U.S. Financial Industry Developments

CFTC Reduces Marketplace Barriers for Global Development Initiatives 

On May 16, 2018, the Commodity Futures Trading Commission's ("CFTC") Division of Swap Dealer and Intermediary Oversight ("DSIO") granted relief to non-U.S. counterparties who enter into swaps with International Financial Institutions ("IFIs"), such as development banks. In the no-action letter, DSIO announced it would not recommend that the Commission take action if non-U.S. persons do not include swaps with IFIs when determining whether such non-U.S. persons meet or exceed agency-prescribed registration thresholds. Release.

Notice of Proposed Rulemaking

On May 14, 2018, the Office of the Comptroller of the Currency ("OCC"), Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation (collectively, the agencies) published a notice of proposed rulemaking to implement the Financial Accounting Standards Board's Accounting Standards Update ("ASU") 2016-13, "Financial Instruments—Credit Losses," in their rules. Release.

Customer Due Diligence and Beneficial Ownership Requirements for Legal Entity Customers – Overviews and Examination Procedures

On May 11, 2018, the Federal Financial Institutions Examination Council issued new examination procedures on the final rule, "Customer Due Diligence Requirements for Financial Institutions" (the "CDD Rule"). The CDD Rule was issued on May 11, 2016 with mandatory compliance on May 11, 2018. The examination procedures apply to banks, savings and loan associations, credit unions, and branches, agencies, and representative offices of foreign bank. Release.

New Comptroller's Handbook Booklet and Rescissions

On May 11, 2018, the Office of the Comptroller of the Currency ("OCC") issued the "Military Lending Act" ("MLA") booklet of the Comptroller's Handbook. This new booklet is for use by OCC examiners when assessing compliance with the MLA, as implemented by 32 CFR 232, "Limitations on Terms of Consumer Credit Extended to Service Members and Dependents." The MLA applies to closed-end and most open-end consumer credit consummated or established on or after October 3, 2016, and to credit card accounts established on or after October 3, 2017, that are covered by the MLA and 32 CFR 232. Release.

Rating Agency Developments

On May 15, 2018, DBRS issued a report entitled: Rating European Non-Performing Loans Securitizations. Release.

On May 15, 2018, Fitch issued a report entitled: Global Structured Finance Rating. Release.

On May 11, 2018, Fitch issued a report entitled: European RMBS Rating Criteria. Release.

On May 10, 2018, Fitch issued a report entitled: UK-Supported Student Loans Bespoke Rating Criteria. Release.

On May 10, 2018, Kroll issued a report entitled: RMBS: European RMBS Rating Methodology. Release.

On May 10, 2018, Kroll issued a report entitled: European RMBS Rating Methodology Addendum: United Kingdom. Release.

RMBS and Other Securities Litigation

S.D.N.Y. Denies Motion for Sampling in Trustee Action

On May 17, 2018, Judge Jesse M. Furman of the United States District Court for the Southern District of New York denied the BlackRock Plaintiffs' request to use sampling to prove their case against an RMBS trustee in BlackRock Balanced Capital Portfolio (FI) v. Deutsche Bank National Trust Company. In reaching this conclusion, Judge Furman noted that his decision was consistent with those reached by other S.D.N.Y. judges in similar actions against RMBS trustees Wells Fargo and HSBC (previously covered here and here). Echoing those decisions, Judge Furman held that sampling was of limited benefit because the BlackRock Plaintiffs had to prove liability and damages loan-by-loan and trust-by-trust. Memorandum Opinion & Order

New York Supreme Court Grants in Part and Denies in Part Cross Motions for Summary Judgment in RMBS Action

On May 16, 2018, Justice Shirley W. Kornreich of the New York Supreme Court granted in part and denied in part the parties' summary judgment motions in Merrill Lynch Mortgage Investors Trust Series 2006-RM4 v. Merrill Lynch Mortgage Lending, Inc. Defendants Merrill Lynch Mortgage Lending, Inc. ("Merrill") and Bank of America National Association ("BANA") and Plaintiff-Trustee U.S. Bank National Association ("Trustee") cross-moved for partial summary judgment regarding the scope and enforceability of an allocation agreement between Merrill and BANA and certain provisions therein about the release of Merrill's contractual liability to the Trustee (the "Release"). Justice Kornreich granted summary judgment for Defendants with respect to the Release language being unambiguous but denied summary judgment as to its enforceability. Justice Kornreich concluded that material questions of fact exist as to whether Merrill's and BANA's negotiation and execution of the Release was a true arm's length transaction and whether the Release was unconscionable. Justice Kornreich also denied the Trustee's motion for a ruling that Merrill provided a backstop to originator ResMAE Mortgage Corporation's putback liability. The Court granted summary judgment to the Trustee regarding the meaning of certain sections of the mortgage loan purchase agreement, the existence of warranty breaches on certain loans, and Defendants' causation defenses. In addition, Justice Kornreich granted the Trustee's motion for leave to amend to add a "breach of trust" cause of action against BANA. Decision & Order

Delaware Federal Court Grants RMBS Trustee's Motion to Dismiss

On May 14, 2018, Judge John E. Jones III of the United States District Court for the District of Delaware granted the Trustee-Defendant Wilmington Trust Company's ("Wilmington Trust") motion to dismiss in IKB International, S.A. v. Wilmington Trust Co. Plaintiffs IKB International, S.A. ("IKB S.A.") and IKB Deutsche Industriebank, A.G. ("IKB A.G.") are holders of certain securities issued by various RMBS trusts, and they sued Wilmington Trust, as Owner Trustee of the various trusts, for breach of contract and the implied covenant of good faith and fair dealing. The Court first dismissed the claims asserted by IKB S.A., holding that IKB S.A. lacked standing to assert claims under the governing agreements because it transferred all of its claims to third parties. The Court next held that IKB A.G. failed to adequately state its claims. The Court found that Wilmington Trust's obligations were limited by the terms of the governing agreements, and thus had no extra-contractual duties to ensure that the Indenture Trustees and Sellers complied with their obligations regarding the mortgage loan files, notify any other parties of breaches of Sellers' representations and warranties, or address uncured servicing defaults. The Court also rejected IKB A.G.'s claim that Wilmington Trust breached the implied covenant of good faith and fair dealing as duplicative of the breach of contract claim. Memorandum & Order