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OTHER BOARD COMMITTEE REQUIREMENTS
STATUTORY / REGULATORY REQUIREMENTS
Board Committee Approval of Certain Swap Transactions. Sections 723(b) and 763(a) of
the Dodd-Frank Act require an “appropriate committee” of any public company filing SEC
reports that engages in derivatives activities to review and approve the decision to enter into
covered “swap transactions” that rely on the so-called “commercial end-user” exemptions
from (1) new Exchange Act requirements to clear a security-based swap or execute a securitybased
swap through a national securities exchange and (2) new Commodity Exchange Act
requirements to clear and execute a swap through a board of trade or swap execution facility.
These requirements became effective on July 21, 2010; however, final determinations
regarding reliance on the Commodity Futures Trading Commission rule implementing the enduser
exemption for swaps, 150 and/or the corresponding rule for security-based swaps proposed
(but not yet adopted) by the SEC, 151 will not be required until at least September 2013
(assuming the company is not a “financial entity”). 152
Mandatory Risk Committees for Certain Financial Companies. Section 165 of the Dodd-
Frank Act requires the following entities to establish a risk committee responsible for the
oversight of enterprise-wide risk management practices:
(a) publicly traded “nonbank financial companies supervised by the Federal Reserve
Board of Governors;”
(b) publicly traded bank holding companies with total consolidated assets of $10 billion
or more; and
(c) publicly traded bank holding companies with total consolidated assets of less than
$10 billion where the Federal Reserve Board of Governors has determined that establishment
of a risk committee is necessary or appropriate to promote sound risk management.
“Nonbank financial company supervised by the Federal Reserve Board of Governors” is
defined to mean a company that is substantially engaged in financial activities in the U.S.
where it has been determined by the Financial Stability Oversight Council that material
financial distress at the company would pose a threat to the financial stability of the U.S.
(other than bank holding companies or their subsidiaries). Section 165 of the Dodd-Frank Act
required the Federal Reserve Board of Governors to issue regulations by July 21, 2012,
requiring these companies to establish risk committees; such regulations were to take effect by
October 21, 2012. 153 On January 5, 2012, the Federal Reserve Board of Governors proposed
rules that would implement the risk committee requirements, however, as of the date of this
report, the Federal Reserve Board of Governors has not adopted final rules. Section 165
provides that each risk committee must include such number of “independent directors” as the
Federal Reserve Board of Governors deems appropriate. The Federal Reserve Board of
Governors proposes to refer to the definition of “independent director” in Regulation S-K for
companies that are publicly traded in the United States.
The Federal Reserve Board’s proposed rules would require risk committees to be chaired by an
independent director and have as a member at least one “risk management expert,” which is
defined to mean a person having experience in identifying, assessing and managing risk
exposures of large, complex firms.
Weil, Gotshal & Manges LLP 33
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