U.S. Financial Industry Developments

Interagency Statement on Accounting and Reporting Implications of the New Tax Law

On January 18, 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation issued an interagency statement for financial institutions on accounting and reporting implications of the new tax law, which was enacted on December 22, 2017. Since the new tax law was enacted before December 31, 2017, institutions must record its effects in their December 31, 2017 regulatory reports. Release.

European Financial Industry Developments

New Solutions in the CDD Process Published by the Joint Committee of ESAs

The Joint Committee of the European Supervisory Authorities ("ESAs") published an opinion on January 23, 2018 about the use of innovative solutions in customer due diligence ("CDD") for financial institutions. A copy of the opinion is here.

Currently the Fourth Money Laundering Directive ((EU) 2015/849) imposes requirements on firms to carry out extensive CDD to identify customers, assess the purpose of their business and monitor the business relationship on an ongoing basis.

The ESAs explored solutions such as performing identity checks through smartphones that were previously done by looking at physical documents, such as passports. Additionally, the ESAs proposed using central identity documentation repositories (sometimes referred to as know your customer ("KYC") repositories).

The ESAs were cautious of using this approach in all cases and said it should be used with reference to the specific firm's money laundering and terrorist finance risk profile.

AFME Publishes Paper on Brexit Cliff-Edge Risks in Wholesale Financial Services

On January 22, 2018, the Association for Financial Markets in Europe ("AFME") published a paper on cliff-edge risks in wholesale financial services resulting from Brexit. It defined a 'cliff edge risk' as one that is likely to cause severe disruption to markets and commercial activity on the day of Brexit if no regulations or legislation are in place.

The focus of AFME was on areas which are not easily resolved by businesses and therefore need intervention at policy level. It believes that the Withdrawal Agreement between the UK and EU is the best way to address the following risks:

• Personal data transfers across multiple countries;
• Continuity of cross-border contracts;
• Ability to choose jurisdiction and enforcement of judgements;
• UK Central Counterparties (CCPs) should be recognized under EMIR (Regulation 648/2012) and be allowed to continue servicing EU banks; and
• Recognition of resolution actions.

FCA Publishes Paper on SME Access to the FOS

The Financial Conduct Authority ("FCA") is considering allowing Small and Medium Sized Enterprises ("SMEs") access to Financial Ombudsman Service ("FOS"). On January 22, 2018, the FCA published a consultation paper, available here, exploring this option.

After speaking with SMEs, the FCA found that SMEs struggle to resolve disputes with financial firms through the courts and have no other means to seek redress.

The paper considers what size of SME should be allowed to use FOS, an "eligible complainant." This term will be defined as a business that: is too large to be a micro-enterprise, has an annual turnover below £6.5 million, has a balance sheet not exceeding £5 million and has less than 50 employees. The FCA is also considering allowing charities and trusts of a similar size to be eligible complainants.

The FCA is also proposing that guarantors be eligible complainants. This will allow entities who provide security or guarantees to SMEs to be able to lodge a complaint with FOS.

Rating Agency Developments

On January 23, 2018, DRBS published an updated North American Single-Asset/Single-Borrower Methodology. The methodology does not consist of any material changes from the previously issued methodology. According to DBRS, it has not and will not take any rating actions on outstanding securities as a result of the update. Release.

On January 23, 2018, Fitch Ratings published new criteria addressing the ratings of debtor-in-possession ("DIP") instruments. The new criteria describes Fitch's approach for assigning new international credit ratings to U.S. DIP instruments. Release.

On January 22, 2018, DBRS published the methodology "Rating North American CMBS Interest-Only Certificates," which explains its approach to rating interest-only certificates within both single-asset/single-borrower transactions and multi-borrower transactions. Release.

On January 18, 2018, S&P published guidance on how it applies 'CCC' criteria in its rating analysis. Release.