U.S. Financial Industry Developments
Looking Out for Main Street: SEC Focuses on Retail, Cybersecurity and Cryptocurrency
The Commissioners and senior officials of the Securities and Exchange Commission ("SEC" or "Commission") addressed the public on February 23-24 at the annual "SEC Speaks" conference in Washington, D.C. Throughout the conference, many speakers referred to the new energy that SEC Chairman Jay Clayton had brought to the Commission since his confirmation in May 2017. The speakers also seemed relieved that the SEC was finally operating with a full set of commissioners since the recent additions of Robert J. Jackson, Jr. and Hester M. Peirce. Clayton's address introduced the main refrain of the conference: that the SEC under his leadership is focused on the long-term interests of Main Street investors. Other oft-repeated themes included the challenges presented by cybersecurity and the fast-paced developments in cryptocurrency and blockchain. To address these shifts in focus, the Enforcement division plans to add more resources to the retail, cybersecurity and cryptocurrency spaces. To view the article, click here.
OCC Amends Rules Governing Annual Stress Testing Under Dodd-Frank
On February 23, 2018, the Office of the Comptroller of the Currency ("OCC") announced a final rule that revised the OCC's annual stress test regulation. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Board of Governors of the Federal Reserve System (the "Board") is required to conduct annual stress tests of holding companies with $50 billion or more in assets. The OCC's final rule (i) extends the range of possible "as-of" dates used in the global market shock component of the annual stress test to conform to changes made by the Board and (ii) provides additional time for bank holding companies that cross the $50-billion-in-assets threshold in the fourth quarter of a calendar year to prepare for the stress testing requirements. Under the final rule, a bank holding company that crosses the $50 billion threshold in the fourth quarter of a calendar year will not be subject to the stress testing requirements until the third year after it crosses such threshold. Release.
SEC Extends Compliance Deadline for Certain Aspects of Liquidity Risk Management Programs Under the Investment Company Act
On February 22, 2018, the Securities and Exchange Commission ("SEC") announced that it is adopting an interim final rule that provides a six-month extension for compliance with certain requirements of Rule 22e-4 regarding a fund's liquidity risk management program, including the portfolio classification, highly liquid investment minimum, and board approval requirements, as well as related reporting requirements under Part D of Form N-LIQUID and liquidity disclosures on Form N-PORT under the Investment Company Act of 1940. The interim final rule extends the compliance deadline for small entities from June 1, 2019 to December 1, 2019 and for larger entities from December 1, 2018, to June 1, 2019. The SEC also issued guidance to assist (i) funds that will not classify their full portfolio prior to the revised compliance date and (ii) In-Kind ETFs in identifying illiquid investments for purposes of complying with the 15% illiquid investment limit under Rule 22e-4. Release.
European Financial Industry Developments
EC Sends Letter to the EBA on RTS Regarding Customer Authentication Under the Revised Payment Services Directive ((EU) 2015/2366) ("PSD2")
The European Banking Authority ("EBA") has published a letter (dated February 13, 2018) from Olivier Guersent (European Commission Director-General, DG FISMA) to Andrea Enria (EBA Chairman) that relates to the regulatory technical standards ("RTS") on strong customer authentication ("SCA") as well as common and secured communication under PSD2.
The letter is broad but, inter alia, states the following:
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The Commission has amended the 'final' version of the RTS, and these amendments took on board concerns that were raised by the EBA and member state officials;
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The Commission would welcome the participation of the EBA in group meetings that will evaluate application programming interface (API) standards;
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Neither the EBA nor the Commission can reasonably anticipate all the problems with APIs, nor can they specify in the RTS how these should be addressed. As such, the EBA and the Commission will rely on relevant market players to develop APIs that work for all sides (i.e., third-party providers, banks and payment service users); and
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The prior differences discussed between the EBA and the Commission with regards to the RTS were about processes rather than other more substantive matters. The extent to which any of these processes might be burdensome for the EBA and relevant national authorities depends on the behavior of market players.
To see the letter, please click here.
EC Publishes Results of Public Consultation on a Revision of EU Consumer Law Directives
The European Commission ("EC") has published a summary of the results from a public consultation it held relating to a revision of the EU consumer law directives.
Launched on June 30, 2017, the consultation aimed to gather relevant opinions from consumers and businesses on how to improve EU consumer law and ran until October 8, 2017.
In total, 414 responses were received in the consultation, with a mix of individual citizens, companies, business and consumer associations, public bodies and member states responding. The highest number of responses came from Germany.
A summary document of the responses (available here) groups the responses into a number of categories.
The Commission plans to take the results of the consultation into account in preparation of its Impact Assessment on a targeted revision of the relevant EU consumer law directives. This Impact Assessment will primarily consider legislative amendments to the current consumer law framework and will aim to, inter alia:
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Extend consumer rights to contracts where consumers provide data rather than pay with money;
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Simplify certain rules and requirements;
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Provide further transparency on whom consumers conclude contracts with when buying online and whether relevant EU consumer rights are applicable to such contracts; and
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Improve potential remedies for consumers that have been harmed by unfair commercial practices.
ECB Publishes Speech on RTS Relating to Customer Authentication and Secure Open Standards of Communication Under the Revised Payment Services Directive ((EU) 2015/2366)
The European Central Bank ("ECB") has published a speech given by Yves Mersch (ECH executive board member) on the implementation by payment service providers of the regulatory technical standards relating to customer authentication and secure communication under PSD2.
In the speech, which can be found here, Mr. Mersch makes a number of comments, including:
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Banks (and financial institutions generally) should work with third-party providers across Europe to create a single standardized interface to communicate with them in order to enable an efficient and pan-European provision of the payment services market. Mr. Mersch expressed some dissatisfaction with the fact that many banks are considering adopting their own customer online banking interfaces instead of developing dedicated and universal interfaces, which goes against the grain of PSD2;
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Third-party providers should be authorized/registered as soon as possible and comply with all legal requirements under PSD2 as early as is practicable. In particular, they should test access interfaces promptly and endeavor to standardize them where possible; and
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All payment service providers ("PSPs") should implement the regulatory technical standards ("RTS") (and all other PSD2 requirements) as soon as possible, and it is in their bests interests to do so.
Impact Finance
Bill Introduced to Create New U.S. Development Finance Agency
On February 28, 2018, a bipartisan bill was introduced in the U.S. Congress that would create a new, expanded U.S. development finance agency. The bill, titled the Better Utilization of Investment Leading to Development, or BUILD Act, would create a new agency called the U.S. International Development Finance Corporation which would replace OPIC and would also take over some functions of USAID. The bill was introduced simultaneously in the House by Republican and Democratic representatives and in the Senate by Republican and Democratic senators.
The bill would give the new agency additional powers that OPIC does not currently have and would also increase the amount of investment that can be made. Under the bill, the maximum contingent liability of the new agency would be increased to $29 billion from OPIC's current cap of $60 billion and would be adjusted regularly based on inflation. In addition to providing loans and insurance, the new agency would have the power to make equity investments and make grants, neither of which OPIC has authority to do. The bill would also move USAID's Development Credit Authority, enterprise funds and Office of Private Capital and Microenterprise into the new agency.
The bill as introduced in the senate is available here.
Rating Agency Developments
On February 28, 2018, Moody's published a list of Outdated Credit Rating Methodologies. Release.
On February 28, 2018, DBRS published an updated analysis criteria for Commercial Real Estate Property. Release.
On February 28, 2018, Fitch published an addendum to its rating criteria for Norway Residential Mortgages. Release.
On February 28, 2018, Fitch published its rating criteria for Renewable Energy Projects. Release.
On February 27, 2018, Moody's published a rating methodology for Tender Option Bonds and Related Instruments. Release.
On February 26, 2018, Fitch published its rating criteria for Public-Sector, Revenue-Supported Debt. Release.
On February 23, 2018, Fitch published its rating criteria for Airports. Release.
On February 23, 2018, Fitch published its rating criteria for Ports. Release.
On February 23, 2018, Fitch published its rating criteria for SME Balance Sheet Securitizations. Release.
On February 23, 2018, Fitch published its rating criteria for CLOs and Corporate CDOs. Release.
On February 22, 2018, Fitch published its rating criteria for U.S. Public Finance Structured Finance Transactions. Release.
On February 22, 2018, Fitch published its rating criteria for U.S. Public Finance Letter of Credit-Supported Bonds and Commercial Paper. Release.
On February 22, 2018, Fitch published its rating criteria for Toll Roads, Bridges and Tunnels. Release.
On February 22, 2018, S&P published an updated rating criteria for RMBS: U.S. Residential Mortgage Operational Assessment Ranking Criteria. Release.
On February 22, 2018, S&P published an updated rating criteria for RMBS: Methodology and Assumptions for Rating U.S. RMBS Issues 2009 and Later. Release.
On February 22, 2018, S&P published an updated rating criteria for RMBS: Assumptions Supplement for Methodology and Assumptions for Rating U.S. RMBS Issues 2009 and Later. Release.
