Financial Services Bulletin: Action at Federal Agencies

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The Federal Reserve Board Proposes Repeal of Unfair or Deceptive Acts Rules

On Friday, August 22, 2014, the Federal Reserve Board (the "Board") requested comments on its proposal to repeal its Regulation AA, which deals with unfair or deceptive acts or practices.  Section 1092 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") repealed the Board's authority to create rules concerning unfair or deceptive acts or practices.  Regulation AA includes the Board’s "credit practices rule," which prohibits banks from using certain remedies to enforce consumer credit obligations and from including those remedies in their consumer credit contracts.

The Board and other agencies, including the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation (the "FDIC"), the National Credit Union Administration, and the Office of the Comptroller of the Currency (the "OCC"), issued guidance clarifying that the repeal of the former credit practice rules is not a determination that the prohibited practices contained in those rules are permissible. According to the guidance, the practices described in those rules could potentially violate the prohibition against unfair or deceptive practices under the Federal Trade Commission Act and the Dodd-Frank Act, even in the absence of a specific regulation governing the conduct.

Read the Board press release

The SEC Amends Asset-Backed Securities Rules

On Wednesday, August 27, 2014, pursuant to Title IX of the Dodd-Frank Act, the Securities and Exchange Commission (the "SEC") adopted revisions to Regulation AB and other rules governing the offering process, disclosure, and reporting for asset-backed securities (“ABS”).  The final rules require that prospectuses for public offerings under the Securities Act of 1933 and ongoing reports under the Securities Exchange Act of 1934 of asset-backed securities backed by real estate related assets, auto related assets, or debt securities, including resecuritizations, contain specified asset-level information about each of the assets in the pool.  The SEC also adopted rules to revise filing deadlines for ABS offerings to provide investors with more time to consider transaction-specific information, including information about the pool assets.  Lastly, the final rules repeal the credit ratings references in shelf eligibility criteria for ABS issuers and establish new shelf eligibility criteria.

Read the SEC press release 

The SEC Adopts Credit Rating Agency Rules

On Wednesday, August 27, 2014, pursuant to Title IX of the Dodd-Frank Act, the SEC adopted new rules and amendments to existing rules regarding credit rating agencies registered with the SEC as nationally recognized statistical rating organizations; adopted a new rule and form that will apply to providers of third-party due diligence services for asset-backed securities; and adopted amendments to existing rules and a new rule that implement a requirement added by the Dodd-Frank Act that issuers and underwriters of asset-backed securities make publicly available the findings and conclusions of any third-party due diligence report obtained by the issuer or underwriter.

Read the SEC press release

Agencies Adopt Supplementary Leverage Ratio Rule

On Wednesday, September 3, 2014, the Board, the FDIC and the OCC (collectively, the "Agencies") adopted a final rule to revise the definition of the denominator of the supplementary leverage ratio that the Agencies adopted in July 2013 as part of comprehensive revisions to the Agencies’ regulatory capital rules.  The new rule updates the supplementary leverage ratio in a manner consistent with recent changes agreed to by the Basel Committee on Banking Supervision.

The final rule revises total leverage exposure to include the effective notional principal amount of credit derivatives and other similar instruments through which a banking organization provides credit protection; modifies the calculation of total leverage exposure for derivative and repo-style transactions; and revises the credit conversion factors applied to certain off-balance sheet exposures.  The final rule also changes the frequency with which certain components of the supplementary leverage ratio are calculated and establishes the public disclosure requirements of certain items associated with the supplementary leverage ratio.

Read the joint press release 

Agencies Adopt Liquidity Coverage Ratio Rule

On Wednesday, September 3, 2014, pursuant to Section 165 of the Dodd-Frank Act, the Board, the FDIC and the OCC adopted a rule to create a standardized minimum liquidity requirement for large and internationally active banking organizations that is consistent with the liquidity coverage ratio standard established by the Basel Committee on Banking Supervision.  Each such banking organization will be required to hold high quality, liquid assets, such as central bank reserves and government and corporate debt that can be converted into cash in an amount equal to or greater than the organization’s projected cash outflows minus its projected cash inflows during a 30-day stress period.  The rule defines this ratio of the organization’s liquid assets to its projected net cash outflow to be its liquidity coverage ratio ("LCR").

The LCR defined under the rule will apply to all banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, and to covered banking organizations' consolidated subsidiaries that are depository institutions with $10 billion or more in total consolidated assets.  The rule also will apply a modified LCR to bank holding companies and savings and loan holding companies that do not meet these thresholds, but have $50 billion or more in total assets.  Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule.

While the rule is generally consistent with the Basel Committee’s LCR standard, it is more stringent in certain areas, including a shorter transition period for implementation.  U.S. firms, for example, will be required to be fully compliant with the rule by January 1, 2017.  The Agencies note that the accelerated transition period reflects a desire to maintain the improved liquidity positions that U.S. institutions have established since the 2008 financial crisis. 

Read the joint press release

Agencies Propose Swap Margin Requirements Rule

On Wednesday, September 3, 2014, pursuant to Sections 731 and 764 of the Dodd-Frank Act, the Agencies (the Board, the FDIC and the OCC), the Farm Credit Administration (the "FCA") and the Federal Housing Finance Agency (the "FHFA") proposed for comment a joint rule to establish minimum margin and capital requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants for which one of the Agencies, the FCA or the FHFA is the prudential regulator.  The proposed rule does not require a covered swap entity to collect specific or minimum amounts of initial margin or variation margin from nonfinancial end users, but instead allows the covered swap entity to make that decision, consistent with its overall credit risk management.

Read the joint press release 

The CFPB Adopts "Larger Participants" Rule for Nonbank International Money Transfer Providers

On Friday, September 12, 2014, pursuant to Section 1024 of the Dodd-Frank Act, the Consumer Financial Protection Bureau (the "CFPB") amended the regulation defining larger participants in certain consumer financial product and service markets by adding a new section to define larger participants in a market for international money transfers.  The CFPB has the authority to supervise nonbank covered persons of all sizes in the residential mortgage, private education lending, and payday lending markets, and to supervise nonbank larger participants of markets for other consumer financial products or services.  The CFPB has issued rules defining larger participants in markets for consumer reporting, consumer debt collection, and student loan servicing.  This rule identifies a market for international money transfers and defines “larger participants” in this market as entities that provide at least one million international money transfers annually, thereby subjecting such entities to the CFPB’s supervisory authority.

Read the CFPB press release

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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