Orrick's Financial Industry Week in Review - April 15, 2013


Financial Industry Developments

Fed Proposal on Annual Assessments

On April 15, the Fed requested comment on a proposed rule to establish an annual assessment for bank holding companies and savings and loan companies with $50 billion or greater in total consolidated assets, as well as for nonbank financial companies designated for Fed supervision by the FSOC.  Comments on the proposed rule must be submitted by June 15.  Fed Release.  Proposed Rule.   

FHFA HARP Extension

On April 11, the FHFA announced that Fannie Mae and Freddie Mac will extend the Home Affordable Refinance Program (HARP) by two years until December 31, 2015.  The program was set to expire on December 31 of this year.  FHFA Release.   

CFPB Proposed Clarification of Escrow Rule

On April 12, the CFPB issued a proposed rule clarifying and making technical amendments to the 2013 Escrows Final Rule issued in January relating to mandatory escrow requirements for certain mortgage loans.  Comments on the proposed rule must be received within 15 days of publication in the Federal Register.  CFPB Proposed Rule.  

CFPB Small Entity QM Compliance Guide

On April 10 , the CFPB published a small entity compliance guide for the Ability-to-Repay and Qualified Mortgage rule, as well as a comparison chart which compares the general Ability-to-Repay requirements with the requirements for originating Qualified Mortgage loans.  CFPB Compliance Guide.  CFPB Comparison Chart.

Rating Agency Developments

On April 12, Fitch released its criteria for rating aircraft operating lease ABS.  Fitch Report.   

On April 12, Moody's released its public finance housing methodology and research handbook.  Moody's Report.   

On April 10, Fitch released its global structured finance and covered bonds rating criteria hierarchy.  Fitch Report.   

On April 10, Fitch released its criteria for rating U.S. auto loan ABS.  Fitch Report.   

On April 9, DBRS released its methodology for rating European structured finance transactions.  DBRS Report.   

On April 9, Fitch released its global infrastructure and project finance rating criteria hierarchy.  Fitch Report.   

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

Recent Orrick Alerts

The Extra-Territorial Reach of the Broker-Dealer Registration Requirements Under the U.S. Securities Exchange Act of 1934

This alert provides an overview of the Staff of the Securities and Exchange Commission's address of frequently asked questions regarding Rule 15a-6 and foreign broker-dealers.  For more information, please click here.

Multi-Agency Guidance on Leveraged Lending Practices

On March 21, 2013, federal bank regulators released final interagency guidance on leveraged lending.  This alert provides an overview of the guidance and highlights certain differences between the final version of the guidance and the draft version that was proposed in 2012.  For more information, please click here.  

Did an Obscure Remark in a Recent Regulatory Publication Signal a New Interpretation of the Anti-Tying Rules?

In 2003, the Federal Reserve released its proposed interpretation of the anti-tying provisions of the Bank Holding Company Act Amendments, in which it stated that market power and anti-competitive effects were not necessary elements of an illegal tying arrangement.  Despite substantial commentary on the Federal Reserve's proposed interpretation from financial institutions and other regulators, including the Department of Justice, the Federal Reserve has not revised its proposed interpretation of the anti-tying provisions of the BHC Act.  This alert discusses a recent regulatory publication raising the possibility that the Federal Reserve may be revisiting its earlier stance.  For more information, please click here.

RMBS Litigation

Second Circuit Affirms Denial of UBS's Motion to Dismiss FHFA Complaint

On April 5, the United States Court of Appeals for the Second Circuit affirmed the decision of the district court denying UBS's motion to dismiss the complaint brought by the FHFA.  FHFA sued UBS as conservator of Fannie Mae and Freddie Mac, alleging fraud and misrepresentation in connection with the sale of $6.4 billion in RMBS.  The court held that the action was timely because it commenced within three years after FHFA was appointed conservator of Freddie Mac and Fannie Mae.  The court also held that FHFA had standing to bring the action, rejecting UBS's argument that the appointments of the FHFA's Acting Directors were unconstitutional because the Directors had not been confirmed by the Senate.  Decision.

New York State Court Dismisses RMBS Fraud Suit Against UBS

On April 5, New York Supreme Court Justice Shirley Werner Kornreich dismissed with prejudice a suit brought by six Loreley Financing entities against various UBS entities.  Loreley alleged fraud stemming from UBS's issuance of $331 million of CDOs, in which Loreley was an investor, that were comprised of RMBS and credit default swaps.  Loreley brought claims for common law fraud, conspiracy to defraud, aiding and abetting fraud, rescission, fraudulent conveyance and unjust enrichment.  Justice Kornreich held the allegations in the Complaint failed to show how UBS caused the CDOs to fail and therefore failed to state a claim, including for fraud.   Decision.

Federal Judge Dismisses FDIC's Securities Fraud Claims Against Countrywide

On April 8, U.S. District Judge Mariana R. Pfaelzer of the Central District of California dismissed the FDIC's suit against Countrywide.  FDIC, as the receiver for Colonial Bank, filed suit against Countrywide and Bank of America as its successor for violations of the 1933 Securities Act.  FDIC alleged Countrywide made false statements in offering documents in connection with the issuance of residential mortgage-backed securities in violation of Sections 11 and 15 of the Act.  Judge Pfaelzer held that each claim was barred by the statute of limitations of one year from when the plaintiff discovered, or a reasonably diligently investor would have discovered, the alleged misstatement.  Judge Pfalezer held that a reasonably diligent plaintiff would have had adequate information to make such a discovery before August 14, 2008, and consequently the bank's claims had expired by the time the FDIC was appointed receiver, one year later.  Decision.

Court Denies Goldman Sachs's Motion to Dismiss RMBS Action Brought by Prudential

On April 9, Judge Susan Wigenton of the U.S. District Court for the District of New Jersey denied Goldman Sachs's motion to dismiss Prudential's complaint alleging fraud in connection with the sale of $375 million in RMBS.  Goldman argued that Prudential cannot bring claims under New Jersey state laws because Goldman is based in New York and the alleged misrepresentation and omissions at issue were contained in offering materials drafted and disseminated from New York.  Judge Wigenton concluded it was premature to make a choice of law determination and held that Prudential had adequately pleaded its fraud, negligent misrepresentation, civil RICO and RICO conspiracy claims under New Jersey law.  Decision.

European Financial Industry Developments

RBS to Face FCA Investigation into IT Failures

The FCA announced that it will conduct a formal investigation into the IT malfunction at RBS last summer, which left 17 million of its customers unable to access their accounts for up to three weeks.  The investigation could result in enforcement action being taken against RBS.

Because of the public interest in the matter, the financial regulator took the unusual step of publicly announcing its investigation, as is allowed in "exceptional" circumstances in the FCA Handbook. 

FCA Publishes Occasional Papers on Behavioural Economics Exploring How People Make Financial Decisions

In his first speech as CEO of the FCA, Martin Wheatley vowed to crack down on unsuitable financial products by using elements of behavioural economics to better understand investor decisions.

The FCA is interested in behavioural economics to help the regulator understand the mistakes consumers make, how firms respond to these mistakes, how this affects competition and what interventions the FCA might consider.  The FCA published a research paper on how it intends to implement behavioural economics in its work. 

European Commission Opens Antitrust Investigation into MasterCard

The Commission initiated an investigation last week into the inter-bank fees charged by MasterCard in relation to payments made by card-holders from non-EEA countries, restrictions placed by MasterCard on retailers attempting to reduce the cross-border fees they pay and MasterCard's business rules and practices.

The Commission is concerned that MasterCard's behaviour is anti-competitive, with inter-bank fees being largely passed on to retailers, harming EU consumers and affecting cross-border business.

The Commission press release announcing the investigation is available 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.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:


Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.