CFPB Update on Mortgage Regulation Exam Procedures

On August 15, the CFPB released a second update to its exam procedures in connection with mortgage regulations to cover: (i) ability-to-repay; (ii) qualified mortgages; (iii) high-cost mortgages; (iv) appraisals for higher-priced loans; and (v) amendments related to the escrows rule.  CFPB Release.  RESPA Exam Procedures.  TILA Exam Procedures.   

CFTC Swap Regulations

On August 13, the CFTC issued a final rule to exempt swaps entered into by qualified cooperatives from certain clearing requirements.  The rule will be effective 30 days after publication in the Federal Register; however, the CFTC granted no-action relief to cover the interim period.  CFTC Release.  CFTC Final Rule.  CFTC No-Action Letter.   

Fed Assessments on Large Financial Companies

On August 16, the Fed issued a final rule establishing annual assessment fees for its supervision and regulation of large financial companies (with $50 billion or more in total consolidated assets).  Beginning with the 2013 assessment period, the Federal Reserve will notify each company of the amount of its assessment fee no later than June 30 of the year following the assessment period.  Payments will be due by September 15.  The final rule is effective on October 25.  Fed Release.  Fed Final Rule. 

On August 15, Fitch released its rating criteria hierarchy.  Fitch Report. 

On August 14, Fitch released its criteria for rating market value structures.  Fitch Report. 

On August 14, Fitch released its criteria for rating closed-end fund debt and preferred stock.  Fitch Report. 

On August 13, Fitch released its global bond fund rating criteria.  Fitch Report. 

On August 12, DBRS updated its methodology for rating Canadian structured finance transactions.  DBRS Report. 

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

Disclosure and Compliance Matters for Investment Companies that Invest in Commodity Interests  

The Staff of the Division of Investment Management of the SEC has published a Guidance Update with respect to Disclosure and Compliance Matters for Investment Company Registrants that Invest in Commodity Interests.  Although this Guidance is directed primarily to investment companies registered under the Investment Company Act of 1940, it sets forth principles of general applicability to all investment fund and investment advisers.  Among other things, the Guidance discusses the need: (i) to disclose the risks associated with investing in commodities; (ii) to ensure that performance presentations that are included in marketing materials are not materially misleading; and (iii) for an effective compliance and risk management function.  It concludes by emphasizing that a Risk and Examinations Office has recently been created within the Division of Investment Management, and this office, in coordination with the SEC's Office of Compliance Inspections and Examinations, will focus on risk management activities related to commodity interests and other derivatives.  Guidance.

New York Appellate Court Dismisses Syncora's $320M RMBS Suit Against J.P. Morgan

On August 13, the First Department of the Appellate Division of the Supreme Court of New York reversed a trial court decision denying Syncora Guarantee Inc.'s motion for summary judgment in an action against J.P. Morgan Securities LLC.  Syncora's suit alleged $320 million in losses resulting from its insurance of an RMBS transaction underwritten by Bear Stearns and sponsored by EMC Mortgage, entities that J.P. Morgan acquired in 2008.  In this action, Syncora asserted claims for fraudulent inducement and tortious interference against J.P. Morgan, similar to the claims that it had been denied leave to assert against Bear Sterns in an earlier-filed federal court action.  J.P. Morgan moved for summary judgment and dismissal on the basis of res judicata, but the trial court denied the motion, finding that J.P. Morgan and EMC had no pre-existing substantive legal relationship, and therefore no privity existed between them.  The First Department reversed, finding sufficient privity existed between J.P. Morgan and EMC based on Syncora's own allegations that the companies acted in concert in the alleged scheme.  Decision. 

Court Denies S&P's Motion to Dismiss State of California's $600M Suit

On August 14, Judge Curtis E.A. Karnow of the Superior Court of California, County of San Francisco, denied Standard & Poor's motion to dismiss a suit by the State of California.  The Attorney General's claims under the False Claim Acts and other statutes allege over $600 million in losses to investors, including state pension funds, due to S&P's allegedly knowingly faulty ratings of RMBS.  S&P argued that any injury to the state pension funds was not to "money" of the State, which it maintained is a requirement for a claim under the False Claim Act, and also that the suit was time-barred.  The court denied the motion, concluding that S&P had not established that the lost money in the case did not constitute a potential or actual injury to the public treasury, and that the complaint sufficiently alleges discovery of the alleged wrongdoing within three years of the 2011 tolling agreement between the parties.  Decision. 

New York Federal Court Denies Motion to Dismiss Repurchase Suit Against UBS

On August 15, Judge Harold Baer, Jr. of the District Court for the Southern District of New York denied UBS Real Estate Securities Inc.'s motion to dismiss a suit by several RMBS mortgage trusts in connection with the repurchase of $1.6 billion of mortgage loans.  The trusts allege that UBS failed to repurchase mortgage loans that violated representations and warranties in the underlying agreements.  UBS moved to dismiss the trusts' request for monetary damages based on the contractual clause limiting the "sole remedy" for breaches of representations and warranties to repurchase.  In denying the motion to dismiss, the court rejected the trusts' argument, holding that monetary damages could be available in lieu of specific performance of the sole remedies if specific performance was unavailable.  However, the court held that plaintiff would be limited to the "Purchase Price" as the contractual measure of damages and could not obtain damages beyond that amount.  Decision.

Final ESMA Guidelines on Key Concepts of the AIFMD Published

On August 13, the European Securities and Markets Authority (ESMA) published the final version of its guidelines on key concepts of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) (ESMA/2013/611).

 The purpose of the guidelines is to ensure common, uniform and consistent application of the concepts that comprise the definition of "AIF" (the Alternative Investment Fund) in Article 4(1)(a) of the AIFMD by clarifying each of these concepts. 

Competent authorities to which the guidelines apply must notify ESMA within two months of the date of publication whether they comply or intend to comply with the guidelines, with reasons for non-compliance.  In the absence of a response by this deadline, competent authorities will be considered as non-compliant.  Guidelines. 

FCA Updates AIFMD Webpage with Information on Passporting Arrangements

On August 15, the Financial Conduct Authority (FCA) updated the "latest news" webpage on the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) with information on passporting arrangements under the AIFMD.

The update notes that ESMA recently published an opinion that recognizes the right of firms to be able to exercise passport rights in Member States that have not yet transposed the directive, assuming the firms' own home Member State has transposed the AIFMD. 

As the UK has transposed the AIFMD, UK firms should be able to exercise passporting rights in all EEA states, with the exception of Norway, Liechtenstein and Iceland.  UK firms will be able to exercise AIFMD passporting rights in these jurisdictions when the EEA Agreement (to which Norway, Liechtenstein and Iceland are signatories) has been updated to include the AIFMD within its scope.  Similarly, UK firms will be able to exercise passport rights in Norway, Liechtenstein and Iceland pursuant to the European Social Entrepreneurship Funds Regulation (Regulation 346/2013) (EuSEF Regulation) and the European Venture Capital Funds Regulation (Regulation 345/2013) (EuVECA Regulation), when the EEA Agreement has been updated to include these regulations within its scope.  "Latest News" Webpage.  Opinion.

SFO Brings First Charges Under the Bribery Act 2010

On August 14, the Serious Fraud Office (SFO) published a press release announcing that it has charged four men with offenses of conspiracy to commit fraud by false representation and conspiracy to furnish false information, contrary to section 1 of the Criminal Law Act 1977, in connection with the investigation by the SFO into the promotion and selling of "bio fuel" investment products to UK investors.  The value of the alleged fraud is approximately £23 million, and the offenses are said to have taken place between April 2011 and February 2012.  The SFO has also charged three of those four men with offenses of making and accepting a financial advantage, contrary to sections 1(1) and 2(1) of the Bribery Act 2010.  These are the first charges to be brought by the SFO under the Bribery Act.  Press Release.  Investigation.

Financial Industry Breakfast Briefing: Derivatives Market Update – Where Things Stand

On September 10, Orrick will host a Financial Industry Breakfast Briefing in our New York office.  The briefing will cover the current state of the derivatives market with specific updates on the implementation of Dodd-Frank and recent litigation involving derivatives.  Speakers include partners Nikiforos Mathews, Steven Fink and Thomas Mitchell.  This course has been approved in accordance with the requirements of the Continuing Legal Education Board for a maximum of 1.0 credit hour.  To register for this event, please click here.