Financial Industry Developments

FHFA Updates Progress on Fannie Mae and Freddie Mac Credit Risk Transfer Programs

On November 22, 2017, the Federal Housing Finance Agency ("FHFA") issued a status report on credit risk transfer transactions done in conjunction with Fannie Mae and Freddie Mac. Release.

Regulatory Capital Rule: Final Rule

On November 22, 2017, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation published a final rule continuing the application of certain capital rules due to expire at the end of 2017 (focusing on "transition provisions for the regulatory capital treatment of" certain types of assets), though a proposed rule issued on October 27, 2017 may further update the topics addressed in this final rule. Release.

Federal Banking Agencies Finalize Extension of Certain Capital Rule Transitions

On November 21, 2017, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency "finalized a rule for certain banking organizations by extending the existing capital requirements for mortgage servicing assets and certain other items."  These changes will be put into effect on January 1, 2018. FDIC Release. Federal Reserve Release. OCC release.

Agencies Amend CRA Regulations to Conform to HMDA Regulation Changes and Remove References to the Neighborhood Stabilization Program

On November 20, 2017, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency each modified their respective regulations in large part to align with "changes made by the Consumer Financial Protection Bureau [] to Regulation C, which implements the Home Mortgage Disclosure Act[] ("HMDA")."  These changes will be put into effect on January 1, 2018. FDIC Release. Federal Reserve Release. OCC release.

CFTC Division of Market Oversight Issues No-Action Relief from Certain Timing Requirements Regarding SEF Chief Compliance Officer Annual Compliance Reports and Fourth Quarter Financial Reports

On November 20, 2017, the Commodity Futures Trading Commission ("CFTC") provided "no-action relief to swap execution facilities [] from the timing requirement within CFTC regulation 37.1501(f)(2), which requires a chief compliance officer" to provide a yearly compliance document to the CFTC in a specific timeframe, in addition to other relief.  The relief "expire[s] on November 30, 2020 at 11:59 pm (EST)".  Release.

FRB extends Comment Periods for Two Related Proposals Until February 15, 2018

On November 17, 2017, the Federal Reserve Board ("FRB") continued the comment period for two proposals – one relating to boards of directors and the other relating to a proposed ratings program for certain types of organizations – from November 30, 2017 to February 15, 2018. Release.

Rating Agency Developments

On November 21, 2017, Fitch issued a report entitled: Fitch Updates Commercial Real Estate Loans Securing Covered Bonds Rating Criteria. Release

On November 21, 2017, Fitch issued a report entitled: Fitch Updates Criteria for U.S. Public Finance Prerefunded Bonds. Release

On November 20, 2017, Fitch issued a report entitled: Fitch Publishes Digital ABCP Scorecard.

On November 20, 2017, Fitch issued a report entitled: Fitch Updates Global Money Market Fund Ratings Criteria. Release

On November 17, 2017, DBRS issued a report entitled: Rating U.S. Structured Finance Transactions - Request for Comments. Release

On November 17, 2017, DBRS issued a report entitled: Operational Risk Assessment for U.S. ABS Originators - Request for Comments. Release

On November 17, 2017, DBRS issued a report entitled: Operational Risk Assessment for U.S. ABS Servicers - Request for Comments. Release

On November 17, 2017, DBRS issued a report entitled: DBRS Master U.S. ABS Surveillance Methodology - Request for Comments. Release

On November 16, 2017, Fitch issued a report entitled: Fitch Publishes Latest U.S. Auto ABS Quarterly Index Report. Release

European Financial Industry Developments

European Commission Report on SEPA Migration Regulation

The European Commission published a report on November 23, 2017 (COM(2017) 683 final) to the Council of the EU and the European Parliament on the application of the Single Euro Payments Area ("SEPA") Regulation (Regulation 260/2012) (SEPA Migration Regulation).

The SEPA Migration Regulation set the end-date for migration from national credit transfer and direct debit payment instruments to SEPA credit transfers ("SCT") and direct debits ("SDD"). For member states that belonged to the euro area, this date was February 1, 2014 (although this was postponed for six months). Member states that do not belong to the euro area had until October 31,  2016 to migrate.

Article 15 of the SEPA Migration Regulation requires the Commission to report on the application of the Regulation by February 1,  2017.

The Commission sent a questionnaire to member states on December 15, 2016 about a number of issues such as the migration from legacy credit transfers and direct debits to SCT and SDD, the use of options by member states, the authorities designated for ensuring compliance with the Regulation and their powers, and issues that may still be encountered across the EU relating to the implementation of the Regulation. The member states' responses form the basis for the Commission's report.

The Commission concluded that, overall, the SEPA Migration Regulation is correctly applied across the EU, and there is currently no need for a follow-up legislative proposal. The very few issues (such as international bank account number ("IBAN") discrimination and competent authorities' competences) that persist have been addressed by member states and their resolution should be closely monitored. The main issue to be closely observed is IBAN discrimination by payees (that is, imposing an obligation on payers to pay from an account located in a specific country, which is contrary to Article 9 of the Regulation). Although the number of cases have decreased, the Commission believes that new cases could still arise.

Autumn 2017 Budget: Key Financial Services Announcements

The UK Chancellor of the Exchequer, delivered the November 2017 Budget on November 22, 2017.

The UK government re-iterated its commitment to supporting competition in banking in its Budget, setting out initiatives designed to enable innovation in banking services, strengthen challenger banks, and improve access to affordable credit for consumers. These include:

• Credit Unions. The government will increase the number of potential members that a credit union serving a local area is able to have from 2 to 3 million to improve access to reputable sources of credit.
• Open banking. Starting in early 2018, the open banking project will make it easier for customers to access innovative products and services that better suit their needs. The largest banks have committed to extend open banking to more payment products, including credit cards.
• Challenger banks. Following an agreement with the European Commission in September 2017, RBS will deliver a £775 million package of measures designed to improve competition in the UK business banking market. The Prudential Regulation Authority will also make capital requirements more proportionate for eligible smaller banks, aimed at assisting them to compete more effectively in the market.

The UK government will publish a new long-term strategy to ensure that the UK asset management industry continues to deliver the best possible outcomes for investors. The strategy includes action on skills, harnessing financial technology solutions, mainstreaming innovative investment strategies, and continuing a coordinated program of international engagement. The government states that it will be working closely with the asset management industry in this area.

ESMA has Published a Further Version of its Q&As on the MAR

The European Securities and Markets Authority ("ESMA") published a further version of its Q&As on the Market Abuse Regulation ("MAR") on November 21, 2017.

The two new questions and answers are on the following topics:

• ESMA states that the insider dealing prohibition in Article 14 of MAR applies during closed periods referred to in Article 19(11) of MAR in the same way as it does at any other time. Therefore a person discharging managerial responsibilities ("PDMR") must also comply with Article 14. When an issuer allows a PDMR to trade under Article 19(12) of MAR, the PDMR must always give consideration as to whether or not the relevant transaction would constitute insider dealing.
• ESMA states that the types of transaction by a PDMR prohibited during a closed period under Article 19(11) of MAR are the same as those types of transaction subject to the notification requirements set out under Article 19(1) of MAR, although Article 19(11) of MAR only applies to a PDMR when conducting transactions on its own account or for the account of a third party, whereas the notification of transactions required under Article 19(1) of MAR also applies to persons closely associated to a PDMR.

ECB Speech on Eurosystem Cyber Resilience Strategy for FMIs

The Director General Market Infrastructure and Payments of the European Central Bank ("ECB"), Marc Bayle de Jessé, gave a speech on the ECB's views on the regulation of cyber security on November 21, 2017.

In his speech, Mr. Bayle de Jessé provided an overview of the Eurosystem cyber resilience strategy for financial market infrastructures ("FMIs"). The strategy was approved by the ECB's governing council in March 2017 and is intended to implement the June 2016 joint guidance (Guidance) of the Committee on Payments and Market Infrastructures ("CPMI") and the International Organization of Securities Commissions ("IOSCO") on cyber resilience for FMIs.

The strategy is based on three pillars:

• Pillar 1. Working with financial firms and FMIs to ensure that they build defenses and enhance their level of cyber maturity. The Eurosystem is developing a harmonized approach to assessing payment systems in use in the Eurozone against the CPMI-IOSCO guidance. It is also developing tools for use by FMI operators to enhance their cyber resilience maturity. These tools include a cyber survey, which has been sent by the ECB to all payment systems in the Eurosystem, and a "European Red Team Testing Framework", which involves testing FMIs' cyber resilience without prior warning by mimicking the tactics of real cyber attackers.
• Pillar 2. Strengthening the resilience of the sector. The ECB is working on cross-regulatory collaboration, information sharing, improved threat intelligence, close collaboration with European law enforcement agencies, market-wide exercises based on cyberattack scenarios, and a deeper understanding of third parties and the supply chain.
  
  In particular, the ECB is developing an analytical framework and methodology for sector mapping with the aim of producing sector and network maps that will be used to understand key risk areas and improved crisis communication procedures. The ECB also calls for cross-authority collaboration to be enhanced to ensure that authorities have a similar approach and focus on cyber resilience and for the efficient sharing of information on threats by market participants and regulators.
• Pillar 3. Establishing strategic dialogue between the industry and regulators. The ECB is in the process of establishing the Euro Cyber Resilience Board. The aim of this board is to provide a forum that brings together market participants, competent authorities and cyber-security service providers. The aim of the Forum is to raise awareness and catalyze joint initiatives for developing effective solutions for the market, as well as sharing best practices and fostering trust and collaboration.

Capital Markets Union: Council Formally Adopts Securitization Regulation and CRR Amendment Regulation

The General Affairs Council formally adopted at first reading the European Commission proposal for a Regulation of the European Parliament ("EP") and of the Council amending Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (CRR Amendment Regulation) and a proposal by the Commission for a Regulation of the EP and of the Council laying down common rules on securitization and creating a European framework for simple, transparent and standardized securitization (Securitization Regulation) on November 20, 2017.

Both Regulations were adopted as an A item, meaning that they could be formally adopted without requiring a debate. This was expected, taking into consideration the undertaking given by the Council representative by letter of June 28, 2017 to approve the EP's first reading position on both draft Regulations without further amendments. The EP formally adopted the two Regulations on October 26, 2017.

The new rules laid down in these two Regulations are part of the EU's plan to develop a fully functioning Capital Markets Union by the end of 2019. The EU believes developing a securitization market will help create new investment possibilities and provide an additional source of finance, particularly for SMEs and start-ups.

The Commission adopted its proposals for these two Regulations on September 30, 2015.