Orrick's Financial Industry Week in Review - October 28, 2013


Financial Industry Developments

Joint Release on QM Fair Lending Risks

On October 22, the Fed, CFPB, FDIC, NCUA and OCC issued a joint statement to address industry questions on fair lending risks associated with offering only qualified mortgagesJoint ReleaseJoint Statement.   

Fed Proposed Rule on Liquidity Positions

On October 24, the Fed issued a proposed rule which would create a standardized minimum liquidity requirement for large and internationally active banking organizations and systemically important non-bank financial companies designed by FSOC.  Comments on the proposed rule must be submitted by January 31, 2014.  Fed ReleaseProposed Rule

Rating Agency Developments

On October 24, Moody's issued its methodology for rating CDOs backed by project finance and infrastructure assets.  Moody's Report.

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

Asset Management

SEC Proposes Rules on Crowdfunding

On October 24, the Securities and Exchange Commission voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.  Title III of the JOBS Act created an exemption under the securities laws, so that this type of funding method can be easily used to offer and sell securities as well.  The JOBS Act also established the foundation for a regulatory structure for this funding method.  Press Release.

RMBS and Other Securities Litigation

Morgan Stanley Wins Dismissal of Dexia's Fraud Suit Over $626 Million in RMBS

On October 16, Justice Eileen Bransten of the Supreme Court for the State of New York dismissed a suit by FSA Asset Management LLC (FSAM) and Dexia SA/NV (with two related entities, Dexia) alleging fraud by Morgan Stanley in connection with the sale of $626 million in RMBS.  FSAM originally purchased the RMBS from Morgan Stanley in 2006 and 2007, but in 2009, assigned the securities to Dexia in a put option transaction.  Plaintiffs alleged that Morgan Stanley misrepresented the underwriting standards and collateral attributes of the mortgage loans underlying the securities and brought claims for fraud, aiding and abetting fraud and fraudulent inducement.  Justice Bransten held that Dexia lacked standing to bring the claims because the put option transaction assigned only ownership and contractual rights in respect of the RMBS, not claims sounding in tort.  The court further held that FSAM had not suffered damages because it had received full face value for the securities from Dexia.  Decision.  

Deutsche Bank Settles Nevada AG's RMBS Probe for $11.5 Million

On October 17, the Nevada Attorney General filed court documents disclosing a $11.5 million settlement with DB Structured Products, Inc., a unit of Deutsche Bank AG.  The Nevada AG had investigated DB Structured Products' practices related to the packaging and sale of subprime and adjustable rate mortgages in RMBS.  According to the Nevada AG, the settlement proceeds will go to Nevada homeowners.  Assurance of Discontinuance.

European Financial Industry Developments

European Parliament Will Now Consider MiFID II Legislative Proposals During December Plenary Session

The European Parliament updated its procedure files on MiFID II legislative proposals further to last week's update, and will now consider these proposals at its plenary session held on December 9-12.

The MiFID II legislative proposals will replace and recast the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).  Procedure Files

European Central Bank to Undertake Comprehensive Assessment of Large Banks in Advance of the Single Supervisory Mechanism

In a press release dated October 23, the ECB announced that it will undertake a comprehensive assessment of large banks prior to assuming full responsibility for supervision as part of the SSM.

The assessment will include a risk assessment, an asset quality review and a stress test to examine the banks' balance sheet's resilience.  The assessment will start in November 2013 and will be completed in 12 months, in collaboration with the relevant national competent authorities. 

The UK Prime Minister stated that the UK will not participate in the SSM.  Press Release.  

European Parliament Adopts Committee on Organized Crime, Corruption and Money Laundering Final Report

In a press release dated October 23, the European Parliament announced its adoption of the final report of the special committee (CRIM). The European Commission also published a press release welcoming the report.

In addition, the European Parliament published a provisional edition of the text of the adopted resolution (page 333).  The resolution sets out an EU action plan for organized crime, corruption and money laundering in 2014-9.  European Parliament Press ReleaseEuropean Commission Press ReleaseText.  

FCA Issues Consultation Paper on Crowdfunding in the UK

The Financial Conduct Authority issued a consultation paper on the regulation of crowdfunding activities in the UK, in advance of assuming the responsibility for regulating consumer credit in the UK (previously the remit of the Office of Fair Trading).

The FCA's aim in issuing the consultation paper is to make the market more accessible to retail clients to help foster competition and to facilitate access to alternative investment options.  The FCA is keen on ensuring that only investors who understand and can bear the risks of crowdfunding participate in it.

To achieve its aims, the FCA is proposing to restrict direct offer financial promotion of unlisted shares or debt securities by firms to one or more particular types of client (broadly speaking, high net worth, sophisticated investors or those who have taken advice or will limit the percentage of their portfolio invested through crowdfunding).

Following consideration of comments, a Policy Statement is due to be issued by March 2014.  Consultation Paper.


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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