Labor Department issues final rule to expand availability of association health plans

On June 19, 2018, the Department of Labor issued a final rule that changes the definition of “employer” under the Employee Retirement Income Security Act (ERISA) in an effort to make association health plans (AHPs) more broadly available to small employers and their employees. The final rule is scheduled for publication in the Federal Register on June 21, 2018.

ERISA is the 1974 federal law that generally regulates health coverage offered by large employers and pre-empts state insurance requirements for self-funded coverage.

The final rule will make it possible for more small employers and their employees to join AHPs, which generally are considered large group health plans that are not subject to insurance market requirements for small group and non-group health insurance products that were enacted as part of the Affordable Care Act (ACA). For example, AHPs would be exempt from requirements for small group and individual market policies to cover the ACA’s 10 essential health benefits.

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In response to proposals for new payment models, HHS declines to advance any for future testing

On June 13, 2018, the Department of Health and Human Services (HHS) released responses by Department of Health and Human Services Secretary Alex Azar to the comments and recommendations of the Physician-Focused Payment Model Technical Advisory Committee (PTAC) on a dozen proposals for physician-focused payment models (PFPMs) reviewed by the committee, and sent to HHS between October 2017 and May 2018. HHS did not accept any of the proposals for broader implementation.

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Key highlights of the Volcker Rule proposal

On May 30, 2018, the Federal Reserve Board approved a 373 page notice of proposed rulemaking (the “proposal”) to amend the regulations implementing the Volcker Rule (the Rule), a centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The proposal aims to simplify and tailor the compliance requirements of the Rule, which was finalized back in December 2013 to prevent banks from engaging in proprietary trading and from owning hedge funds or private equity funds. The proposed changes were jointly developed and approved by the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC).

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Legal entity reporting: Common challenges and banking industry practices

Optimizing your legal entity regulatory reporting process

Background for legal entity reporting

Depending upon the legal entity structure and headquarters of a parent bank, several different reporting forms are used to identify legal entities and associated information, including their purpose and type of legal form. This information is used for monitoring compliance with laws and regulations including by the Federal Reserve Board of Governors (“Federal Reserve”): the Dodd-Frank Act, the Sarbanes-Oxley Act, the Gramm-Leach-Bliley Act, Regulation Y (Bank Holding Companies and Change in Bank Control), Regulation YY (Enhanced Prudential Standards), and Regulation QQ (Resolution Plans).  This information is also an important component in regulators determining an institution’s level of complexity.

As events occur that affect a firm’s organizational structure, a report is filed to record the event driven (FR Y-10, Report of Changes in Organizational Structure).  Annually, the end of the parent company fiscal year, a report is submitted that includes an organization chart and information concerning shareholders and public financial statements (FR Y-6, Annual Report of Holding Companies1, and FR Y-7, Annual Report of Foreign Banking Organizations2).  The information from the event-driven forms are compared to the annual organizational chart. All of this information is commonly referred to as banking structure data.

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Bipartisan financial services regulatory relief legislation (S.2155) signed into law, would amend key Dodd-Frank thresholds

On May 24, 2018, the bipartisan banking act S. 2155 (the “Economic Growth, Regulatory Relief, and Consumer Protection Act”) has officially been signed into law. The Act, which marks the most significant changes to the Dodd-Frank Act since its enactment in 2010, was cleared by the House of Representatives on May 22, 2018, by a vote of 258 to 159.

Most notably, the Act would raise the statutory asset thresholds related to the imposition of enhanced prudential standards (EPS) and the Dodd-Frank Act stress tests (DFAST):

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Office of Compliance Inspections and Examinations alert on advisory fee and expense compliance issues

On April 12, 2018, the US Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (“OCIE”) released an alert highlighting the most frequent fee and expense compliance issues identified during investment adviser examinations.1 While these identified deficiencies do not necessarily constitute violations of law or regulation, they reflect breakdowns of operating controls that could lead to inadvertent breaches of fiduciary duty. The alert, coupled with other recent SEC actions, provides critical insight into regulatory focus areas and expectations regarding advisory programs. As discussed in Deloitte’s2 recent white paper, The Rewards and Risks of Managed Account Programs, advisory accounts are an ever-increasing area of focus for regulators as growth continues to accelerate across the industry, surpassing $6T in total assets in Investment Advisory solutions at the end of 2017.3 Firms should carefully consider the OCIE alert and explore the tools and services available to support advisory program compliance while prioritizing, planning, and executing their risk management efforts.

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Trump Administration releases broad plan to address drug prices

On May 11, 2018, the President released the American Patients First Trump Administration Blueprint to lower drug prices and reduce out of pocket costs. The Blueprint includes a number of policy proposals focused on the way drugs are priced both in the US and globally, some of which may be achieved through regulatory changes, while others may require legislation or international trade negotiations.

Many of the ideas covered in the Blueprint echo previous policies described both in the Council of Economic Advisors (CEA) report entitled, “Reforming Biopharmaceutical Pricing at Home and Abroad,” as well as items found in the President’s Fiscal Year 2019 budget.

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Regulatory reporting programs: Human capital imperative

Notwithstanding the importance of a sustainable governance structure and high-quality data, perhaps the most critical element of an effective regulatory reporting program is proper investment in human capital.

Unfortunately, in many cases, firms have underinvested, both in number and types of resourcing, in the human capital component of their reporting programs. This could be a result of senior management viewing the regulatory reporting organization as a “back office” function, where skills needed are limited to basic financial accounting knowledge with an operations orientation.  Traditionally, staff in a regulatory reporting function that was part of corporate finance were long tenured and knew legacy processes well.  Conversely, staff in the business lines, who were responsible for providing data to corporate finance, had little knowledge of reporting requirements or the impact of this data.  This approach worked as long as the data concepts were not complex, data requirements were static, and the processes supporting the report preparation process were not subject to frequent change.

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Review of retail sales practices at Canada’s big six banks

Canadian banks and foreign operations of federally regulated banks in Canada are subject to federal consumer protection legislation overseen by the Financial Consumer Agency of Canada (FCAC). The FCAC completed a review of retail sales practices at Canada’s big six banks. The summary findings were released on Tuesday March 20, 2018. The review called for stronger governance and oversight but did not find widespread “mis-selling”. The FCAC review resulted in five key findings:

  1. Retail banking culture is predominantly focused on selling products and services, increasing the risk that consumers’ interests are not always given the appropriate priority.
  2. Performance management programs—including financial and non-financial incentives, sales targets and scorecards—may increase the risk of mis-selling and breaching market conduct obligations.
  3. Certain products, business practices and distribution channels present higher sales practices risk.
  4. Governance frameworks do not manage sales practices risk effectively.
  5. Controls to mitigate the risks associated with sales practices are underdeveloped.

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CMS issues request for information on Direct Primary Care

On April 23, 2018, the Centers for Medicare and Medicaid Services (CMS) released a Request for Information (RFI) seeking input on opportunities to create Direct Primary Care (DPC) arrangements between traditional fee-for-service Medicare, Medicaid, and Medicare Advantage (MA) plans and primary care or multi-specialty group practices. In addition to potential roles for DPC in CMS programs, CMS also requested comment on how DPC can be a part of current Accountable Care Organization (ACO) initiatives like the Medicare Shared Savings Program.

The RFI also refers to Direct Primary Care as “Direct Provider Contracting.”

Comments are due on May 25, 2018.

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