Bankers believe that their employees do not want overtime pay

Williams Sisters, unlikely to be affected by new Primary Duty Test Standards | credit Youtube

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay. That’s not exactly what Christeena Naser, Vice President and Sr Counsel, said, but she might as well have in her comment letter. The Letter goes onto to state that the Primary Duty Test‘s objective was to identify obvious non-exempt employees, but the new interpretation would identify obvious exempt employees. The difference in nearly $27,000 per eligible employee, or about 6.3 Million employees.

“The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL).

The change in Standard would reach approximately 30 Million employees across all industries, 6.3 Million of which are in financial services. The previous Standard deferred to states because many state standards were more inclusive than that of the DOL. The new DOL standard is much higher. being raised from $23,660 per year to $50,440. One should know that while these figures are yearly, the Standard applies to overtime pay on a weekly basis.

“The salary standard would reduce the number of individuals eligible for the exemptions by 6.3 million salaried employees, ” ABA’s comment letter states. The implication is that banks would reduce hours of 6.3 Million employees to the lowest end of full-time status as much as possible in order to avoid paying overtime. It also implies that DOL have reason to believe that the guarantee in employment due to the salaried nature of a role is worth very little. Considering how little guarantee there is, the DOL is onto something there.

Just because a bank employee makes more than $50,440 per year without overtime pay does not mean that that employee cannot be on an hourly wage. DOL has moved the cap on all hourly wage employees from $100,000 to $122,148. This means hourly employees can qualify for overtime pay as long as the non-overtime pay is less than $122,148 per year. ABA objects to this as well.

All of these Standard change-levels are based on data from the Bureau of Labor Statistics.

ABA objects to the Standard not be adjusted for geography. This is quite valid. A community bank in rural Iowa will be hit harder than a community bank in New York City.

But the rest of the complaints, and they are truly complaints, read as veiled threats. There are a lot of justifications based on what will happen if these Standards are applied. All of them are dire. All of them do not bode well for employees. For that strategy to work, the bank would have to assume that its employees do not know what is good for them. The direness of the predictions imply that banks will be forced to hurt their employees by complying with the new DOL mandate.

If enumerating all the ways the ABA’s Comment Letter fails to make its point to someone who might have helped craft this new Standard at the DOL, the failure can be summed up thusly: ABA’s Comment Letter fails to convince the Department to stop the pursuit of the new Standards because it fails to address the issues that are important to employees as seen by the Department. At no time does the Letter acknowledge the good that the Department is trying to accomplish. So, when the Letter provides alternative solutions, it carefully avoids stating what the such solutions provide. By avoiding such valuation, the ABA avoids having their alternative compared to the Department’s solutions. And by avoiding the value of their solutions, the ABA makes their members seem unconcerned with the wellbeing of bank employees, and does not avoid to address how the new Standards are not as beneficial as they can be.

Overall, the letter is a carefully crafted legal argument wrapped in economic concerns. The DOL, I assume, are seriously concerned with economics and less so with legal intricacies.


I have read ABA’s Comment Letter for you so that you don’t have to. If you don’t like how I interpreted ABA’s Comment Letter on the new overtime exemption and HCE standards, comment below.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 


Bibliography

Advertisements

Limit to compliance – taxes

from The New York Times

Privacy is important, but for what? Is ownership of real estate an issue of privacy? If you were a person of interest, like a celebrity, it might be an issue of privacy. But how about the rest of us?

Obviously, New York City Mayor De Blasio does not believe that real estate ownership information is subject to privacy. (Note: We are not discussing residence information, we are discussing ownership. Residence information is already considered to be public information.)

In times when New York City is witnessing an incredible growth in luxury apartments not just in Manhattan but in all of its boros, more and more people are being priced out of their homes. Rents have been going up much faster than wages, let alone the very sticky long-term unemployment rate. It is really indeed a shame that people must move away from the meager jobs they possess to be able to afford rent, even though that move might cost them their career network, the very group of people who will help them find a job should they lose one. Starting in a new place is very difficult.

Here’s an issue where the tax revenues that usually offset such disparities somehow have not been and are not. It is getting worse. On a line-by-line basis, everyone might be paying their correct taxes, but on an aggregate basis, there are many who do not seem to be paying.

This is very likely because of an accounting issue. A taxpayer can be completely compliant with all taxes, but still be paying less than economists have predicted because economists forgot to take into account a very important change that takes place when profits are earned by a corporation but is kept to raise the price of shares. The only way for investors, which are a class of people who can afford to buy much more than their needs and can afford to buy the productivity of other people, can only reap the benefits of the productivity of those people’s work they own through shares by… selling the shares. When those shares are sold, it is sold to other people who can afford to buy the productivity of people who work in a public corporation. Share prices rise due to increased net income, but rise in share price is not taxed at the earned income rate as employee’s must pay.

In this particular case, shell corporations are a great way to make real estate investments into parcels of interest rather than land, allowing shareholders to sell their interests even if the real estate generates net income.

Here’s the limitations of compliance. Compliance professionals in financial services cannot work on these types of policy issues because it requires changing the economics of our economy as a whole. Until this situation continues, compliance officers can only continue to make sure that the system perpetuates.


Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Cantwell-King-McCain-Warren to re-up Glass-Steagall

Sens. Elizabeth Warren (D-Mass.), John McCain (R-Ariz.), Maria Cantwell (D-Wash.) and Angus King (I-Maine) proposed a 21st Century Glass-Steagall, which would separate commercial banking with investment banking. Sen. Warren has published a fact sheet, which we publish here in its entirety.

21st CENTURY GLASS-STEAGALL ACT

Fact Sheet

The original Glass-Steagall, the Banking Act of 1933, was introduced in reponse to the financial crash of 1929. Starting in the 1980s, regulators at the Federal Reserve and the Office of the Comptroller of the Currency reinterpreted longstanding legal terms in ways that slowly broke down the core function of the bill – a wall between investment and depository banking to curb risk. In 1999, after 12 attempts at repeal, Congress passed the Gramm-Leach-Bliley Act to repeal the core provisions of Glass-Stegall.

The 21st Century Glass-Steagall Act would reduce risk in the financial system and dial back the likelihood of future financial crises.

  • Returning basic banking to the basics. The 21st Century Glass-Steagall Act separates traditional banks that offer savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial services, such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities. The bill also separates depository institutions from products that did not exist when Glass-Steagall was originally passed, such as structured and synthetic financial products including complex derivatives and swaps.
  • Countering regulatory loopholes for risky activities. The 21st Century Glass-Steagall Act specifies what activities are considered the “business of banking” to prevent national banks from engaging in risky activities, and bars non-banking activities from being treated as “closely related” to banking. Over time, the Office of the Comptroller of the Currency and the Federal Reserve used these terms to allow traditional banks and bank holding companies to engage in a wider and wider range of high-risk activities. This bill would end those practices.
  • Taking on “Too Big to Fail.” The 21st Century Glass-Steagall Act cannot end “Too Big to Fail”on its own, but it moves the financial institutions in the right direction by making them smaller and safer. By separating depository institutions from riskier activities, large financial institutions will shrink in size and will not be able to relly on federal depository insurance as a safety net for their high-risk activities. Although some financial institutions might be large, they would no longer be intertwined with traditional depository banks, reducing the implicit government guarantee of a bailout.
  • Enforcing Glass-Stegall. The 21st Century Glass-Steagall Act institutes a five-year transition period and penalties for violating the law.

Does this proposal to separate commercial banking and investment banking forget that it was repealed because foreign banks were eating into the global financial services market share?
With China having half of the largest global banks, will this separation effectively bar the US from becoming the greatest financial center?
Is giving up much of this market a risk we are willing to take?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


Hire a regulatory relationship manager

If you are not a big bank. You are unlikely to be able to afford a compliance office with experience at a regulator. The next best thing to do is not to hire a law firm with that experience. The next best to do is to hire someone to be a regulatory relationship manager.

The main reason to hire a relationship manager rather than an outside firm is because if something comes up, you want to be able to have a quick, immediate and candid contact with your regulator. Regulators are people. Even as an institution, it is made up of people. While all regulators have a way of prosecuting bad behavior, mistakes are not things they want to punish banks for. They don’t want to take down a bank. They want to keeps banks in compliance with the law, rules and regulations.

As people, regulators are less likely to look at big banks favorably because they see that big banks have the resources to implement changes required for compliance. Inversely, they are sympathetic to the smaller banks for the reverse reason. Big banks are indeed putting incredible effort to stay in compliance. But just look at their market clout and the profits they generate, regulators find it difficult to believe that more cannot be accomplished. Small banks are not failing at any great rate. Still, they lack diversity of products, services, clients and geographic reach to weather waves the big banks consider to be just a little splash in the bathtub.

Considering the help regulators like to provide smaller institutions, having a person who is dedicated to staying constant contact to keep the regulator abreast of the effort being made and the resources allocated to compliance helps a lot.

The reason not to outsource this function is simple: anyone facing the public is an ambassador to the firm. The US does not outsource diplomacy to Germany. Why should your bank outsource such an important face of the firm.

For that matter, a relationship manger need not be the most experiences but having experience is crucial to success. Just having someone with a decade of experience or more helps to give the impression that the relationship is important to them.


Will FATCA compliance strengthen the financial sector?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 



Government websites are a wealth of knowledge

Screenshot from Investment In Love

This fact is a bit obvious but I think people often forget: government websites are a wealth of knowledge.

For Compliance Officers, dealing with regulators is part of the job description. It is very important that the compliance officer does not reveal too much information when dealing with a regulator because that could be used against it in other matters. So, if there are ways to get information without having to provide information to a regulator is very useful. Luckily, the US regulators are all about providing as much information as possible.

Take, for example, the Securities and Exchange Commission (SEC). The SEC provides not only its organizational breakdown, but on each of the division’s pages, there are links to decisions, interpretations and research coming out that division. If you work for an investment manager, you, hopefully, won’t have to deal with the Enforcement Division. It is SEC’s division of lawyers who investigate possible misdeeds. Go to SEC’s Enforcement page and there you can find all of the Administrative Law Decisions made since 1960. Go to SEC’s Corporation Finance page and it will provide SEC Reporting accountants all of the official Disclosure Interpretations. Did the SEC just conclude its triannual exam of your fund? Well, go to SEC’s Investment Management page where you can learn about what kind of cybersecurity the SEC might ask you to implement to keep your clients more safe.

All of the regulators have incredible amount of resources. Money Compliance intends to be a resource as well. Regulator’s web pages are well organized, but they aren’t user-friendly for those who do not know where to begin. Under Resources, Money Compliance will begin to make this clear for Compliance Officers. It will try to explain where to go first depending on your role or the various common questions compliance officers ask. Right now there isn’t anything in the Resources page, but keep checking. Over the next few weeks, it will be more robust.


Harper Lee has published her second book Go Set A Watchman; will you read it?


About the Author: M. C. Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 


btn_donateCC_LG


How could the Iran-nuclear deal affect your compliance department?

Flag of Iran

Assuming your bank performs transactions for people with international connections, Americans are barred from doing most types of transactions with Iran interests because of the economic sanctions. There are several sets of economic sanctions on Iran and only the the set that were implemented because of the nuclear activity were lifted. Practically, very little has changed for your bank, so, very little has changed for your compliance department.

Even, still, the elation alone is building interest in investment and trade activity with Iran. American entities with subsidiaries in Europe are likely to try to get around these sanction by claiming European sovereign rule. But this only works if the subsidiary can prove that it is not controlled by the American umbrella.

There’s no way to prove this. Just the fact that the subsidiary is a subsidiary and not a joint venture or minority interest deems it American jurisdiction on transactions because the net income is accounted for here in the States.

Minority interest is where things get tricky. If a client is doing business with an entity which has American minority interests and does business with Iran, then that’s territory that requires some legal analysis. The reason for the complication is even though there are many situations where Americans may have minority interests in European entities that will do business with Iran, one of those entities could be a fund that is specifically initiated to do that business. Wealth Americans have access to foreign markets without working through the American markets. It is possible that an American investor can buy into a Iran direct investment fund in London using his British assets. If he is able to do this, then he adds a legal entity layer. He will own a majority interest in an entity that is investing into a fund as a minority investor.

Your department will have to decide whether American jurisdiction applies to ownership of legal entities or if business will benefit the American.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


btn_donateCC_LG

Spicing Up the 10-K

On August 5th, SEC will vote on a rule that would publish the ratio of CEO compensation to the typical worker of their own firm. This disclosure is required by Dodd-Frank, but, as with many laws, the details and implementation makes all of the difference in the world. SEC has delayed the implementation of this requirement, but I don’t really know why, other than CEO’s don’t like the idea.

I don’t like the idea because it unnecessarily target the CEO over other top executives. The likely comparison will be made between the CEO and an average of some pool of individuals, which is unfair. The better comparisons are with individuals against individuals or pools against pools.

full-trailer-for-50-shades-of-grI’m in favor of pools. The pools should be large and the distinction should be simple and indicative of something important. If the pay disparity is what the SEC wants to highlight because it feels that bigger disparities lead to more compliance issues, then they need to identify what is driving the disparities within the organization. Across the board, the biggest portion of disparity is equity compensation. The two pools should something quite simple. My suggestions: compare average total compensations where more than 50% of the total compensation is equity versus less.

Here’s the other problem with this disclosure: what is defined as the organization. I’m assuming Goldman Sachs does not hire any janitors. Janitors are employees of an outside firm. But Goldman Sachs wouldn’t exist without working in buildings of some sort. So, in terms of running the company called Goldman Sachs, some manager has to decide what janitorial company will be responsible cleaning their offices. As long as having offices is part of Goldman Sach business model, office cleaning services are part of its business. But legally, those janitors don’t work for Goldman Sachs. These types of outsourcing is usually on the low end of the payscale, unnaturally raising the average of the lower pool.

Similar pool problem are labor market disparities. A company whose employees are primarily in Bangladesh will be paying their lower pool significantly less than the upper pool. At the same time, the disclosure is actually made worse but hiding the disparity it is actually trying to reveal: American disparity. So, does one exclude foreign employees?

Still, the greatest benefit to my proposal is getting an understanding about how what the pay disparity is between those who are working to pump up the value of their stock and those who are trying to increase their cash compensation. This will also require the firm to put everyone in two buckets, forcing them to make a decision about what roles should be trying to pump up the stock and what roles are to be productive.

But these are implementation problems. Politicians and interested parties are still arguing over whether such information in important to shareholders. Republicans are saying that the purpose of the rule is to produce societal pressures on corporations, not actually add informational value to shareholders. I don’t have a problem with putting societal pressures on corporations, but I do wonder if this really should be the role of the SEC or if it should be the role of the DOL. Democrats and Labor are saying that  the information is going to be important for shareholders because they will be given another key piece of information about how to pay their executives, which shareholders do in a vote each year.


Should corporations be required to disclose the pay ratio between its top executive and the average worker in the firm?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


btn_donateCC_LG