U.S. Financial Industry Developments

CFTC Files Eight Anti-Spoofing Enforcement Actions against Three Banks (Deutsche Bank, HSBC & UBS) & Six Individuals

On January 29, 2018, the Commodity Futures Trading Commission ("CFTC"), along with the Department of Justice and FBI's Criminal Investigation Division, announced both criminal and civil enforcement actions against three banks and six individuals for commodities fraud. The banks involved in the action include Deutsche Bank, USB and HSBC. Release.

Private Equity Fund Taxation Post-Tax Reform: What Really Changed?

Congress has passed the tax reform bill, known as the "Tax Cuts and Jobs Act" (the "Act"), and President Trump signed it into law on December 22, 2017. The Act contains wide-ranging changes to the tax law, many of which will impact private equity funds, for good or ill. Click below for a discussion of the important provisions of the Act affecting private equity funds, their investors and their managers, including:

• New three-year holding period for carried interests
• New interest expense limitation to 30% of EBITDA
• Ability to write off the cost of all depreciable assets acquired
• Lowered income tax rates for businesses and their balance sheet impact
• Limitation on NOL usage
• Partnership interests owned by foreign partners now subject to U.S. tax on sale
• Effect on the buyout market of the lower tax rates and the mandatory repatriation of offshore funds

Although these changes affect all funds to a greater or lesser degree, many private equity funds may not consider their tax position to have significantly changed, depending largely upon the extent to which they are leveraged. The new three-year holding period required to obtain long-term capital gains on carried interests, however, is likely to become a point for consideration in almost every fund's exit planning and disposition discussions. Full text is available here.

European Financial Industry Developments

EC Launches Blockchain Observatory and Forum

On February 2, 2018, the European Commission ("EC") launched an observatory and forum dedicated to promoting discussion and collaboration on issues arising from blockchain technology. The forum will be for IT specialists, industry, public authorities, regulators, supervisory bodies and members of the public, to allow them to come together and discuss blockchain and the issues and opportunities it presents.

The Blockchain Observatory and Forum will be run by the blockchain software technology company ConsenSys, and its main objectives will be to coordinate across geographical borders, consolidate know-how, take advantage of opportunities and demonstrate thought leadership.

More information from the Commission about the forum and on Blockchain technologies more generally can be found here.

EBA Launches 2018 EU-Wide Stress Test

On February 1, 2018, the European Banking Authority ("EBA") published a press release announcing that it will be examining 37 euro area banks as part of the 2018 EU-wide stress test, and published the relating methodological note. The note describes the common methodology that defines how banks should calculate the stress impact of the common scenarios, and sets constraints for their bottom-up calculations, as well as provides guidance and support.

The adverse scenario for 2018 implies a deviation of EU GDP from its baseline level by 8.3% in 2020, resulting in the most severe scenario to date (the explanatory press release is available here), the results of which are expected to be published by November 2, 2018.

For the 2018 test, the EBA has also published the adverse macro-financial scenario (which can be found here), the market risk scenario (available here), a set of FAQs on the stress test (available here) and stress test templates.

Impact Finance

Final Report by EC Expert Group on Sustainable Finance

On January 31, 2018, the European Commission ("EC"), published the final report of its high-level expert group ("HLEG") on sustainable finance. A copy of the report can be found here.

The HLEG was established to help develop an overarching EU roadmap on sustainable finance and to give advice on how to steer more capital flow toward sustainable investments, identify steps that financial institutions and supervisors should take to protect the financial system from sustainability risks, and apply these policies on a pan-EU scale.

The HLEG recommended a number of actions, including the following, which were considered priority actions:

• Establish a classification system (or taxonomy), starting with climate mitigation, to establish market clarity on what is "sustainable";
• Clarify investor duties and bring greater focus on environmental, social and governance (ESG) factors when making investment decisions;
• Improve disclosure by financial institutions and companies to make sustainable opportunities and risks transparent;
• Develop official EU sustainability standards for some financial assets, starting with green bonds; and
• Integrate sustainability in financial institutions' governance as well as in financial supervision.

On February 1, 2018, the European Commission published two annexes to the HLEG's report, the 'Informal supplementary document on green bonds' (available here) and 'Summary of the contributions to the HLEG on sustainable finance consultation document' (available here).

Rating Agency Developments

On January 25, 2018, Moody's Analytics Research reported that despite tax law changes, high-yield bond issuance is thriving. Release.

On January 27, 2018, Moody's updated its homebuilding and property development industry rating methodology. Release.

On January 31, 2018, Fitch reported that loan growth for the full-year 2017 was well below historical average. Due to the Tax Cuts and Jobs Act, it is not clear if there will be an uptick in lending. Release.

On January 31, 2018, Fitch released a statement that the US Capital Markets Quarterly Report showed strong investment banking and weak trading results during the 2017 fourth quarter. Release.

On January 31, 2018, Moody's issued an announcement proposing updates to its methodology for debtor-in-possession lending. Release.

On January 31, 2018, DBRS published updated methodologies for rating CLOs and CDOs of large corporate credit and cash flow assumptions for corporate credit securitizations. Release.