Rating Agency Developments

On April 19, 2017, Fitch issued a report entitled Airport Operating Lease ABS Rating Criteria. Release.

On April 14, 2017, Fitch issued a report entitled North America and Asia-Pacific Multiborrower CMBS Surveillance Criteria. Release.

RMBS and Other Securities Litigation

New York Court Dismisses Royal Park's RMBS Cases for Lack of Standing

On April 12, 2017, Judge Charles E. Ramos of the New York State Supreme Court for New York County dismissed Royal Park's RMBS lawsuits alleging fraud and other tort causes of action against Morgan Stanley, Deutsche Bank, Credit Suisse and UBS due to lack of standing. Royal Park had acquired the RMBS certificates from another entity via a portfolio transfer agreement ("PTA"), which transferred the "right, title and interest in and to" the certificates. The defendants argued that New York procedural law governed the issue of standing and that under New York law, the right to bring tort claims would not automatically transfer with the certificates absent an outward expression of an intent to do so. Royal Park argued that the court should apply Belgium procedural law to the standing issue because Belgium law governed the PTA. The court held that New York law governed the issue of standing and that since the PTA unambiguously only transferred the "right, title and interest in and to" the certificates, it did not expressly assign the right to bring tort claims, and Royal Park thus lacked standing to bring its claims. Order.

European Financial Industry Developments

ESRB Reports on Revision of EMIR

On April 21, 2017, the European Systemic Risk Board ("ESRB") published a report on the revision of the European Market Infrastructure Regulation (the "EMIR").

The report welcomes the European Commission's November 2016 report on the outcome of its EMIR review, which the Commission carried out under Article 85(1) of EMIR. The ESRB supports the Commission's plan to revise EMIR to include an emergency mechanism for quickly suspending the clearing obligation and to increase the transparency and predictability of margin requirements.

The ESRB agrees with the Commission that no fundamental change to EMIR is currently required, although it does recognize that some aspects of EMIR could be improved, such as improving the trade data reporting framework and transparency by obliging central counterparties ("CCPs") to publish qualitative and quantitative information consistent with the Committee on Payments and Market Infrastructures – Board of International Organization of Securities Commissions disclosure framework.

In addition, the report suggests that enhancing tools in EMIR that restrict procyclicality would reduce risks to financial stability and could simplify EMIR requirements and make them more efficient.

Although the ESRB recognizes the difficulties faced by some counterparties in meeting the clearing obligation, it supports a broad application of the obligation, including for pension scheme arrangements and large nonfinancial counterparties that are active in the derivatives market.

A comprehensive review of EMIR will be needed in the future. This comprehensive review should address issues such as the potential use of margins and haircuts to meet macroprudential objectives when the analysis needed to develop these tools has progressed.

The ESRB restates its previous proposals, including revising the determination mechanism of dedicated resources and interoperability arrangements. The ESRB reported on CCP interoperability arrangements in January 2016, and published two earlier reports on EMIR to assist the Commission with its Article 85 review of the Regulation in July 2015.

The ESAs Published a Joint Committee Report on Cross-Sector Risks Facing EU Financial System

On April 20, 2017, the Joint Committee of the European Supervisory Authorities (the "ESAs") published its April 2017 report on risks and vulnerabilities in the EU financial system.

The ESA highlights the following main risks to the financial system:

The banking sector is being affected by high levels of non-performing loans ("NPLs"), high litigation costs, overcapacity and lack of focus in strategies to return to sustained profitability. Addressing low profitability challenges includes increasing supervisory action, making progress in structural reforms and improving the efficiency of secondary markets. Insurers face substantial challenges arising from prolonged low interest rates, and the fund industry's rates of returns are subdued and remain mostly negative.

Increased asset price volatility and liquidity concerns have heightened risks relating to adequate valuation of asset prices. This has been exacerbated by political uncertainties.

Interconnectedness adds to financial sector risks. This includes concentration risk caused by highly correlated equity price movements for insurers and banks and high exposures of EU insurers to EU banks. Interconnectedness with the wider financial system is also increasing.

Cyber risk appears as a major risk and is on the rise. Currently, denial-of-service attacks, data theft or manipulation, malicious software, misinformation and false identification are the most relevant forms. Operational risks related to ICT risks also appear to be on the rise across the financial sector. The ESAs are responding to cyber and IT-related risks by, for example, drafting guidelines on ICT risk assessment for supervisors, assessing cybersecurity capabilities of central counterparties and assessing the potential accumulation of risk for insurers deriving from newly developed cybersecurity coverages.

ESMA Signs Memorandum of Understanding on CCPs with New Zealand Regulators Under EMIR

On April 18, 2017, the European Securities and Markets Authority ("ESMA") published a memorandum of understanding that it has entered into with the Reserve Bank of New Zealand and the Financial Markets Authority of New Zealand under Article 25 of the European Market Infrastructure Regulation ("EMIR").

Article 25(2)(c) of EMIR requires the establishment of cooperation arrangements as a precondition for ESMA to recognize central counterparties ("CCPs") established in New Zealand to provide clearing services to clearing members or trading venues established in the EU. The memorandum of understanding is designed to:

• Ensure the fulfillment of the conditions set out in Article 25(2)(c) of EMIR.
• Provide ESMA with adequate tools to monitor the ongoing compliance by the relevant CCPs with the recognition conditions set out in Article 25 of EMIR.
• The memorandum of understanding is effective as of February 28, 2017, which is the date it was signed by the relevant authorities.