BILL ANALYSIS Ó
AB 1517
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
1517 (Committee on Banking and Finance)
As Amended June 1, 2015
Majority vote
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|ASSEMBLY: | 78-0 | (May 14, |SENATE: |40-0 | (July 13, 2015) |
| | |2015) | | | |
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Original Committee Reference: B. & F.
SUMMARY: Makes changes intended to improve the ability of the
Department of Business Oversight (DBO) to administer the laws
under its jurisdiction. Specifically, this bill:
1)Makes technical changes to correct drafting errors, update
code sections, reflect the merger of the Department of
Financial Institutions (DFI) and Department of Corporations
(DOC) into DBO, and reflect the shifting of certain
responsibilities from the former DOC to the Department of
Managed Health Care (DMHC).
2)Returns the wording of the code section that prohibits
fraudulent marketing of securities to the way in which it read
prior to 2014, and, in doing so, provides that it is unlawful
for any person to offer or sell a security in California, or
to buy or offer to buy a security in California, by means of
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any written or oral communication that includes an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements made, in the light of the
circumstances under which the statements were made, not
misleading.
3)Clarifies that a person who is issued a desist and refrain
order under the California Commodity Law of 1990 has 30 days
in which to request a hearing to contest that order.
4)Provides that, if a federal insurance agency accepts
appointment by the Commissioner of Business Oversight
(commissioner) as conservator, liquidator, or receiver of a
financial services licensee whose property and business have
been seized by the commissioner, that federal agency shall
have all of the powers conferred on the commissioner pursuant
to Financial Code Division 1, Chapter 7, in addition to any
powers conferred by applicable federal law.
5)Deletes a code section limiting the amount of funds that one
bank or trust company may invest in another financial
institution other than a Federal Reserve Bank.
6)Modifies the definition of facility for purposes of the
Banking Law to provide that facility means an office at which
a bank engages in noncore banking business and does not engage
in core banking business.
7)Deletes the requirement that an industrial loan company whose
certificate has been surrendered or revoked submit a closing
audit report to the commissioner within 105 days after the
effective date of that surrender or revocation, as specified.
The Senate amendments make technical and clarifying changes.
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EXISTING LAW implements the Governor's Reorganization Plan,
which combined as of July 1, 2013, the DOC and the DFI to create
the DBO. DBO provides the regulation and oversight of state
chartered banks and credits unions and money transmitters.
Furthermore, DBO is charged with the regulation and oversight of
mortgage loan originators, deferred deposit transaction
licensees, finance lenders, residential mortgage lenders, escrow
agents, securities broker-dealers, and investment advisors.
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS: This bill, an Assembly Banking and Finance Committee
bill, merely updates and makes needed corrections throughout
various code sections.
This bill has six substantive provisions, each of which is
described below. Several of the provisions correct inadvertent
omissions and drafting errors contained in prior bills.
1)Returns the Wording of the Code Section that Prohibits
Fraudulent Marketing of Securities to the Way in Which it Read
Prior to 2014: SB 538 (Hill), Chapter 335, Statutes of 2013,
a bill whose language originated with DOC, amended
Corporations Code Section 25401. According to DBO, the
language of Corporations Code Section 25401 in SB 538 was
intended to mirror federal Securities and Exchange Commission
Rule 10b-5. "However, the amendments inadvertently raised the
burden of proof for civil and criminal litigation for
Department attorneys and local prosecutors who try such cases.
There is a substantial body of case law in California that
may be disrupted if Section 25401 of the Corporations Code
remains as is, potentially making enforcement and prosecution
of securities fraud more difficult. There is additional
concern that California courts will begin to rely on the
federal interpretation of Rule 10b-5, which requires that
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plaintiffs prove scienter (i.e., that an offending party has
knowledge of the wrongness of an act prior to committing it).
This would provide less investor protections, since the burden
of proof would fall on them and their legal representation."
This bill returns the wording of Section 25401 to the way in
which it read prior to enactment of SB 538. DBO does not
believe that language is needed to clarify the way in which
Section 25401 should be interpreted during the period of time
in which the changes enacted pursuant to SB 538 were
operative.
2)Amends the California Commodity Law of 1990 to Correct an
Inadvertent Drafting Error: Among its provisions, SB 538
amended the California Commodity Law of 1990 to specify that a
person has 30 days, rather than one year, to request a hearing
to dispute a desist and refrain order issued pursuant to that
law. However, due to a drafting oversight, SB 538 failed to
delete all references to the one year timeframe. This bill
corrects the unintended drafting error and ensures that the
California Commodity Law of 1990 is consistent in referring to
30 days as the period of time in which a persons served a
desist and refrain order under that law have in which to
request a hearing to appeal that order.
3)Deletes a Code Section That Was Previously Repealed, Then
Inadvertently Re-Added to the Financial Code: Financial Code
Section 1008 caps the amount of funds that one bank or trust
company may invest in another financial institution other than
a Federal Reserve Bank at 10%, except as specified. According
to DBO, Federal Reserve Board Regulation F, which is
applicable to all depository institutions insured by the
Federal Deposit Insurance Corporation (FDIC), already sets
limits on the amount of funds that may be deposited by one
institution into another institution. DBO believes that
Financial Code Section 1008 is unnecessary, because all
financial institutions licensed by DBO are subject to Federal
Reserve Board Regulation F. Furthermore, the code section
that this bill would repeal was already repealed once before
by the Legislature. The language currently contained in
Financial Code Section 1008 was repealed by AB 1301 (Gaines),
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Chapter 125, Statutes of 2008, then mistakenly reinserted by
AB 1268 (Gaines), Chapter 532, Statutes of 2010 and renumbered
by SB 664 (Banking and Financial Institutions Committee),
Chapter 243, Statutes of 2011.
4)Amends the Definition of Facility Under the Banking Law: This
bill amends the definition of a facility to mean an office
(not an office in this state) at which a bank engages in
noncore banking business, but at which it does not engage in
core banking business. This change also corrects an
inadvertent drafting error resulting from the enactment of AB
1301. Prior to the enactment of AB 1301, state-chartered
banks were able to open offices outside of California under
the supervision of DFI. The inadvertent addition of the words
"in this state" by AB 1301 limited the establishment,
relocation, designation, or discontinuance of a facility to
offices and branches in California. Striking "in this state"
will restore the authority of California state-chartered banks
to establish, relocate, designate, or discontinue facilities
in another state or country and the authority of DBO to
regulate those facilities.
5)Deletes the Requirement That an Industrial Loan Company Whose
Certificate Has Been Surrendered or Revoked Submit a Closing
Audit Report: According to DBO, the requirement that this
bill would delete is both unnecessary and seldom complied
with. The financial well-being of industrial loan companies
is already monitored by the commissioner through the
requirement that industrial loan companies submit quarterly,
unaudited financial statements and annual, audited financial
statements to the commissioner. Licensees that are in the
process of closing their business are reluctant to pay for the
final, audited financial statement required by existing law,
and many do not. When an industrial loan company fails to
submit its final, closing audit, the only recourse available
to the commissioner is to revoke the license of that licensee.
This threat means little to the companies, as they are
exiting the business line anyway, and it imposes unnecessary
costs on DBO.
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6)Reinstates the Power of the Commissioner to Appoint the FDIC
as Conservator, Liquidator, or Receiver of a Bank Insured By
That Federal Agency: Prior to enactment of SB 664, California
law clearly stated that the FDIC, as a conservator,
liquidator, or receiver, was granted all of the rights and
powers of the commissioner under Article 8, Liquidation and
Conservation. However, when SB 664 reorganized and renumbered
several Financial Code sections, the wording of Financial Code
Section 620 was not updated to reflect that reorganization.
This had the inadvertent effect of limiting the FDIC's powers
when acting as conservator, liquidator or receiver. This bill
corrects this drafting error by replacing the reference to
"this article" with a reference to "this chapter," thus
restoring these powers to the FDIC.
Analysis Prepared by: Kathleen O'Malley / B. & F. / (916)
319-3081 FN:
0001101