CFTC Staff Issues No-Action Relief for Swaps with Legacy SPVs

On March 31, CFPB Division of Swap Dealer and Intermediary Oversight announced that it is providing no-action relief to provisionally registered swap dealers (SDs) from complying with certain specified regulations when entering into swaps with legacy SPVs. Subject to certain specified conditions, the relief is provided for swaps that are entered into with legacy SPVs in replacement of existing swaps executed on or prior to October 10, 2013, solely for purposes of addressing a reasonably anticipated credit downgrade of an SD counterparty. Press Release. No-Action Relief.

CFTC Staff Issues No-Action Relief Regarding CCO Annual Report Timing Requirement

On March 27, CFTC Division of Swap Dealer and Intermediary Oversight announced that it is providing no-action relief to futures commission merchants, swap dealers and major swap participants from their obligation under Regulation 3.3(f)(2) to provide annual reports by their Chief Compliance Officers not more than 60 days after the end of their fiscal year. The no-action letter grants an additional 30 days to provide the annual reports to the CFTC. Press Release. No-Action Relief.

On April 1, DBRS released its updated methodology for the surveillance of European structured finance and covered bonds transactions. Report.

On March 31, Fitch released its updated criteria for analyzing loans securing residential mortgage-backed securities (RMBS) under the ability-to-repay and qualified mortgage standards that the Bureau of Consumer Financial Protection adopted as part of its amendments to Regulation Z under the Truth in Lending Act. Report.

On March 27, DBRS released its updated methodology for rating North American commercial mortgage-backed securities (CMBS). Report.

On March 27, Fitch released its updated criteria for analyzing U.S. wireless tower transactions. Report.

Bank of America Settles RMBS Suit

On April 2, plaintiffs BNP Paribas Mortgage Corporation and BNP Paribas and defendant Bank of America filed a Joint Stipulation of Dismissal with Prejudice stating that both parties had reached an agreement to settle claims arising out of Bank of America's handling of $480.7 million worth of mortgage-backed notes issued by Taylor Bean and Whitaker's Ocala Funding LLC. Plaintiffs Complaint alleged that Bank of America, which served as agent, custodian, depositor, and Indentured Trustee of the Ocala facility, failed to live up to its contractual obligations to secure and protect the cash and mortgage loans collateralizing the notes. The details of the settlement are not yet public. Joint Stipulation.

Motion to Dismiss Action Against RMBS Trustee Denied

On March 31, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York denied HSBC Bank USA, National Association's ("HSBC") motion to dismiss an action brought by a consortium of investors in RMBS for lack of subject matter jurisdiction. The plaintiffs' Complaint alleges, inter alia, that HSBC failed to discharge its duties as Trustee for 271 RMBS Trusts in violation of the Trustee Indenture Act ("TIA") and state common law. Because the TIA governs only 27 of the 271 Trusts at issue, the plaintiffs invoked supplemental jurisdiction as the basis for the court to hear the claims as to the remaining 244 Trusts. Judge Scheindlin denied HSBC's motion, holding that the plaintiffs' claims all arise from the "same nucleus of operative fact" because the relevant governing agreements all contain substantially similar contract provisions and impose similar duties on HSBC in its capacity as Trustee. Judge Scheindlin added that judicial economy would be served by retaining supplemental jurisdiction as proof of both the TIA and non-TIA claims would require depositions of many of the same witnesses. Order.

RMBS Claims Against Ratings Agencies Dismissed as Time-Barred

On March 27, Judge John Robert Blakely of the U.S. District Court for the Northern District of Illinois granted Standard & Poor's Financial Services, LLC's and Moody's Investors Service, Inc.'s motion to dismiss claims brought by First National Bank and Trust Co. of Rochelle, Illinois arising out of First National's purchase of certain RMBS certificates. First National asserted causes of action under the Illinois Consumer Fraud and Deceptive Business Practices Act, the Uniform Deceptive Trade Practices Act, as well as other common law misrepresentation claims, alleging that it had been induced to purchase the certificates in reliance upon misstatements by the ratings agencies. Judge Blakely dismissed the complaint as time-barred by the Illinois Securities Law's five-year statute of repose. He first concluded that the ISL's statute of repose applied to First National's claims because the facts alleged, if proven, would have established a violation of the ISL sections on fraud or deceit in connection with the purchase or sale of securities, and because the ISL specifically provided for the injunctive relief requested by First National. Judge Blakely then found all claims untimely because the RMBS certificates at issue were purchased in February 2008, five years and four months before First National's suit was filed. Order.

Benchmarks: Agreement Reached on ECON Committee

On March 31, the European Parliament's Committee on Economic and Monetary Affairs (ECON) adopted its report on benchmarks. Key issues include: The Economic and Monetary Affairs Committee backed a draft EU law to make the benchmarks more trustworthy. The text aims to clean up the benchmark-setting process by curbing conflicts of interest like those that led to the London Interbank Offered Rate (LIBOR) rigging scandals of recent years. The setting of critical benchmarks that affect more than one country would be overseen by a "college" of supervisors, including the European Securities and Markets Authority (ESMA) and other competent authorities.

Curbing critical conflicts of interest

The draft law aims to curb conflicts of interest in setting "critical" benchmarks, such as LIBOR and EURIBOR, which, by influencing financial instruments and contracts with an average value of at least €500 billion, could affect the stability of financial markets across Europe.

The final decision on whether a benchmark is "critical" would be up to ESMA and national authorities, but a national authority could also deem a benchmark administered within its territory to be critical if it has a "significant" impact on the national market.

Critical benchmark administrators would have to have a clear organizational structure to prevent conflicts of interest, and be subject to effective control procedures.

Critical benchmark-setting data would have to be verifiable and come from reliable contributors who are bound by a code of conduct for each benchmark. Contributors, such as banks contributing data needed to determine a critical benchmark, would have to notify the benchmark administrator and the relevant authority if they wished to cease doing so, but would nonetheless have to continue doing so until a replacement were found.

Transparency requirements

All benchmark administrators would have to be registered with the ESMA and would have to publish a "benchmark statement" defining precisely what their benchmark measures and to what extent it is reliable. They would also have to publish or disclose existing and potential conflicts of interest and meet accountability, record keeping, audit and review requirements.

The text will be put to a vote by Parliament as a whole to consolidate Parliament's position before its three-way negotiations with EU member states and the European Commission.