Financial Industry Developments

CFTC Issues Time-Limited No-Action Letter Relating to Certain CDS Clearing-Related Swaps Executed Pursuant to a CDS Settlement Price Process

On December 31, CFTC issued a no-action letter providing time-limited relief relating to certain occasional, off-facility, cleared credit default swaps (CDSs) that are entered into pursuant to a DCO's rules related to its price submission process for determining end-of-day settlement prices for cleared CDSs.  ReleaseLetter.

Agencies are Reviewing Treatment of CDOs Backed by Trust Preferred Securities Under the Volcker Rule

On December 27, the Fed, FDIC, OCC and the SEC stated that they are in the process of reviewing whether it would be appropriate to subject collateralized debt obligations backed by trust preferred securities to the Volcker rule.  The agencies intend to address the matter no later than January 15, 2014Statement.

SEC Removes References to NRSRO Ratings

On December 27, the SEC adopted amendments to eliminate references in certain of its rules and forms to credit ratings.  The changes were mandated by Dodd-Frank.  Rating references were removed from the following rules and forms:

    • Rule 5b-3 under the Investment Company Act;
    • Forms N-1A, N-2, and N-3;
    • Rule 15c3-1 (and certain appendices) under the Securities Exchange Act of 1934;
    • Rule 15c3-3 under the Securities Exchange Act of 1934; and 
    • Rule 10b-10 under the Securities Exchange Act of 1934.

Release.  Final Rules #1.  Final Rules #2.

FDIC and CFPB Settle with American Express Centurion Bank Charges of Unfair and Deceptive Practices

On December 24, the FDIC and CFPB announced a settlement with American Express Centurion Bank concerning charges of unfair and deceptive marketing practices related to credit card "add-on products" in violation of Section 5 of the Federal Trade Commission (FTC) Act.  Together, the FDIC and CFPB will require restitution of no less than $40.9 million.  The OCC and CFPB also announced actions against other American Express affiliated institutions for the same unfair and deceptive practices.  ReleaseOrder.

The Fed Issues Final Rule on Treatment of Uninsured U.S. Branches and Agencies of Foreign Banks Under Section 716 of Dodd-Frank

On December 24, the Fed issued the final rule clarifying the treatment of uninsured U.S. branches and agencies of foreign banks under Section 716 of the Dodd-Frank Act.  The final rule adopts the interim final rule issued on June 5, 2013Section 716 prohibits the provision of certain types of federal assistance to swaps entities.  Insured depository institutions that are swaps entities are eligible for a transition period of up to 24 months to comply and for certain statutory exceptions.  The final rule clarifies that, for purposes of section 716, uninsured U.S. branches and agencies of foreign banks are treated as insured depository institutionsReleaseFinal Rule.

CFTC Issues No-Action Letter Regarding Introducing Brokers' Compliance with Certain Financial Reporting

On December 23, CFTC issued a no-action letter that provides relief for certain Introducing Brokers (IBs) from certain financial reporting and capital computation requirements.  Part of the no-action relief is time-limited to newly registered IBs for the fiscal years ending on or before December 31, 2013ReleaseLetter.

CFTC Issues Advisory Concerning Commodity Trading Advisors and Swaps

On December 23, CFTC provided guidance regarding requirements imposed on commodity trading advisors (CTAs) resulting from Dodd-Frank on the potential new advisory obligations of CTAs.  Release.

Fed Advised Large Financial Institutions on Risk Evaluation

On December 20, the Fed advised large financial institutions to ensure that if risks are shifted to a thinly capitalized counterparty, any residual risk is effectively captured in the firm's internal capital adequacy assessmentReleaseLetter.

Three Agencies Release Annual CRA Asset-Size Threshold Adjustments for Small and Intermediate Small Institutions

On December 19, the Fed, FDIC and OCC announced the annual adjustment to the asset-size thresholds used to define small bank, small savings association, intermediate small bank and intermediate small savings association under the Community Reinvestment ActRelease.

Three Agencies Issue FAQ Regarding CDOs Backed by Trust Preferred Securities Under the Volcker Rule

On December 19, Fed, FDIC and OCC issued Frequently Asked Questions to clarify rules applicable to investments in covered funds and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be covered funds under the Volcker Rule.  The FAQs clarify that banking entities that have holdings in TruPS CDOs may use the conformance period to determine if they can be brought into conformance by July 21, 2015ReleaseFAQ.

Three Agencies Seek Comment on Joint Supplemental Guidance on Income Tax Allocation Agreements

On December 19, Fed, FDIC and OCC issued a statement seeking comment on supplemental guidance on income tax allocation agreements involving holding companies and insured depository institutions.  The proposed guidance will clarify ownership of any tax refundsReleaseProposed Addendum.

FHFA Releases 2013 Performance and Accountability Report

On December 16, the FHFA released the 2013 Performance and Accountability Report (PAR), discussing the FHFA's progress as regulator and conservator of Fannie Mae and Freddie Mac and regulator of the 12 Federal Home Loan Banks (FHLBs)ReleaseReport.

SEC Issues Proposed Rule on Amendments to Regulation A

On December 18, the SEC proposed rule amendments to Regulation A implementing Section 401 of the JOBS Act directing the SEC to exempt annual offerings of up to $50 million from registration.  The comment period will close 60 days after publication in the Federal RegisterProposed Rule.

CFPB, State Authorities Settle with Ocwen

On December 19, CFPB and 49 states and the District of Columbia filed a proposed court order requiring Ocwen Financial Corporation, the fourth-largest mortgage servicer in the country, to provide $2 billion in principal reduction to underwater borrowers.  Ocwen was previously charged with engaging in illegal and deceitful foreclosure practices and other violations.  Press ReleaseConsent Order.

IRS Issues Final Regulations and New Proposed Regulations Regarding Withholding on Derivatives on U.S. Stocks

On December 5, the Internal Revenue Service issued the final regulations and the 2013 proposed regulations under section 871(m), which address withholding on certain equity-linked notional principal contracts (NPCs) and other financial instruments.  These regulations are targeted at derivatives referencing U.S. stocks in which non-U.S. persons receive a "dividend equivalent" while arguably avoiding U.S. withholding tax but will impact many common corporate transactions, including merger and acquisition transactions and equity based compensation arrangements.  For more information and to read the complete Orrick alert, please click hereFinal RegulationsProposed Regulations.

Rating Agency Developments

On December 24, S&P released its methodology for rating U.S. RMBS Synthetic Risk TransfersS&P Report

On December 23, S&P released its methodology for rating U.S. RMBS surveillance credit and cash flow analysis for pre-2009 originationsS&P Report

On December 19, DBRS released its methodology for preferred shares and hybrids for corporate issuers other than financial institutions.  DBRS Report.

On December 17, Moody's released its methodology for rating ABS backed by equipment leases and loansMoody's Report.

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

RMBS and Other Securities Litigation

New York Appellate Court Orders Dismissal of Repurchase Claims Against DB Structured Products as Time-Barred

On December 19, the Appellate Division, First Department of the New York Supreme Court held that repurchase claims brought by an RMBS trust against DB Structured Products were barred by the statute of limitations, reversing the trial court's denial of DB's motion to dismiss.  The court rejected plaintiff-appellee's argument that the statute of limitations for breach of representations and warranties begins to run when the bank fails to cure or repurchase a defective loan.  Instead, the claims accrued when the representations and warranties first were breached.  Plaintiff-appellee's complaint did not relate back to an earlier summons with notice filed by the trust's certificate holders, for two reasons.  First, the court held that the summons with notice filed was a nullity because the certificate holders failed to comply with the contractual repurchase protocol by not waiting for the expiration of the requisite 60- and 90-day periods for cure or repurchase before attempting to commence the action.  Second, the court held that the certificate holders did not have standing to sue, and that the subsequent complaint filed by plaintiff-appellee could not relate back to a summons with notice filed by a party without standing.  Decision.

RMBS Class Action Against Deutsche Bank Dismissed

 On December 18, Deutsche Bank was dismissed from an RMBS action brought by the New Jersey Carpenters Health Fund regarding certificates backed by RALI and HarborView trusts.  Judge Harold Baer of the United States District Court for the Southern District of New York granted in part and denied in part defendants' motion to reconsider their motions to dismiss in light of the Second Circuit's 2013 decision that claims brought under Section 13 of the Exchange Act are not subject to equitable tolling of the statute of limitations by a prior class action complaint.  The court dismissed claims with respect to two HarborView trusts and all claims against Deutsche Bank securities as untimely because plaintiffs could no longer rely on equitable tolling.  Claims against Citigroup and Goldman Sachs remain in the case.  Decision.

J.P. Morgan Brings $1 Billion Claim Against FDIC for WaMu RMBS Indemnification

 On December 17, J.P. Morgan Chase Bank filed a complaint in the United States District Court for the District of Columbia against the Federal Deposit Insurance Corporation (FDIC) seeking $1 billion in indemnification for settlements made by J.P. Morgan on behalf of Washington Mutual in RMBS actions.  J.P. Morgan alleges that the FDIC is contractually obligated to indemnify J.P. Morgan for certain claims against WaMu in consideration for J.P. Morgan's purchase of WaMu out of FDIC receivership and assumption of its liabilities.  J.P. Morgan seeks indemnification for settlements of twenty different RMBS cases; the complaint does not identify the amounts of the individual settlements.  Complaint.

FHFA and Deutsche Bank Reach RMBS Settlement

 On December 20, the Federal Housing Finance Agency announced it had reached a settlement for $1.925 billion with Deutsche Bank AG to resolve claims pending in the United States District Court for the Southern District of New York related to the sale of private-label RMBS between 2005 and 2007.  The FHFA asserted claims for violations of federal and state securities laws on the basis of allegedly false and misleading statements and omissions in the registration statements and prospectuses of securities sold to Freddie Mac and Fannie Mae.  Press Release.

RMBS Repurchase Lawsuit Against Nomura Dismissed with Prejudice

 On December 24, Justice O. Peter Sherwood of the New York Supreme Court granted with prejudice Nomura Credit & Capital Inc.'s motion to dismiss an RMBS repurchase lawsuit as time-barred.  Following the Appellate Division decision in ACE Securities v. DB Structured Products summarized above, Justice Sherwood held that the plaintiff's claims for breach of representations concerning individual mortgage loans accrued when the representations were made; that is, on the date of the agreement containing those representations.  Justice Sherwood further held that because the Trustee – the only party with standing to sue – did not assert its claims until more than six years after the date the representations were made, its claims were barred under New York's statute of limitations.  Orrick represented Nomura in this lawsuit.  Order.

European Financial Industry Developments

UK House of Commons Scrutinizes MLD4 and Revised Wire Transfer Regulation Proposals

On January 2, the United Kingdom House of Commons Scrutiny Committee published its 28th Session 2013-2014 report.  In particular, the report considers the European Commission's proposed MLD4 Directive on money laundering and terrorist financing and the proposed Wire Transfer Regulation.

Areas of concern over MLD4 highlighted in the report include supranational risk assessments, e-money, politically exposed persons, third country policy and sanctions and supervision.  Report.

PRA Updates Webpages Following Implementation of CRD IV

On January 1, the CRD IV Directive came into force, following the Prudential Regulation Authority's (PRA) webpage update on reporting requirements for firms within the scope of CRDIV.  Reporting Requirements.

Additionally, the PRA updated the following passporting webpages:

 

Topics:  American Express, Banking Sector, CFTC, Dodd-Frank, Federal Reserve, FHFA, Financial Companies, Financial Reporting, International Finance, IRS, NRSRO, OCC, Rating Agencies, RMBS, Securities Litigation, Unfair or Deceptive Trade Practices, Volcker Rule

Published In: Business Torts Updates, Civil Procedure Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

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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