standards.
Broker Discretionary Voting. US stock
exchanges must also prohibit brokers from
exercising discretionary authority to vote
their clients' securities on certain significant
matters determined by the SEC, including,
but not limited to, election of directors
and executive compensation, including say
on pay. The rule on discretionary voting is
applicable to all companies listed on a US
exchange, including foreign private issuers.
Clawback for Accounting Restatements.
Dodd-Frank further requires that US stock
exchanges adopt listing standards expanding
existing rules regarding clawback policies.
The new policy must provide that in the case
"Dodd-Frank expands both enforcement authority
and substantive reach ... in a number of ways that
impose greater liability."

5. Butterworths Journal of International Banking and Financial Law November 2010 583
Spotlight
SPOTLIGHT
of an accounting restatement made due to the
material noncompliance of the issuer with
any financial reporting requirement, whether
intentional or not, the company will recover
any incentive-based compensation (including
stock options) received by present and
former executive officers in excess of what
would have been paid based on the restated
results during the prior three-year period.
This rule is also applicable to all companies
listed on a US exchange, including foreign
private issuers.
Reporting of Shareholding. Acquisitions of
more than 5 per cent of the shares of public
companies, including foreign private issuers,
must currently be reported to the SEC
within ten days. Dodd-Frank permits the
SEC to accelerate that deadline.
Required Disclosures. Dodd-Frank also
amends the Exchange Act to require three
new types of disclosures of SEC-reporting
companies, including foreign private issuers,
which engage in certain lines of business. The
new disclosures apply to reporting companies
which: (i) make use of ‘conflict minerals’,
currently defined to include any mineral
or its derivatives determined by the US
Secretary of State to be financing a conflict
in the Democratic Republic of the Congo; (ii)
operate coal or other mines; or (iii) engage in
the commercial development of oil, natural
gas or minerals.
CONCLUSION
While the Act itself is many hundreds of
pages long, it is in some ways little more
than a skeleton of the regulatory and
supervisory regime it contemplates. Much
of the detail required for implementation
and enforcement of the new legislation has
been left for both existing and newly created
regulatory agencies and committees to flesh
out over the coming months and years. Even
the rules themselves are in many instances
vague outlines awaiting interpretation, study
and regulation.
While certain provisions of the Act
are immediately effective, many of the
hundreds of rulemakings, studies and reports
required by the Act must be completed
over the one, two or four years following
enactment, and still other provisions have
time horizons longer than one decade for full
implementation. For the time being, except
for a handful of major financial institutions
that hold more than the threshold $50bn in
worldwide assets and so are automatically
deemed systemically significant, banking
institutions and other financial companies
sit in limbo until the Council identifies those
that pose significant enough risk to be subject
to heightened prudential standards. The
Council has held its inaugural meeting, and
has released materials including its bylaws,
a transparency policy and an integrated
implementation roadmap. It also released
certain proposed rules for public comments,
which may start to shed light on those criteria
expected to drive the ‘systemic’ designation,
as well as the operation of other rules and
standards.
The Act’s impact on non-US entities
may be the most uncertain, considering
both the wide latitude provided for tailoring
requirements to the risks perceived to be
posed by these entities and taking into
account the principle of national treatment,
as well as the degree of co-operation with
non-US regulatory bodies that will be
required for a meaningful application of the
Act outside the US. 
Biog box
George H White is a partner in the London office of Sullivan & Cromwell LLP; Alan
PW Konevsky is special counsel in the New York office of Sullivan & Cromwell LLP; and
Jessica King is an associate in the Washington, D.C. office of Sullivan & Cromwell LLP.
Email: whiteg@sullcrom.com; konevskya@sullcrom.com; kingj@sullcrom.com