Orrick's Financial Industry Week in Review


Financial Industry Developments

NY DFS Releases Proposed BitLicense Regulatory Framework for Virtual Currency Firms

On July 17, the New York State Department of Financial Services released a proposed bit-license regulatory framework for virtual currency firms.  The framework includes consumer protection, anti-money laundering and cyber security rules for virtual currency businesses.  The proposed regulations also provide for a 45-day notice and comment period to solicit public feedback.  Press Release

Agencies Finalize Technical Correction of Risk-Based Capital Rules

On July 16, the Fed, the FDIC and the OCC announced the finalization of a technical correction of the definition of "eligible guarantee" in the agencies' risk-based capital rules.  Press ReleaseFinal Rule.    

CFPB Proposal for Consumers to Publicly Voice Complaints About Financial Companies

On July 16, the CFPB proposed a new policy that would empower consumers to publicly voice their complaints about consumer financial products and services.  When consumers submit a complaint to the CFPB, they would have the option to share their account of what happened in the CFPB's public-facing Consumer Complaint Database.  Press ReleaseProposal

OCC Depute Chief Counsel Discusses OCC Enforcement

On July 15, Deputy Chief Counsel Daniel P. Stipano discussed before a subcommittee of the U.S. House Committee of Financial Services, how the OCC works to ensure compliance with the federal laws and regulations.  Press ReleaseWritten Testimony.   

Rating Agency Developments

On July 16, Moody's released its approach to rating securitizations back by non-performing loans.  Report.

 Note: Free registration is required for rating agency releases and reports.
RMBS and Other Securities Litigation

Citigroup Settles RMBS Claims with Justice Department for US$7 Billion

On July 14, Citigroup and the U.S. Department of Justice announced a settlement resolving the Financial Fraud Enforcement Task Force's RMBS Working Group's investigation into claims related to hundreds of RMBS and CDO transactions.  Under the terms of the settlement, Citigroup will pay a civil penalty of US$4 billion to settle the Justice Department's claims under Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), as well as settlement payments of US$208.25 million to FDIC, and US$291.75 million to the states of California, Delaware, Illinois, Massachusetts and New York.  Citigroup will pay an additional US$2.5 billion in consumer relief.  Citigroup acknowledged in a statement of facts that during its due diligence process, it "received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations provided to investors about the pools of loans to be securitized."  The settlement does not resolve any potential criminal liability of Citigroup or its employees.  Citigroup Press ReleaseDOJ Press ReleaseSettlement AgreementStatement of Facts.

Suit Against UBS Dismissed for Lack of Standing

On July 9, Justice Charles E. Ramos of the Supreme Court of the State of New York dismissed all claims in a suit brought by investment vehicle Sealink Funding Ltd. in connection with RMBS purchased from UBS.  Sealink did not purchase the certificates from UBS, but instead acquired the certificates at issue from Sachsen LP Europe Plc and brought claims for fraud and negligent misrepresentation against UBS.  Sealink alleged misstatements by UBS regarding credit quality, loan-to-value and combined loan-to-value ratios, and owner occupancy rates of the underlying loans.  The court held that under governing English law, applying the same reasoning of a nearly identical case against Morgan Stanley, Sachsen's tort claims could only be transferred to Sealink by explicit reference in the agreements transferring the securities.  Finding no such transfer provision, the court dismissed Sealink's claims.  Decision

Motion to Dismiss Granted in Part in RMBS Suit Against Bank of America, Countrywide

On July 14, Judge Mariana Pfaelzer of the United States District Court for the Central District of California dismissed claims brought by Royal Park Investments against various Bank of America (BofA) and Countrywide entities in connection with more than US$1.6 billion in RMBS.  Royal Park acquired the certificates at issue from Fortis Bank, three non-party CDOs, and Scaldis Capital Ltd., a commercial paper conduit sponsored by Fortis Bank.  Royal Bank brought claims against the defendants for fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud.  The court dismissed with prejudice Royal Bank's claims based on certificates originally purchased by Scaldis and the CDOs for lack of standing, and, alternatively, on the basis that the claims for RMBS originally purchased by Scaldis were untimely.  The court also dismissed with prejudice Royal Park's claims regarding title transfer and claims for aiding and abetting fraud, negligent misrepresentation, and BofA successor liability.  The court gave Royal Park an opportunity to replead its damages claims to recover its own losses on certificates it purchased from Fortis Bank and the CDOs.  Order

Bank of America Settles AIG RMBS Claims for US$650 Million

On July 16, American International Group, Inc., (AIG) and Bank of America (BofA) announced a settlement of AIG's RMBS-related lawsuits against BofA.  BofA has agreed to pay US$650 million to settle all outstanding RMBS lawsuits pending in the United States District Court for the Central District of California and the United States District Court for the Southern District of New York relating to AIG's securities lending program and the bank's marketing of RMBS.  AIG has also agreed to drop its objection to the approval of the BofA's US$8.5 billion settlement with institutional investors that terminated claims concerning Countrywide-originated RMBS.  AIG Press ReleaseBank of America Press Release.

European Financial Industry Developments

UK Banks to Face Competition Enquiry

On July 18, the Competition and Markets Authority (CMA)—the UK's competition regulator—moved a step closer towards opening a full enquiry into the UK retail banking sector with a particular focus on the personal current account and small and medium enterprises (SME) lending businesses.

At the same time as publishing two studies purporting to reveal a lack of effective competition and a failure to meet needs of personal consumers and SMEs, the CMA confirmed that it has provisionally decided to launch a full review of the sector, although the final decision will not be made until autumn 2014. To assist with that decision, the CMA wishes to hear the views of interested parties and has launched a consultation.

The outcome of any review could be recommendations that the UK's four largest banks—RBS, Lloyds, Barclays and HSBC—be forced to divest areas of their business.  Consultation. Press release (with links to studies). 

Council of EU Publishes Text of CSD Regulation

On July 16, the Council of the EU published the text of the proposed Regulation on improving securities settlement and central securities depositaries (CSDs) in advance of its formal adoption by the Council.

The CSD regulation, which was adopted by the European Parliament April 15, 2014, will create for the first time an EU-level authorization, supervision and regulatory framework for CSDs, and is designed to increase safety in the settlement system and open the market for securities settlement to improve efficiency.

The European Securities and Markets Authority (ESMA) is currently drafting technical standards and guidelines for the CSD Regulation and will deliver these to the European Commission six months from its date of entry into force.  Draft Regulation

ESMA Launches Consultations on New Market Abuse Regime Under MAR

ESMA has published two consultation papers on the draft technical standards and the draft technical advice it is developing for the implementation of a new framework under the Market Abuse Regulation (Regulation 596/2014) (MAR).

The new MAR, which will expand and develop the existing EU market abuse regime and work in conjunction with the recently revised Markets in Financial Instruments Directive, was formally adopted by the Council of the EU on April 14, 2014, and published in the Official Journal of the EU on June 12, 2014.

Responses to the consultation will be used to finalize the technical standards and advice which are to be submitted within eight months of MAR coming into force.  Consultation on draft technical advice. Consultation on draft technical standards.    

Orrick Alert: Update on Russia-Ukraine Sanctions: Significant Expansion of Sanctions Presents Additional Compliance Challenges

On July 16, the United States announced another expansion of sanctions in response to events in southern and eastern Ukraine. The United States for the first time imposed sanctions against major Russian companies and banks – Gazprombank, Novatek, Rosneft, Vnesheconombank, which have been placed on a new Sectoral Sanctions Identification ("SSI") List. While SSI List sanctions are less far-reaching than standard "blocking" sanctions, they could represent a substantial challenge and complication for those doing business in and with Russia. To read Orrick's complete alert, please click here


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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