 Hello and welcome to the session in which you would look at the Dodd-Frank Act of 2010 as it relates to the CPA exam. Now, this act took place in 2010 when President Obama was the president and the current president was a VP. The reason is it's called the Dodd-Frank Act because the individuals that sponsored the act were Dodd and Frank. So this is the reason for it. It happened in 2010 right after the financial crisis. So it relate mainly to the financial crisis. Now, I'm going to cover this act from a CPA perspective. What do you need to know about this act as far as the CPA exam? Now, if you are studying for the CPA exam, I strongly suggest you check out my website, farhatlectures.com. Most likely you do have a CPA exam and that's great. I don't replace your CPA exam. I don't intend to do so. My purpose is to be a useful addition, give you alternative explanation, a backup explanation that's going to help you understand the CPA exam better, help you actually learn your CPA review better. And your risk with me is one month of subscription. Your potential gain is passing the exam. And if not for anything, take a look at my website to find out how well your university is doing for the CPA exam. I do have resources and lectures for other accounting, finance, audit and tax courses. Also, if you haven't connected with me on LinkedIn, please do so. Like this recording, subscribe to my YouTube, connect with me on Instagram, Facebook, Twitter and Reddit. Please connect with me on Reddit. Now, 2010 is a critical year to remember. Why? Because it's right after the financial crisis. So a little bit of a background about the Dant Friend Act is it came after the financial crisis. Specifically, let's call it the housing crisis. OK, the banks were going through some risky behavior and as a result, they almost brought our economic system down. So the banking system went wild. So the purpose of the Dodd-Frank Act is to protect consumers, actually by protecting the consumers, you protect the economy, but really protecting the economy. And who was involved in this in this game? Well, the banking system, of course, and we have the credit agencies, which we'll talk about in a moment. So the purpose of it is to prevent a future bailout. No. So we don't want to get to a point where the government need to intervene because if the system fails, everything fails. Now, if you want to if you want to learn about the housing crisis of 2008, please, I do have a recording just specifically for that. So if you if you're looking to look at something like this, actually, I'll try to put it in the description. You could look at it. It's approximately 40 minutes where I narrate the whole financial crisis, if you're interested in that. So the Dodd-Frank Act gave few things, gave the SEC more powers. This is how they're going to protect the system, establish something called the financial stability oversight council. The Bureau of Consumer Financial Protection and gave shareholders more power. And you guys know, once I have a list, it means I'm going to go over each of these items separately, explaining what they are. And this is exactly what I'm going to do, starting with the financial stability oversight council. It's a made up of the members from the SEC, the federal government and not the federal government, the Fed and the Treasury Secretary, which is the federal government. What is the purpose of this financial stability? Look, it's financial stability. I hate to give you acronyms, but if you think about the stability, stability of the whole system. So monitor the risk of the entire economic system. Identify risk in advance. Basically, sniff out any risk before it actually occurred that could threaten the market. What was the risk that was going on? The housing crisis. No one was really paying attention to the housing crisis. And as a result, the banking system, because the banks lend money to people to buy homes and they were going wild, lending money to anyone and everyone, whether they qualify for the loan or not. So this council, their job is to identify what's called systematically important financial institution. Those, they came to be called too big to fail. Financial institution that if they fail, they bring down the whole system. Now, this council job is to identify them and guess what? Monitoring them. Do what if plan? Just kind of questioning them. What if this happened? What if that happened? Make sure they have enough money, capital requirements. So God forbid something happened. They have enough to survive. And also they can be broken down. If something happened, they can be broken down. Also, this council, this financial stability council, since they have a member of the SEC, they work with the SEC on accounting issues. They report yearly to Congress, which is federal government about financial market and regulatory matters, just to make sure Congress is up to date. And it gave the FDIC, the Federal Deposit Insurance Corporation, more powers, more powers to take over banks, if that's necessary, sell the bank assets to shareholders and creditors, people that finance the bank. You're responsible, not the consumer, not the government, and increase the protection if you are a consumer from 150,000. I still remember the 250,000. I still remember. I mean, I lived through this era and I have, you know, maybe it's, you know, it's not a relevant story, but I still remember I was taken a CPE course. Now, if you're a CPA, you're going to be taken what's called, eventually taken what's called those continuous professional education courses. And I still remember that one, I was attending a CPE and specifically training for a staff, I believe it was in King of Prussia. Was it in King of Prussia or Melbourne? It doesn't matter. Some place around Philadelphia. And I still remember the instructor. I don't remember his name, but I still remember he was telling us that this morning, because, you know, the protection was only 100,000. He had to withdraw. Like he had to bring down his account. It was above 100,000. He just told us the story that he was so scared that, you know, the banking system might fail. He might lose his money because he had more than $100,000 in cash. He told us that this morning he withdrew the access of 100,000 for the protection. And I still remember the following week we were still attending that last and he said he put them back because now the protection is 250. So consumers were scared if you have more than 100,000, the federal government or this FDIC corporation would only guarantee 100,000. They made it to 50 so people don't have a run on the bank. That's the whole purpose and bring the economy down like what we did in the Great Depression. Also this council tried to restrain the hedge fund. Now they have to must register with the SEC to kind of make sure they don't issue what's called credit default swaps. Again, credit default swaps. CDS, you can learn about them in my housing crisis. What do they do if you're interested in that? Also the Dodd-Frank Act created the Bureau of Consumer Financial Protection and you heard the word consumer. And what does consumer mean? It means you and I, people that use the financial system. The main purpose is to do what? Protect the consumer. So the Bureau of Consumer Financial Protection protect the consumer. Remember that how? Well, for example, ensure consumers are provided with and with information understandable and in a timely fashion, simply put, people were when they were taken out loans, they were not giving the full picture what's going to happen. For example, they did not tell them that in three years your interest rate would reset and you have a larger payment. And if they told them, they did not really make it clearly. So basically lenders, they were abusing the system. They were using unfair, deceptive practices to push those loans down to consumers. Now, why were they doing this? Because they were selling those loans to investors. They did not care whether, you know, the loans are good or not because they are moving the risk of the investors. And what they were doing, they were being held by the credit agencies to tell the investors that those loans were AAA, which we'll talk about that in a moment. So everyone was on it. The banks, the financial institution, people who are creating the loans, the credit agencies. So this bureau will protect the consumer from the abusive, deceptive and discriminating practices as well. Now, it also gave the SEC more power, the standard to prosecute from went from merely knowing about something to reckless, even if you are reckless, if you did not know, if you had to know, then we can prosecute you. Now, the SEC may compensate whistleblowers, people that tell them information who provide original information, not obtained through an audit or other investigation. So if you go to the SEC and you tell them, look, I suspect something going on, you could be compensated. Why would they do that? To encourage you to say something if you know something is going wrong. Also, now they have more power over the credit agencies. What's the problem with the credit agencies? The credit agencies, what they do, like Moody's S&P, they were giving AAAs to those loans. So for the loan originator, for the bank to sell the loan, to get rid of the loan, to get rid of that loan that they should have give out in this in the first place, they needed the credit agency. Basically, the credit agency will certify that this loan is a good loan. OK, as a result, they can easily sell it. So now those credit agencies, they have to be examined annually by the SEC. They have to disclose their method. How did they come up with that rating? OK, and back then, you know, if you read anything about this era, about this period is they were saying, you know, they were saying, we really never saw these type of loans. Therefore, you know, they gave them AAA because they did not have enough history, but they thought it's good enough. You know, they justify why they gave AAA, but that's a different story. Now they have to disclose their method. So this way, the investor knows if this is AAA, why is it a AAA? Also, those credit agencies now, they are subject to investor suits, so it's easier to sue them and they are subject to higher losses. So they have to be very careful. And if there's any registration statement, they have to consent to that. That's the rating that they gave. So they give more assurance to the investors because the investors, they need to see the registration statement. Also, this this act gave shareholders more power the right to have a non-binding vote on compensation. For example, on corporate officers, how much they get paid at least once every three years. It also required that for companies to have independent compensation committee members and disclose of the independent compensation committee advisors and any related fees. In other words, tell us, you know, tell us how much you're paying, how you are paying. If there's any conflict of interest in this committee, they have to let you know because executives, we want to know as shareholders, how much are executives making? Also, this is important. You have to have a clawback policy. And this is usually tested on the exam. And what is a clawback policy? Basically, the company, they have to spell out how to recover performance based executives compensation. Simply put, when the company do well, executives are compensated. Let's assume the executives cook the books. The company did well. Then the executives leaves. Then the company stock price goes down. Well, you have to have a clawback policy telling the executives, look, if something happened, if we had a financial restatement because you cooked revenue, you overstated revenue or understate expenses or somehow you cook the books, we can go back after you and get that money back. Okay. And if you have 3% or more of the voting interest of the company, basically 3% or more ownership, you have access to the corporation proxy procedures. So those are the main topics that you need to know for the Dodd-Frank Act as far as the CPA exam is concerned. Once again, at the end of this recording, I'm going to invite you to visit farhatlectures.com. I don't replace your CPA review course. I told you that earlier, but I can give you alternative explanation that's going to help you with your CPA review course, which in turn will add 10 to 15 points on your CPA exam. Study hard, good luck, and stay safe, of course.