Financial Industry Developments

CFTC Proposed Rule on Commodity Pools

On November 5, the CFTC issued a proposed rule that would require that all registered introducing brokers (IBs), commodity pool operators (CPOs) and commodity trading advisors (CTAs) become and remain members of at least one registered futures association.  Comments on the proposed rule must be submitted within 60 days after publication in the Federal Register.  CFTC Release.   CFTC Proposed Rule.

FHFA Notice on Lender-Placed Insurance Practices

On November 5, the FHFA directed Fannie Mae and Freddie Mac to prohibit servicers from being reimbursed for expenses associated with captive reinsurance arrangements.  FHFA Release.

Fed Announcement of Supervisory Scenarios for Capital Planning and Stress Testing

On November 1, the Fed issued supervisory scenarios to be used for the 2014 capital planning and stress testing program, which includes the Comprehensive Capital Analysis and Review of 30 bank holding companies with $50 billion or more of total consolidated assets.   Fed ReleaseFed Comprehensive Capital Analysis.

Fed Policy State on Stress Testing

On November 7, the Fed issued a final policy statement on the processes that it will use to develop scenarios for future capital planning and stress testing exercises.  The policy statement is effective on January 1, 2014.  Fed ReleaseFed Policy Statement.

Rating Agency Developments

On November 6, Moody's released its U.S. RMBS surveillance methodology.  Moody's Report

On November 6, Moody's released its approach to rating RMBS using the 'MILAN' (Moody's Individual Loan Analysis) framework.  Moody's Report

On November 6, DBRS released its criteria for rating Canadian credit card securitizations.  DBRS Report.

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

RMBS and Other Securities Litigation

RBS Settles RMBS Claims By SEC

On November 7, Royal Bank of Scotland PLC (RBS) entered into a consent decree with the Securities and Exchange Commission (SEC) agreeing to pay $153.8 million in settlement of allegations concerning RBS's disclosures in connection with an RMBS offering.  In a Complaint filed simultaneously with the consent decree, the SEC alleged that RBS made misstatements and omissions in offering documents for the April, 2007 Soundview Home Loan Trust 2007-OPT1 (the Trust) securitization to investors.  In particular, the SEC alleged that RBS misrepresented that the loan originator (Option One Mortgage Company) generally complied with its underwriting guidelines.  RBS neither admitted nor denied the allegations.  RBS's settlement consists of three component parts: disgorgement of $80.4 million, prejudgment interest of $25.2 million and a civil penalty of $48.2 million.  ComplaintConsent Decree.

RMBS Trustee Brings $157 Million RMBS Lawsuit Against Citigroup

On November 1, U.S. Bank National Association, acting in its capacity as trustee for Citigroup Mortgage Loan Trust 2007-AHL2, filed a lawsuit in the Supreme Court for the State of New York against Citigroup Global Markets Realty Corp. (Citigroup), on behalf of and at the direction of a holder of certificates issued by the trust.  The trustee alleges, inter alia, that Citigroup breached its obligations arising under the Mortgage Loan Purchase Agreement (MLPA) and Pooling and Servicing Agreement for the deal.  In particular, the trustee alleges that certain of the mortgage loans backing the certificates did not comply with the representations and warranties made in the MLPA, and that Citigroup failed to cure or repurchase those mortgage loans.  The trustee seeks rescissory and compensatory damages and/or an order requiring Citigroup to repurchase the loans at issue.  Summons.

Wells Fargo Settles FHFA's RMBS Claims

On November 6, Wells Fargo & Co. disclosed in a regulatory filing with the Securities and Exchange Commission that it settled claims by the Federal Housing Finance Agency (acting as conservator to Fannie Mae and Freddie Mac) against it for approximately $335 million.  Wells Fargo noted that Fannie Mae and Freddie Mac had opted out of a class settlement approved in 2011 in a suit alleging misstatements in the offering documents for the RMBS securitizations.  10Q Excerpt.
 

European Financial Industry Developments

ESA Issues ESMA and EBA Consultation for Securities and Banking Complaints Handling

On November 6, the Joint Committee of the European Supervisory Authorities (ESAs) issued a consultation paper by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) concerning draft guidance for the handling of complaints in the securities and banking industries. This guidance aims to:

    • clarify expectations on firms' procedures for complaints handling;
    • give guidance on the provision of information to complainants and the procedures for answering complaints;
    • harmonize the complaint handling arrangements of firms in order to help protect consumers; and
    • set a minimum level of supervision for firms' complaint handling arrangements on an EU-wide basis.

The guidance applies to investment firms, UCITS management companies and UCITS investment companies that have not designated a management company, AIFMs providing MiFID services, credit institutions and e-money institutions.

The deadline for responses to the consultation is February 7, 2014, with the final report scheduled to be published in the first quarter of 2014.  Consultation Paper

ESMA Publishes Speech on AIFMD and ETF Initiatives

On November 5, ESMA published a speech given by the Chair of ESMA, Steven Maijoor, at the European Fund and Asset Management Association investment management forum. The speech states that:

    • ESMA has finished its work on memoranda of understanding which relate to the AIFMD, although negotiations continue with several non-EU authorities, including those in South Africa, Russia and China.
    • ESMA is due to start drafting a report on the extension of the AIFMD passport to non-EU AIFs and AIF managers.
    • ESMA is examining why retail exposure to exchange traded funds (ETFs) is relatively low.  Speech

FCA Publishes Statement on Reporting Requirements of AIFMs

On November 4, the FCA published a statement on reporting requirements for managers of AIFs (AIFMs) under the AIFMD.

In certain circumstances, firms already authorized as AIFMs will be required to provide regulatory reports to the FCA in the first quarter of 2014, using the XML v1.0 reporting template, which was published by ESMA in October 2013.

Further details on the reporting mechanism are due to be published on the FCA website in due course.  Statement.  

Events

Conducting Internal Investigations in the Dodd-Frank Era: Legal, Ethical and Investigatory Best Practices

Please join us in our New York office on November 19 for a panel composed of lawyers from Orrick's Whistleblower Task Force and investigation professionals from Kroll.  The event will feature a detailed discussion of the legal and ethical issues to consider regarding the availability of whistleblower protections and the best practices companies should adopt now, among other topics.  For more information and to register for this event, please click here.