Financial Industry Developments

CTFC Approves Proposed Rules Addressing Application of Certain CEA Regulations to Cross-Border Transactions

On October 11, 2016, the U.S. Commodity Futures Trading Commission ("CFTC") unanimously approved proposed rules relating to the application of certain swap provisions of the Commodity Exchange Act (CEA) and CTFC to cross-border transactions. The proposed rules address, among other things, key terms for cross-border transactions, registration thresholds and external business conduct standards. The comment period ends 60 days after publication of the proposal in the Federal Register. Press Release.

CFTC Extends No-Action Relief for Swap Execution Facilities from Certain "Block Trade" Requirements

On October 7, 2016, the U.S. Commodity Futures Trading Commission ("CFTC") Division of Market Oversight extended time-limited no-action relief for swap execution facilities from the "occurs away" requirement from the definition of "block trade" under CFTC Regulation Section 43.2. Relief is extended until November 15, 2017. Press Release. No Action Letter.

Rating Agency Developments

On October 11, 2016, S&P published its methodology for surveilling ratings of U.S. residential mortgage-backed securities principal only strip securities. Report.

On October 7, 2016, Moody's published its rating methodology for collateralized debt obligations (CDOs) backed by trust preferred securities (TruPS). Report.

On October 7, 2016, Moody's published its rating methodology for collateralized loan obligations (CLOs). Report.

On October 7, 2016, Moody's published its rating methodology for collateralized debt obligations (CDOs) backed by structured finance assets (SF). Report.

On October 6, 2016, Moody's published its rating methodology for auto loan and lease-backed ABS. Report.

Investment Management

CFPB Structure Ruled Unconstitutional

On October 11, 2016, the U.S. Court of Appeals for the District of Columbia Circuit ruled in PHH Corporation v. Consumer Financial Protection Bureau that the CFPB's structure is unconstitutional.

In reaching this conclusion, the appellate court found that "No head of either an executive agency [established by the President] or an independent agency [established by Congress] operates unilaterally without any check on his or her authority" and, therefore, the Director of the CFPB "enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President." The court concluded that the CFPB "lacks that critical check and structural constitutional protection, yet wields vast power over the U.S. economy." In order to remedy the constitutional flaw, the appellate court ruled that the CFPB can continue to operate but "will do so as an executive agency akin to other executive agencies headed by a single person, such as the Department of Justice and the Department of the Treasury," and will be removable by the President. Report.

European Financial Industry Developments

Compromise Proposal on the Regulation Amending EuVECA Regulation and EuSEF Regulation

On October 13 2016, the Presidency of the Council of European Union published a compromise proposal (13168/16) in relation to the proposed Regulation amending the European Venture Capital Funds Regulation (Regulation 345/2013).

Additions to the previous compromise proposal published in September 2016 are highlighted by bold underline, and deletions are highlighted in strikethrough.

Implementing Regulations on its Credit Assessments of ECAIs Under Solvency II and CRR Published in OJ

On October 12, 2016, the Commission Implementing Regulation (EU) 2016/1799 of October 7, 2016 laying down implementing technical standards (ITS) with regard to the mapping of credit assessments of external credit assessment institutions (ECAIs) for credit risk in accordance with Articles 136(1) and 136(3) of the Capital Requirements Regulation and the Commission Implementing Regulation (EU) 2016/1800 of October 11, 2016 laying down ITS with regard to the allocation of credit assessments of ECAIs to an objective scale of credit quality steps in accordance with the Solvency II Directive were published in the Official Journal of the EU (OJ).

The aim on these ITS is to determine a prudential approach for cases lacking factual evidence and an objective approach for attributing risk weights to the assessment of ECAIs.

Draft versions of these ITS were published in November 2015 by the Joint Committee of the European Supervisory Authorities, who subsequently published an opinion in May 2016 rejecting the proposal by the European Commission to remove the more conservative mapping of ECAI credit assessments that the ESAs had proposed to be applied from January 1, 2019.

The ITS published in the OJ do not contain provisions relating to the introduction of the more conservative mapping, and the Commission has added wording to the recitals to explain its approach with regards to the issue.

The Implementing Regulations will enter into force on November 1, 2016.

Publication of the Joint Committee of the European Supervisory Authorites' 2017 Work Program

On October 12, 2016, the Joint Committee of the European Supervisory Authorities (ESAs) published its 2017 work program (JC 2016 042) (dated September 30, 2016).

According to the work program, during 2017 the ESAs aims to assess more closely the threats and cross-sectoral opportunities prompted by the digitalization of finance and financial technology.

The ESAs stated in its work program that it will:

• Continue to analyze the challenges and opportunities faced by financial institutions when using "big data" to identify consumer patterns, profile customers and target their offerings.
• Provide guidance on the implementation of the Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (Regulation 1286/2014) (PRIIPs Regulation).
• Take action to respond to AML/CTF issues as they arise. This work will amend existing guidelines in the light of new legal and regulatory developments and new guidelines on virtual currency exchange platforms.
• Try to prepare a general mapping of the various rules for firms operating in the insurance, banking and security sectors.
• Publish guidelines under Article 25 of the revised Wire Transfer Regulation ((EU) 2015/847) (WTR), draft regulatory technical standards (RTS) on central contact points under Article 45(10) of the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4) and draft RTS under Article 45(6) of MLD4 on measures firms should take to handle the risk of money laundering or terrorist financing where a third country's laws prohibit the applicant of equivalent anti-money laundering (AML) and counter-terrorist financing (CTF) standards.