Orrick's Financial Industry Week in Review

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Financial Industry Developments

SEC Publishes Risk Alert and FAQs Reminding Broker-Dealers of their Obligations In Unregistered Transactions

On October 9, the SEC announced publication of a Risk Alert and FAQs to remind broker-dealers of their obligations when they engage in unregistered transactions on behalf of their customers.  The publication of the staff guidance was accompanied by the announcement of an enforcement action against two firms for improperly selling billions of shares of penny stocks through such unregistered offerings.  The Risk Alert summarizes deficiencies that were discovered by the SEC's Office of Compliance Inspections and Examinations (OCIE) during a targeted sweep of 22 broker-dealers frequently involved in the sale of microcap securities.  Announcement.   Risk Alert

Federal Reserve Board Releases FAQs Regarding Certain Bank Transactions

On October 9, the Federal Reserve Board released answers to frequently asked questions regarding the competitive review process for bank acquisitions, mergers, and other transactions under the Bank Holding Company Act, the Bank Merger Act and the Home Owners' Loan Act.  Press ReleaseFAQs

OCC Proposes Rule on Margin and Capital Requirements for Covered Swap Entities 

October 6, the OCC released a notice of proposed rulemaking to establish minimum requirements for the exchange of initial and variation margin between registered swap dealers, major swap participants, security-based swap dealers and major security-based swap participants (covered swap entities) and their counterparties to non-cleared swaps and non-cleared security-based swaps.  Comments should be received on or before November 24.  Press ReleaseNPR.

SEC Announces its Reg AB II Registration Statement Pilot Program

On October 6, the SEC announced its Regulation AB II pilot program for registration statements relating to asset-backed securities.  The SEC will begin accepting email requests to participate at 9 am ET on October 20.  The SEC will select at least two issuers per asset class (on a first-come-first-served basis), and the deadline for draft registration statements is expected to be in February 2015.  The SEC plans to make the draft registration statements and staff comments available to the public.  Announcement

FHFA Extends Comment Period on Proposed Revisions to Federal Home Loan Bank Membership Eligibility Requirements

On October 6, the FHFA announced that it is extending the comment period for its proposed rule on Federal Home Loan Bank membership by 60 days, or to January 12, 2015.  The proposed rule would revise the requirements for financial institutions to apply for and retain membership in one of the 12 Federal Home Loan Banks.  Press ReleaseProposed Rule

Rating Agency Developments

On October 9, S&P released its updated global methodology and assumptions for assessing the credit quality of securitized non-real estate related consumer receivables, including, but not limited to, auto, credit card, student, and unsecured personal loan asset-backed securities.  Report.  

On October 9, S&P released its updated criteria for analyzing cash flows of structured finance securitiesReport.  

On October 9, S&P released its updated methodology and assumptions for assessing operational risk associated with transaction parties in structured finance transactionsReport.  

On October 7, Moody's released its bankruptcy remoteness criteria for special purpose entities in global structured finance transactionsReport.  

On October 7, Fitch released its updated Global Structured Finance and Covered Bonds Rating Criteria HierarchyReport.  

On October 3, Fitch released its criteria for rating nonprofit nursing homesReport.

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

RMBS and Other Securities Litigation

Court Dismisses Suit Alleging Fraud by Merrill Lynch in the Sale of RMBS

On October 8, Justice Charles E. Ramos of the New York Supreme Court for the County of New York, Commercial Division entered an order dismissing an amended complaint brought by Phoenix Light SF Limited, Silver Elms CDO PLC, Silver Elms CDO II Limited, and Kleros Preferred Funding V PLC against Merrill Lynch & Co., Inc.  The plaintiffs alleged Merrill Lynch committed fraud in its sale of more than $210 million of RMBS.  The court held that the fraud allegations were not specific enough to meet New York's heightened pleading standard for fraud claims and some of the alleged misstatements were not actionable because they postdated the sale.  Justice Ramos dismissed the complaint with leave to amend.  Decision.

European Financial Industry Developments

Q&As and FAQs Updated by the Basel Committee, the FCA, the European Commission and the European Banking Authority

On October 7, the Basel Committee on Banking Supervision issued frequently asked questions on the Basel III leverage ratio framework.

On October 6, the Financial Conduct Authority (FCA) published a Q&A paper for alternative investment fund managers (AIFM) on reporting transparency information to the FCA.

On October 3, the European Commission published a frequently asked questions paper on the Regulation on improving securities settlement and regulating central securities depositories (CSDR).

On October 3, the European Banking Authority updated its Q&As on the single rulebook, publishing 16 new answers to questions largely relating to supervisory reporting and credit risk.  Basel FAQsFCA Q&AsEuropean Commission FAQsEBA Q&As.

ESMA Compliance Table Relating to MiFID Remuneration

On October 7, the European Securities and Markets Authority (ESMA) published a guidelines compliance table relating to its guidelines on remuneration policies and practices under the Markets in Financial Instruments Directive (MiFID).

The table lists the jurisdictions whose national competent authorities (NCAs) have informed ESMA whether they comply or intend to comply with the guidelines.  The only jurisdiction in the table listed as not complying is Germany.  There is a comment in the table that states that the German NCA (BaFin) does not entirely comply with the guidelines insofar as it excludes from their scope any remuneration agreed within the scope of application of collective agreements.  Guidelines Compliance Table.

The EBA Publishes Updates on the Bank Recovery and Resolution Directive

On October 3, the European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS), implementing technical standards (ITS) and guidelines relating to group financial support under the Bank Recovery and Resolution Directive (BRRD).  Under the BRRD, a number of conditions must be satisfied to permit one group entity to provide financial support to another group entity that meets the conditions for early intervention under the BRRD. The EBA is required to produce draft RTS and guidelines specifying these conditions. The deadline for comments on the consultation is January 4, 2015.

On October 1, the EBA published a consultation paper on draft guidelines on the interrelationship between the sequence of write-down and conversion of liabilities when the bail-in power under the BRRD is used and the hierarchy of capital instruments in the Capital Requirements Regulation. The deadline for comments on the consultation is January 3, 2015.  Consultation PaperConsultation Paper.

ESMA Final Draft RTS for Central Clearing of Interest Rate Swaps under EMIR

On October 2, the European Securities and Markets Authority (ESMA) published a report containing final draft regulatory technical standards (RTS) for the central clearing of interest rate swaps (IRS) under EMIR. The four IRS classes that will be subject to central clearing are basis swaps, fixed-to-float swaps, forward rate agreements and overnight index swaps, each denominated in a range of currencies.  Report.

 

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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