U.S. Financial Industry Developments
CFTC and SEC Announce Approval of New MOU
On June 28, 2018, the Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC") announced that they have entered into a new memorandum of understanding – the agencies had previously entered into a memorandum of understanding in 2008 – designed to be "more relevant in the current market environment and promote efficiency in rule making, regulatory oversight, and enforcement [.]" CFTC Release. SEC Release.
CFTC Proposes Amendments to Ease Regulatory Burdens for Self-Regulatory Organizations
On June 28, 2018, the CFTC announced that it had "approved proposed amendments to its regulations to simplify obligations imposed on a self-regulatory organization when carrying out its financial surveillance program for futures commission merchants." Release.
SEC Expands the Scope of Smaller Public Companies that Qualify for Scaled Disclosures
On June 28, 2018, the SEC approved amendments to its definition of "smaller reporting company" to enable more companies to be eligible for reduced disclosure requirements. Release.
SEC Adopts Inline XBRL for Tagged Data
On June 28, 2018, the SEC approved requirements relating to eXtensible Business Reporting Language ("XBRL") designed "to improve the quality and accessibility of XBRL data." Release.
SEC Proposes New Approval Process for Certain Exchange-Traded Funds
On June 28, 2018, the SEC proposed a new rule (including form amendments) designed to update regulations applicable to exchange-traded funds. Release. Proposed Rule.
SEC Adopts Targeted Changes to Public Liquidity Risk Management Disclosure
On June 28, 2018, the SEC approved "amendments to public liquidity-related disclosure requirements for certain open-end funds… [wherein] funds would discuss in their annual or semi-annual shareholder report the operation and effectiveness of their liquidity risk management programs." Release.
SEC Proposes Whistleblower Rule Amendments
On June 28, 2018, the SEC proposed amendments to its whistleblower program designed to improve the program based on the SEC's experience operating the program since its creation in 2010. Release. Proposed Rule.
European Financial Industry Developments
The EDPB Replies to Queries from European Parliament on Protection of Personal Data in Context of PSD2
The European Data Protection Board ("EDPB") has published a letter sent to the European Parliament in relation to the revised Payment Services Directive ((EU) 2015/2366) ("PSD2").
The letter is in response to a request from Parliament for further clarification of a number of issues relating to the protection of personal data in the context of PSD2. The EDPB is monitoring developments owing to the complex legal framework in this area.
The EDPB comments on the following issues in the letter:
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Whether the processing of personal data of "silent parties" is legitimate when explicit consent for the processing has (only) been given by another data subject.
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Commission Delegated Regulation (EU) 2018/389, which contains regulatory technical standards ("RTS") on strong customer authentication ("SCA") and common and secure communications ("CSC") under PSD2.
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Whether the legal framework is sufficiently clear in relation to the processes of issuing and withdrawing consent under PSD2. The EDPB considers whether the concept of "explicit consent" included in both PSD2 and the General Data Protection Regulation ((EU) 2016/679) ("GDPR") should be interpreted in the same way.
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Whether banks are sufficiently cooperative in establishing secure interfaces and avoiding alternative, less secure, methods of accessing account data.
The EDPB considers that there may be grounds for "fruitful" interaction between EU data protection and financial supervision authorities. It would therefore like a dialogue between these authorities to start, with a view to then establishing a coordinated approach aimed at ensuring greater and more consistent consumer protection.
The EDPB replaced the Article 29 Working Party ("WP29") on May 25, 2018 (the GDPR application date).
EOIPA Launch Big Data Review of the Motor and Health Insurance Markets
The European Insurance and Occupational Pensions Authority ("EIOPA") has published a press release on July 6, 2018 announcing the launch of an EU wide review on the use of Big Data. The focus of the review is on the motor and health insurance markets.
The review is intended to gather empirical evidence on the use of Big Data by insurance undertakings and intermediaries along the whole insurance value chain (including pricing and underwriting, in product development, in claims management, as well as in sales and marketing).
The review will analyze the potential benefits and risks for both industry and consumers to determine what (if any) supervisory and regulatory actions are required. It will assess new business models and data quality issues arising from Big Data, including implications for consumers.
EIOPA will conduct the review in co-operation with national competent authorities ("NCAs") with a view to covering at least 60% of the motor and health insurance markets in each member state. The data is intended to be collected during July and August 2018. The following quantitative and qualitative questionnaires have been sent to NCAs, consumer associations and representative sample of insurance undertakings:
EIOPA intends to publish the review's key findings in the first quarter of 2019.
The review follows the cross-sectoral review of the use of Big Data by financial institutions published by the Joint Committee of the European Supervisory Authorities ("ESAs") in March 2018.
European Parliament Votes to Adopt Report on Decision on Increased Regulatory Powers for ECB over Clearing Systems
On July 4, 2018, the European Parliament published the minutes of its plenary session, which confirms that it has voted (in plenary) to adopt a report on a draft decision amending Article 22 of the Statute of the European System of Central Banks and of the European Central Bank ("ECB") (2017/0810(COD)).
The text of the amendments to the decision adopted by the Parliament has also been published.
The decision is in relation to the ECB's recommendation for the decision made in June 2017, in which it asked for a greater role in regulating clearing systems for financial instruments, including central counterparties ("CCPs"), by amending Article 22 of the Statute
This amendment would enable the Eurosystem (i.e. the ECB and the national central banks of member states in the Eurozone) to monitor and assess risks posed by CCPs clearing significant amounts of euro-denominated transactions, and enable the ECB to adopt additional requirements for those CCPs.
The Parliament's Economic and Monetary Affairs Committee ("ECON") and Committee on Constitutional Affairs ("AFCO") published the final version of a joint report containing proposed amendments to the decision in June 2018.
Once the Council has decided its own negotiating position, the Parliament will enter into interinstitutional negotiations with the Council of the EU on the decision.
Rating Agency Developments
On June 28, 2018, Fitch issued a report entitled: Fitch Updates Rating Criteria for U.S. Mortgage Insurance or Guarantee Fund Programs. Release.
On June 22, Moody's updated its rating methodology for Insurance Brokers and Service Companies. Release.
On June 21, Fitch published rating criteria for rating asset-backed securities backed by U.S. private student loans. Release.
RMBS and Other Securities Litigation
New York Court of Appeals Requires Ambac to Follow Repurchase Protocol and Prove Elements of Fraud Claim
On June 27, 2018, the New York Court of Appeals ruled that Ambac Assurance Corporation ("Ambac") could not recover the full $2.2 billion in damages it sought in the form of claim payouts on $25 billion worth of securitized mortgages from Countrywide Home Loans, Inc. ("Countrywide"). Ambac, a monoline financial guaranty insurer, had agreed to insure payments of principal and interest owed to holders of 17 RMBS securitizations that had been sponsored by Countrywide. Ambac sued Countrywide, alleging claims for fraudulent inducement and breach of contractual representations and warranties. At summary judgment, Ambac contended that it was not required to prove justifiable reliance or loss causation for the fraudulent inducement claim, and that the contract's repurchase protocol—specified to be the sole remedy for breaches of representations and warranties—did not govern its contractual claims.
The First Department rejected each of Ambac's arguments and the Court of Appeals affirmed. As to the elements of the fraudulent inducement claim, the Court reaffirmed the long standing rule that a fraud plaintiff must prove justifiable reliance and causation. It rejected Ambac's argument that New York Insurance Law § 3105 eliminated those elements for insurers because that section does not provide a cause of action for damages, does not "inform" common law elements of fraudulent inducement, and applies only to claims for policy rescission, which Ambac contracted away.
As to Ambac's remedies, the Court held that Ambac could not avoid the sole remedy provision because the "factual allegations underpinning Ambac's transaction-level breaches are the same as those for the loan-level breaches." "Ambac's complaint fails to include breach of contract allegations beyond those that fall under the sole remedy provision of Section 2.01(l), and accordingly Ambac is limited to the repurchase protocol as the potential remedy for those claims." The Court also held that Ambac could not recover damages in the amount of all claims paid under the policies, regardless of the number of loan-level breaches, because that would impermissibly allow Ambac to recover rescissory damages, which are not available under monoline insurance policies.
Finally, the Court held that Ambac could not recover attorneys' fees because the parties' agreement did not show an "unmistakably clear" intent to shift fees in litigation between the parties.
As it did before the First Department, Orrick, Herrington & Sutcliffe filed an amicus brief on behalf of the Securities Industry and Financial Markets Association ("SIFMA") before the Court of Appeals, advocating for several legal propositions that the Court of Appeals adopted in its decision. Opinion.
