Financial Industry Developments

Federal Reserve Board Announces Finalized Rule Adjusting the Board's Maximum Civil Money Penalties

On January 18, 2017, the Federal Reserve Board announced that it was adjusting its maximum civil money penalty limits, pursuant to federal law, to accommodate for inflation. Release.

FHFA Requests Public Input on Duty to Serve Program

On January 18, 2017, the Federal Housing Finance Agency (the "FHFA") announced its request for public comment on (i) proposed chattel loan pilot initiatives for Fannie Mae and Freddie Mac and (ii) the expectations and evaluation criteria the FHFA should use in relation to Fannie Mae and Freddie Mac's effectiveness in fulfilling its duty to assist very low, low and moderate income families in the manufactured housing, affordable housing preservation and rural housing categories (pursuant to the Duty to Serve provisions in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Housing and Economic Recovery Act of 2008). Release.

Agencies Extend Comment Period for Advance Notice of Proposed Rulemaking on Enhanced Cyber Risk Management Standards

On January 13, 2017, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation changed, from January 17, 2017 to February 17, 2017, the deadline for comments "for the advance notice of proposed rulemaking on enhanced cyber risk management standards for large and interconnected entities under their supervision and those entities' service providers." Cyber standards are being contemplated in five areas: "cyber risk governance; cyber risk management; internal dependency management; external dependency management; and incident response, cyber resilience, and situational awareness." Federal Reserve Release. OCC Release. FDIC Release.

CFTC Unanimously Approves Proposals on Swaps Data and Other Amendments

On January 13, 2017, the U.S. Commodity Futures Trading Commission (the "CFTC") approved two rules: one relating to access to swaps data and one relating to disciplinary actions. The CFTC is accepting comments on the proposed amendments until 60 days after the Federal Register publishes the proposed amendments. Release.

CFTC Unanimously Approves Proposal to Amend Recordkeeping Requirements

On January 12, 2017, the U.S. Commodity Futures Trading Commission (the "CFTC") "approved proposed amendments to Regulation 1.31 … [that] … would modernize and make technology‑neutral the form and manner in which regulatory records must be kept, as well as rationalize the rule text for ease of understanding." The CFTC is accepting comments on the proposed amendments until 60 days after the Federal Register publishes the proposed amendments. Release.

SEC Announces 2017 Examination Priorities

On January 12, 2017, the Securities and Exchange Commission released the 2017 examination priorities for its Office of Compliance Inspections and Examinations. The categories of interest "include electronic investment advice, money market funds, and financial exploitation of senior investors." Release.

OCC Publishes Final Rule on Expanding Examination Cycle Eligibility

On January 6, 2017, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation published a final rule amending the regulations governing eligibility for the 18‑month on‑site examination cycle, which broadened the eligibility requirements to include certain qualifying banks with less than $1 billion in total assets. The final rule adopted, without change, each of the provisions of the interim final rule published on February 29, 2016. Release.

Trump Administration Regulatory Proposals and Changes

Trump Administration's First Action Relating to Mortgage Industry – Taxpayer Protection

On its first day in office, the Trump Administration focused on the mortgage industry and on protection of taxpayers from mortgage losses by announcing the suspension of the Obama Administration's recent reduction of FHA annual mortgage insurance premium rates.

"FHA is committed to ensuring its mortgage insurance programs remain viable and effective in the long term for all parties involved, especially our taxpayers. As such, more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions in an ever-changing global economy that could impact our efforts." Mortgagee Letter 2017-07.

A sign of things to come? A harbinger of steps to be taken to further protect taxpayers from the credit risk assumed by Freddie Mac and Fannie Mae in their mortgage purchase programs?

Rating Agency Developments

On January 18, 2017, Moody's issued a report entitled Hybrid Equity Credit. Report.

On January 17, 2017, DBRS issued a report entitled Rating North American CMBS Interest‑Only Certificates - Request for Comment. Report.

On January 17, 2017, Fitch issued a report entitled Fitch Publishes Updated Global Dealer Floorplan Rating Criteria. Release.

On January 17, 2017, Fitch issued a report entitled Fitch Updates Criteria for Variable-Rate Demand Obligations and Commercial Paper. Release.

On January 13, 2017, DBRS issued a report entitled Structured Finance Flow‑Through Ratings. Report.

On January 13, 2017, Fitch issued a report entitled Fitch Updates Rating Investment Holding Companies Criteria. Report.

On January 10, 2017, DBRS published its ratings methodology for European CMBS. Report.

On January 9, 2017, Moody's published its ratings methodology for fleet lease‑backed ABS. Report.

On January 9, 2017, Fitch updated its ratings criteria for pre‑refunded U.S. municipal bonds. Report.

On January 5, 2017, Fitch updated its asset analysis criteria for covered bonds and CDOs of public entities. Report.

RMBS and Other Securities Litigation

Moody's to Pay $864 Million to U.S. Department of Justice & 21 States in Credit Rating Settlement

On January 13, 2017, Moody's Corporation agreed to pay $864 million in a settlement with the U.S. Department of Justice and 21 states in connection with the ratings agency's credit rating work on residential mortgage‑backed securities and other products during the years leading up to the financial crisis. The settlement is comprised of a $437.5 million payment to the Department of Justice and $426.3 million to 21 states. The Statement of Facts accompanying the Settlement Agreement states that from 2004‑2010, Moody's issued credit ratings of RMBS and CDOs, but that there were potential conflicts of interest in Moody's "issuer‑fee‑based" business model, in which issuers paid Moody's for their credit opinions. The settlement agreement does not constitute sanctions "for any act or practice of Moody's." In accordance with the settlement agreement, Moody's agrees to maintain and adopt certain compliance measures that "promote the integrity and independence of Moody's credit ratings" for a period of five years. Settlement Agreement. Statement of Facts. Moody's Compliance Commitments.

European Financial Industry Developments

ESMA Publishes New Methodology for Mandatory Peer Reviews of CCPS Authorization and Supervision Under EMIR

The ESMA has published official translations of its final guidelines under the Market Abuse Regulation ("MAR") (Regulation 596/2014), pertaining in particular to inside information and commodity derivatives under the same. These guidelines have been translated into all EU languages and will take effect two months after their publication.

The guidelines had been finalized and published in September 2016 and clarified a number of points relating to inside information within the context of commodity derivatives under MAR. In particular, the guidelines established a non-exhaustive list of information required or reasonably expected to be disclosed in accordance with contract, practice or custom, general market rules and regulatory provisions encapsulated within both national law and EU law relating to relevant commodity markets.

ESMA Publishes Opinion on the Effect of Excluding Fund Managers From the Scope of MiFIR Intervention Powers

On January 12, 2017, the ESMA published an opinion on the impact of exclusion of fund management from the entire scope of MiFIR (Markets in Financial Instruments Regulation) (Regulation 600/2014).

Although, under Articles 40 and 42 of MiFIR, the ESMA and other NCAs (national competent authorities) can prohibit and restrict the sale, marketing and/or distribution of specific financial instruments or shares in Alternative Investment Funds (AIFs), this power applies only to credit institutions and MiFID firms and excludes from its scope any alternative investment fund managers that might be authorized under the AIFM Directive (2011/61/EU) or to UCITS management companies so authorized under the UCITS IV Directive (2009/65/EC).

The ESMA has commented with the opinion that the intervention powers within MiFIR may create arbitrage situations between fund management companies themselves, as well as between fund management companies and MiFID firms. It has also stated that both the ESMA and relevant NCAs should be given the power to apply the restrictions under MiFIR directly to fund management companies.

European Commission Publishes Consultation Paper on Capital Markets Union (CMU) Mid-Term Review

The European Commission published a paper (dated January 20, 2017) requesting feedback and general input on revisions to the CMU action plan. The original action plan was published in September 2015 and set out the Commission's proposals for the establishment of the CMU.

The European Commission wishes to publish a mid-term review of the action plan by June 2017, with the review being set up to look at any progress in implementing the CMU action plan and amend accordingly, dependent on responses.

The deadline for such responses is March 17, 2017, upon which the Commission will evaluate all responses and produce a feedback assessment.

The Commission has also promised to hold discussions with relevant stakeholders, notably small and medium enterprises and other institutional investors.

The Commission seeks views from any relevant stakeholders on the action plan – in particular, it seeks views on any relevant revisions to the same on actions that could, inter alia:

• Assist in allowing companies to raise capital on public markets (and enter those markets)
• Create sustainable investment and long-term infrastructure, as well as foster retail investment and cross-border investment
• Solidify the capacity of banks to support the economy