Financial Industry Developments

Agency Template for Tailored Resolution Plans

On September 3, the FDIC and the Fed released an optional model template for tailored resolution plans required to be submitted by the Dodd-Frank Act.  Joint ReleaseModel Template.   

SEC Risk Retention White Paper

On August 28, the SEC released a white paper intended to provide background information on the potential economic effects of the definition of qualified residential mortgage (QRM) contained in the proposed rules on credit risk retentionSEC ReleaseSEC White Paper.   

CFTC No Action Letter for Controlled Foreign Corporations

On September 5, the CFTC issued a no-action letter to commodity pool operators of registered funds that trade in commodity interest through wholly-owned controlled foreign corporations (CFCs).  CFTC ReleaseNo-Action Letter

Rating Agency Developments

On September 4, Fitch released its criteria for rating covered bondsFitch Report

On September 3, DBRS released its methodology for Canadian residential mortgage servicer evaluations.  DBRS Report

On August 29, DBRS released its methodology for rating U.S. retail auto loan securitizations, along with the related unified interest rate model.  DBRS Report (methodology)DBRS Report (interest rate model)

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

RMBS and Other Securities Litigation

Federal Court Grants in Part UBS and JP Morgan Motions to Dismiss RMBS Suits

On September 3, Judge John W. Lungstrum of the United States District Court for the District of Kansas granted in part and denied in part motions to dismiss by UBS Securities LLC and JP Morgan Securities LLC in four separate actions brought by the National Credit Union Administration (NCUA), as liquidator of certain failed credit unions.  In each action, NCUA alleged that the defendants made misrepresentations and omissions in RMBS offering documents concerning, among other things, the loan-to-value ratios of the underlying loans and the underwriting guidelines used to originate those loans.  In the action against UBS, the Court dismissed claims as to 10 of the 22 certificates at issue as time barred, ruling that the federal Extender Statute may not be extended by a tolling agreement.  Order.  In the action against JP Morgan, the Court granted the motion to dismiss with leave to amend as to two certificates backed by loans originated by entities as to which NCUA had failed to make any allegations.  Order.  In the action against JP Morgan as successor to Washington Mutual, the Court dismissed claims as to 31 of the 49 certificates at issue as time barred, also due to the inability of the Extender Statute to be extended by tolling agreement.  The court rejected, however, JP Morgan's argument that NCUA was required to exhaust its claims administratively through the FDIC, as receiver for WaMu, prior to filing suit, holding that the claims could not have been brought administratively against the FDIC because JP Morgan had assumed WaMu's liabilities.  Order.  Finally, in the action against JP Morgan as successor to Bear Stearns, the Court dismissed claims as to 37 of the 83 certificates at issue as time barred, also due to the inability of the Extender Statute to be extended by tolling agreement.  The Court rejected, however, JP Morgan's statute of limitations-based arguments concerning the remaining certificates.  Order.

European Financial Industry Developments

ESMA Publishes Advice to the Commission on Equivalence of Certain Non-EU Countries' Regulatory Regimes Under EMIR

On September 3, the European Securities and Markets Authority (ESMA) published its advice to the European Commission (the Commission) on the equivalence of the regulatory regimes of Australia, Hong Kong, Japan, Singapore, Switzerland and the United States under EMIR.  EMIR is the Regulation applicable to OTC derivative transactions, central counterparties (CCPs) and trade repositories (TRs) (Regulation 648/2012)).

The rules of these countries, covering central clearing, CCPs, TRs and non-financial counterparties and risk mitigation techniques for uncleared trades, were compared with the requirements under EMIR.  The supplementary press release proposes conditional equivalence for the following regimes:

    • CCPs – Honk Kong, Singapore and the United States;
    • Central clearing, requirements for non-financial counterparties and risk mitigation techniques for uncleared trades – Japan and the United States; and
    • TRs – the United States.

ESMA's technical advice should be used by the Commission when preparing any possible equivalence decisions.

ESMA will deliver advice on areas it has not yet covered for Australia, Canada, Hong Kong, India, Singapore, South Korea and Switzerland by October 1.  A letter dated September 2 from ESMA Chair Steven Maijoor to Commission Director General of Internal Market and Services Jonathan Faull includes further guidance and detail on the technical advice for certain countries, including the United States.

Commission Publishes Proposals for a Regulation on MMFs

On September 4, a proposed Regulation on money market funds (MMFs) was published by the Commission, accompanied by a press release, impact assessment, FAQs and various other documents.  These can be found, along with further information, on a specialized webpage set up by the Commission.  The proposed Regulation's purpose is to help MMFs, through enhancing their liquidity profile and stability, better withstand redemption pressure in stressed market conditions.

Among other things, the Regulation contains provisions on:

    • Prescribed levels of daily and weekly liquidity;
    • Clear labeling;
    • A capital bidder of 3% for constant net asset value funds;
    • Customer profiling policies; and
    • Requirements for the MMF manager regarding internal credit risk assessment.

The proposed Regulation and impact assessment are currently draft versions; the final text is due for publication soon.  The proposed Regulation will now go to the European Parliament and Council of the EU for consideration, and the Commission has stated that it expects the Regulation to be agreed upon in 2014.

ESA Publishes Second Report on Risks Facing the EU Financial System

On September 5, the Joint Committee of the European Supervisory Authorities (ESAs) published its second twice yearly report on the vulnerabilities of the financial system of the EU.

The report identifies a variety of cross-sector risks and builds upon the findings of the first report published in March 2013.  The report notes that a determined reaction from political sources and the European System of Financial Supervision (including the ESAs) are required to counter these threats.  It notes that despite measures being adopted, including the entry into force of the CRD IV legislative package, the risks identified in the first report continue to threaten the EU's financial system, along with other ensuing events such as:

    • Concerns over the volatility of longer-term interest rates, together with the future direction of interest rates and the current prevalence of low interest rates;
    • Concerns over the risk of bail-in in future bank resolutions following the bail-out of Cypriot banks, which included a bail-in of deposits of more than the EUR100,000 deposit guarantee limit; and
    • Cyber attacks on the online and mobile banking services of several banks in April and June 2013.
Events

Financial Industry Breakfast Briefing: Derivatives Market Update – Where Things Stand

On September 10, Orrick will host a Financial Industry Breakfast Briefing in our New York office.  The briefing will cover the current state of the derivatives market with specific updates on the implementation of Dodd-Frank and recent litigation involving derivatives.  Speakers include partners Nikiforos MathewsSteven Fink and Thomas Mitchell.  This course has been approved in accordance with the requirements of the Continuing Legal Education Board for a maximum of 1.5 credit hours.  To register for this event, please click here.   

Association of Asian American Investment Managers (AAAIM) New York Regional Event

On September 12, the Association of Asian American Investment Managers (AAAIM) New York regional event will be hosted by Orrick at the firm's New York office.  The panel will discuss the current state of the economy and potential for future investment opportunities.  The event will also include a networking reception.  Speakers include:

    • Jimmy Yan (Moderator), President & NYCERS Board Member, Office of Manhattan Borough 
    • Clark Cheng, Head of Alternative Investment Research (Americas), HSBC
    • Quinn Moss, Partner & Co-Head of Private Investment Funds Group, Orrick Herrington & Sutcliffe

For more information and to register for this event, please click here.

Orrick's Women's Initiative: Advancing the Conversation

Orrick's Women's Initiative invites you to participate in a thought-provoking conversation about the critical role that leaders can play in promoting the professional advancement of women, and how women can maximize their success by leaning in to their careers.  Panelists include Lisa Beeson, Head of Real Estate Mergers & Acquisitions, Barclays Capital; Elisabeth DeMarse, Chair, President and CEO, TheStreet, Inc.; Sheila Smith, Principal, Deloitte Financial Advisory Services LLP; and Leah Sanzari (Moderator), Partner, Orrick Herrington & Sutcliffe LLP and Co-Chair of Orrick's Women's Initiative.  The event will take place on September 18 in Orrick's New York office.  To register for this event, please click here.