U.S. Financial Regulatory Reform Bill Significantly Affects Non-U.S. Financial Institutions: Non-U.S. Companies with Banking Operations in the United States Are Subject to Extensive New Regulations

Sullivan & Cromwell LLP - July 19, 2010

On July 15, 2010, the U.S. Senate approved, by a vote of 60 to 39, a sweeping financial regulatory reform bill, entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” or “Dodd-Frank.”  The U.S. House of Representatives passed Dodd-Frank on June 30, 2010, and the historic legislation is expected to be signed into law by President Obama promptly.

Dodd-Frank is intended, among other things, to address perceived deficiencies and gaps in the regulatory framework for financial services in the United States, reduce the risk of bank failures, and better equip the nation’s financial regulatory authorities to guard against or mitigate any future crises.  Dodd-Frank provides for far-reaching changes across the financial regulatory landscape.

Although the focus of Dodd-Frank is on U.S. financial institutions, many of its provisions will significantly affect non-U.S. companies with banking and, potentially, other financial operations in the United States.  In addition, parts of Dodd-Frank could be read to apply extraterritorially.  The new legislation in some places does explicitly limit the application of the new laws to U.S. financial institutions or U.S. activities, and, in other instances, where the effect outside the United States will be determined by regulation, the relevant agency is directed to take into account principles of national treatment.  Because many of the key reforms have in effect been deferred to future rulemakings, the full impact on non-U.S. financial institutions and activities will not be known until those important rulemakings are completed.