Orrick's Financial Industry Week in Review - April 29, 2013

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

CFPB Proposed Clarifications on Qualified Mortgage Rules

On April 19, the CFPB released proposed rule amendments to the ability to repay/qualified mortgage (QM) rules.  The proposals address: (i) clearer rules for determining DTI; (ii) confirmation regarding loans meeting eligibility requirements; (iii) that certain GSE or agency requirements do not impact the determination of QM status; (iv) that there is no field preemption under Regulation X; and (v) which mortgage loans to consider in determining whether a servicer qualifies as a 'small servicer.'  Comments on the proposed amendments must be received within 30 days of publication in the Federal Register.  CFPB Release.  Proposed Rules.   

SEC Credit Ratings Roundtable

On April 23, the SEC announced the agency for its Credit Ratings Roundtable which will be held on May 14.  The roundtable will consist of three panels: (i) the potential creation of a credit rating assignment system for ABS; (ii) the effectiveness of the SEC's current system to encourage unsolicited ratings of ABS; and (iii) alternatives to the current issuer-pay business model in which the issuer selects and pays the rating agency.  Comments may be submitted prior to the event through the SEC website.  SEC Release.   

FDIC Proposed Guidance on Deposit Advance Products

On April 25, the FDIC issued proposed guidance relating to deposit-advance products and consumer protection risks.  Comments on the proposed guidance must be received within 30 days of publication in the Federal Register.  FDIC Release.  Proposed Guidance.

Rating Agency Developments

On April 26, Fitch released its criteria for U.S. RMBS originator review and third-party due diligence.  Fitch Report.

On April 24, Fitch released its criteria for rating CMBS in Asia-Pacific.  Fitch Report.

On April 22, Fitch released its criteria for rating asset managers.  Fitch Report.

On April 19, Fitch released its criteria for U.S. RMBS cash flow analysis.  Fitch Report.

Note: Free registration is required for rating agency releases and reports.

RMBS Litigation

NY Appellate Court Holds CIFG and Syncora Lack Standing in $1.8 Billion MBS Suit

On April 25, the First Department of the Appellate Division of the New York Supreme Court affirmed an order barring monoline insurers CIFG and Syncora from suing GreenPoint Mortgage Funding for alleged violations of representations and warranties concerning loans backing $1.8 billion in RMBS securitizations.  The order upheld the lower court's denial of the insurers' motion to file a third amended complaint, and held that the insurers could not directly assert claims against GreenPoint because they were neither parties to the relevant agreements nor intended third party beneficiaries.  Decision.

Federal Court Dismisses $31 Million FDIC Suit as Time-Barred

On April 22, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed as time-barred the Federal Deposit Insurance Corporation's (FDIC) $31 million suit against JPMorgan Chase & Co., Bank of America, Citigroup and Deutsche Bank AG related to the sale of RMBS originated by Countrywide.  FDIC sued as receiver for Strategic Capital Bank.  Judge Pfaelzer held that a reasonable investor in Countrywide securities could have sued before May 22, 2008, and therefore a reasonably diligent investor should have discovered alleged misstatements in the offering documents before that date.  The Court held that the statute of limitations for later-filed federal claims was not tolled by an earlier action because it was filed in state court, and the plaintiff had not purchased any of the same tranches as Strategic Capital Bank.  Decision.

European Financial Industry Developments

EU Publishes Regulation on European Venture Capital Funds

On March 25, the EU's Official Journal published the regulation on European venture capital funds (VCFs), which will become applicable throughout the EU on July 22, 2013.

The purpose of the regulation is to make it easier for venture capitalists to raise funds across Europe.  Supplementing the AIFMD regime, it creates a special "European VCF" designation for qualifying VCF funds, which will enable them to be marketed under that label across the EU, sidestepping member states' national offering and marketing rules.  It is hoped the designation will also act as a quality brandmark.

To be a "qualifying VCF," a fund must invest a minimum of 70% of its aggregate capital contributions and uncalled committed capital in SME equity or quasi-equity instruments and fulfill various conditions and obligations relating to its structure, investor base and management.  Regulation.   

European Parliament Committee Scales Back Accountancy Reform

On April 25, the legal affairs committee of the European Parliament toned down plans to reform the European auditing market in a move which will provide some relief to the "Big Four" auditors who would have been most affected.

The committee rejected the original draft bill from the European Commission, which called for compulsory audit firm rotation every six years, and suggested instead that the rotation should take place every 25 years.  The committee also rejected the Commission's proposal of caps on auditor market share, which could have split up the "Big Four."

The reforms, which were initiated after the perceived failure of the auditors in recognizing the risks building up in banks before the financial crisis, will now be negotiated between member states before adoption by the full European Parliament.  Press Release.

UK Serious Fraud Office Launches Criminal Investigation into FTSE 100 Kazakh Miner ENRC

On April 25, the Serious Fraud Office (SFO) announced that it has opened a formal criminal investigation into London-listed ENRC, following allegations of fraud, bribery and corruption surrounding its assets in Kazakhstan and Africa.

The probe will come as no surprise to many as it follows recent claims by a whistleblower, which led to the suspension of a manager in Mozambique and the initiation of an internal investigation led by a law firm.  The SFO had already made a formal demand for documents from that law firm, meaning that they had reasonable grounds to suspect an offense involving serious or complex fraud or corruption.  Announcement.

Events

IMN's 1st Annual Sunshine Backed Bonds Conference

On May 3, investors and capital markets participants will discuss solar securitization trends and possibilities at IMN's 1st Annual Sunshine Backed Bonds Conference in New York.  Renewable energy providers will have the unique opportunity to network with ABS investors interested in exploring renewable energy backed securities as a potential alternative investment.  Orrick is an Associate Level Sponsor.  Howard Altarescu will moderate the Exploring the Role of Securitization in Renewable Energy Finance panel.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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