Financial Industry Developments

CFTC Statement on Self-Certification of Bitcoin Products by CME, CFE and Cantor Exchange

On December 1, 2017, the Commodity Futures Trading Commission ("CFTC") issued a Statement on the Self-Certification of Bitcoin Products by the Chicago Mercantile Exchange ("CME"), the CBOE Futures Exchange ("CFE") and the Cantor Exchange ("Cantor").

CFTC Chairman J. Christopher Giancarlo stated that "we have had extensive discussions with the exchanges regarding the proposed contracts, and CME, CFE and Cantor have agreed to significant enhancements to protect customers and maintain orderly markets. The Statement also emphasized that "the Commission will continue to assess whether further changes are required to the contract design and settlement processes . . . These activities include monitoring and analyzing the size and development of the market, positions and changes in positions over time, open interest, initial margin requirements, and variation margin payments, as well as stress testing positions." Release.

DFS Grants Virtual Currency License To bitFlyer USA, Inc.

On November 28, 2017, the New York State Department of Financial Services ("DFS") announced that it has approved the application of bitFlyer USA, Inc., for a virtual currency license."  Pursuant to this license bitFlyer USA is "approved to offer an online digital currency exchange and trading platform as well as provide custodial wallet services for the Bitcoin digital currency."  The announcement emphasizes that DFS "has conducted a comprehensive review of bitFlyer USA's application, including the company's anti-money laundering, capitalization, consumer protection, and cyber security policies."  DFS further stated that its "rigorous application ensures only the most safe and compliant firms can operate in New York . . ." Release.

FHFA Announces Maximum Conforming Loan Limits for 2018

On November 28, 2017, the Federal Housing Finance Agency ("FHFA") announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2018. In most of the U.S., the 2018 maximum conforming loan limit for one-unit properties will be increased to $453,100, from $424,100 in 2017.  In addition, for areas in which 115% of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit will be higher than the baseline loan limit. The new ceiling loan limit for one-unit properties in most high-cost areas will be $679,650, or 150% of $453,100. Release.

Impact Finance

EIB and European Commission Launches Advisory Service to Help Cities Plan Investments

On November 28, 2017, the European Investment Bank ("EIB") and the European Commission launched UBRIS (for "Urban Investment Support"), an urban advisory service with the goal of assisting cities in member states in accessing finance.  UBRIS will help design, plan and implement investment strategies and projects, including providing technical and financial advice.

Cities can apply for UBRIS assistance at the European Investment and Advisory Hub.  Eligibility criteria note that URBIS will prioritize cities seeking support related to a sustainable urban strategy with a view of developing, financing and implementing urban investment programs and that advice should be given on sustainable urban investments, in particular smart, green and socially inclusive investments.

According to press releases of the European Commission and the EIB, UBRIS will help with the following:

• Improve a city's investment strategy by giving advice in strategic planning, prioritizing and optimizing of investment programs and projects.
• Bring projects and investment programs to a bankable stage, including by providing analysis on demand or support in financial structuring and by reviewing draft grant applications.
• Explore opportunities for financing under the European Fund for Strategic Investments and/or the Cohesion Policy funds.
• Support the preparation work for investment platforms and facilities combining funds, liaise with financial intermediaries and set up implementation arrangements for these facilities.
• Develop financing approaches aiming at alleviating the burden on municipal debt and at helping municipal companies and private urban service providers access funding.

UBRIS will initially use EIB advisory and project services and focus on selected assignments.  The EIB and the European Commission will assess the initial work in the second half of 2018 and may consider additional resources at that time.

The EIB and European Commission press releases announcing UBRIS are available here and here.

Rating Agency Developments

On November 27, 2017, Fitch issued a report entitled: Exposure Draft: Government-Related Entities Rating Criteria. Release.

On November 27, 2017, Fitch issued a report entitled: Emerging Market Countries' Local and Regional Governments' Specific Securities Rating Criteria. Release.

On November 27, 2017, Fitch issued a report entitled: Airports Rating Criteria. Release.

On November 27, 2017, DBRS issued a report entitled: Rating Sovereign Governments. Release.

On November 27, 2017, DBRS issued a report entitled: Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations – Request for Comments. Release.

On November 27, 2017, DBRS issued a report entitled: Rating Structured Finance CDO Restructurings – Request for Comments. Release.

On November 28, 2017, Moody's published an update to its ratings methodology for: US Public Power Electric Utilities With Generation Ownership Exposure. Release.

On November 28, 2017, KBRA issued a report entitled: Global Credit Card ABS Rating Methodology. Release.

On November 28, 2017, KBRA issued a report entitled: Global Container Leasing ABS Rating Methodology. Release.

On November 28, 2017, KBRA issued a report entitled: Global Auto Loan ABS Rating Methodology. Release.

On November 28, 2017, KBRA issued a report entitled: Global Consumer Loan ABS Rating Methodology. Release.

On November 28, 2017, KBRA issued a report entitled: Global Aviation ABS Rating Methodology. Release.

On November 28, 2017, KBRA issued a report entitled: Global General Rating Methodology for Asset-Backed Securities. Release.

On November 28, 2017, KBRA issued a report entitled: Global Equipment Lease & Loan ABS Rating. Release.

European Financial Industry Developments

EC Publishes Report on Follow-Up to Call for Evidence on EU Regulatory Framework for Financial Services

The European Commission ("EC") published on December 1, 2017 a report on the follow-up to its call for evidence on the EU regulatory framework for financial services. The report contains an update on progress on the initiatives relating to its call for evidence since the prior communication in November 2016.

The report sets out details of measures introduced following the call for feedback, including several ongoing initiatives that require further analysis. These include:

• the Commission's work to monitor the application and impact of the outsourcing provisions in the Benchmarks Regulation;
• the study conducted by the European Commission as part of the capital markets union action plan to assess the distribution of retail products to retail investors across the EU. The European Commission indicated that it expects to publish final findings from the study at the start of 2018;
• the launch by the EBA of an IT tool aimed at promoting further proportionality in banking regulation. The idea is that the tool will help guide banks through relevant regulatory standards, provisions and templates in view of their specific size and business model; and
• the assessment by the European Commission of the proportionality of the Alternative Investment Fund Managers Directive (2011/61/EU). The outcome of the European Commission's review is expected in 2018.

The report is available here.

European Parliament's Committee on ECON Publishes Draft Reports on CRR II Regulation and CRD V Directive

On December 1, 2017, Economic and Monetary Affairs ("ECON") published its draft report on the proposed CRR II Regulation and its draft report on the proposed CRD V Directive.

The European Commission's proposals for the CRR II Regulation and the CRD V Directive contain revisions to the Capital Requirements Regulation (Regulation 575/2013) (CRR) and the CRD IV Directive (2013/36/EU) respectively.

The draft reports contain proposed amendments to the CRR II Regulation and the CRD V Directive as well as explanatory statements by the rapporteur.

The amendments include:

• Scope: the definition for a small, non-complex institution should be amended to include a relative component geared to the gross domestic product of a particular member state;
• Global systemically important institutions (G-SIIs): the leverage quotas for G-SIIs should increase to 4%. Grandfathering provisions for the introduction of the total loss absorbing capacity standard for G-SIIs should be introduced in order to ensure that buffers for liabilities capable of being bailed –in are built up as quickly as possible;
• Remuneration and transparency: large institutions should be obliged to set and disclose a figure for the salary of each individual board member representing a proportion of the median salary of the institutions' employees; and
• Lending to SMEs and infrastructure:  the support factor for investment in infrastructure should equally be applicable to lending to public enterprises. A set of criteria to govern the exclusion of certain institutions from the scope of the CRR should also be introduced to encourage the set up promotional banks.

The draft report on the proposed CRR II Regulation (PE613.409v02-00) (dated November 22, 2017) is available here and the draft report on the proposed CRD V Directive (PE613.410v01-00) (dated November 16, 2017) is available here.

Council of the EU Publishes Progress Report on Commission's Initiatives to Strengthen the Banking Union

On November 29, 2017, the Council of the EU published a report on the progress of the European Commission's initiatives to strengthen the banking union, including the proposed Regulation establishing the European deposit insurance scheme (EDIS) (14932/1/17).

The report provides an overview of the progress of the Commission's banking reform legislative package, adopted in November 2017, and also refers to a progress report from the Presidency of the Council on the progress of the EDIS Regulation.

This progress report highlights several issues which are currently under discussion with the European Council. Such issues include:

• alternative measures to prevent the failure of credit institutions;
• the methodology for calculating risk-based contributions;
• the scope of EDIS and the inclusion of branches of third-country credit institutions established in a member state and of non-CRD IV deposit-taking entities that are covered by existing deposit guarantee schemes (DGSs);
• non-compliance by DGSs and the procedure for the disqualification; and
• the design of EDIS, including the merits of the full insurance and reinsurance models.

The progress report is available here.