Orrick's Financial Industry Week in Review - March 31, 2014

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

Fed Issues a Report on Mobile Financial Services

On March 25, the Fed issued a report on the use of mobile phones to obtain financial services. Last year, 33 percent of all mobile phone users and 51 percent of smartphone users had used mobile banking. The most common mobile banking activities continue to be reviewing account balances, monitoring recent transactions and transferring money between accounts.  Press ReleaseReport.  

New York Fed Issues In-Depth Analysis of Large and Complex Banks

On March 25, the New York Fed released series of papers analyzing the state of large and complex banksPress Release. Policy Review Papers.  

Joint Regulators Issue Proposed Rule on Requirements for Appraisal Management Companies

On March 24, six agencies issued a proposed rule that would implement minimum requirements for state registration and supervision of appraisal management companies (AMCs). An AMC is an entity that serves as an intermediary between appraisers and lenders and provides appraisal management services. The minimum requirements in the proposed rule would apply to states that elect to establish a licensing agency with the authority to register and supervise AMCs. An AMC is barred from providing appraisal management services for federally related transactions if it operates in a state that has not established such registration and supervision programs. Among other proposals, AMCs will be required to comply with the Uniform Standards of Professional Appraisal Practice and use state-certificated appraisers for federally related transactions.  Interested parties have 60 days from the date of the publication of the proposed rule in the Federal Register to comment.  FDIC Press ReleaseOCC Press ReleaseProposed Rule.

Rating Agency Developments

On March 25, Moody's released its approach to rating RMBS using the MILAN framework.  Moody's Report.

On March 25, Moody's released its approach to assessing incremental risk posed by ability to repay rules in US RMBSMoody's Report.

On March 24, DBRS released its modified methodology for rating European Structured Finance transactions.  DBRS Report.

 Note: Free registration is required for rating agency releases and reports.
RMBS and Other Securities Litigation

Repurchase Suits to Proceed Against DB Structured Products

On March 20, Judge Alison J. Nathan of the United States District Court for the Southern District of New York granted in part and denied in part DB Structured Products, Inc.'s, (DBSP) motions to dismiss four lawsuits brought by HSBC Bank as trustee of four different residential mortgage securitization trusts.  The court dismissed the trustee's claims for a declaration that DBSP is required to reimburse the trustee for expenses incurred in enforcing its remedies under the relevant contracts, including costs and attorney's fees, on the basis that the trustee could seek such reimbursement without the need for declaratory relief.  The court denied DBSP's motion to dismiss the trustee's breach of contract claims for failure to comply with the contractual requirements for a demand to repurchase allegedly breaching loans, holding that DBSP's discovery of breaches of representations and warranties was adequately pleaded and provided a sufficient basis for the claims to proceed without evaluating the sufficiency of such demand.  The court also allowed claims for damages to proceed.  Order.   

Bank of America Settles RMBS Securities Claims for US$9.3 Billion

On March 26, Bank of America and the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, announced a settlement of FHFA's RMBS-related suits against the Bank.  The Bank has agreed to pay approximately US$9.3 billion to settle allegations that it violated federal and state securities laws in connection with private-label RMBS purchased by Fannie Mae and Freddie Mac between 2005 and 2007.  Pursuant to the agreement, approximately US$5.83 billion will be allocated by FHFA to settle all claims asserted in four lawsuits brought by FHFA against Bank of America, Countrywide, and Merrill Lynch, and the remainder will be allocated to repurchases by Bank of America of RMBS held by Fannie Mae and Freddie Mac.  Bank of America Press ReleaseFHFA Press ReleaseSettlement Agreement.   

European Financial Industry Developments

FCA Publishes Report on Hedge Fund Activity in the UK

On March 24, the FCA published a report which sets out its findings from a survey of hedge fund activity in the UK.

Key findings are:

    • 98 percent of total leverage used by hedge funds in the UK is acquired through derivatives.
    • Institutional investors are the dominant investors in hedge funds.
    • The proportion of high net worth individuals investing in hedge funds has declined.
    • Equity strategies are the most popular among the funds in the survey.   Report.  

Updated Basel III Monitoring Workbook Published

The Bank for International Settlements has published on its website an updated version of the Basel Committee on Banking Supervision's Basel III monitoring workbook, accompanying instructions and a list of frequently asked questions.

This documentation forms part of the Basel Committee on Banking Supervision's current monitoring exercise which aims to assess the impact of the Basel III framework and standards on participating banks.  Website.  

ESMA Publishes Q&A Paper on Regulation of European Venture Capital Funds and European Social Entrepreneurship Funds

On March 26, the European Securities and Markets Authority (ESMA) published a Questions and Answers paper on the application of the European Social Entrepreneurship Funds (EuSEF) Regulation (Regulation 346/2013) and the European Venture Capital Funds Regulation (EuVECA) (Regulation 345/2013).

These regulations provide a common EU framework for managers of EuSEF and EuVECA that are registered with the competent authorities.

The paper seeks to answer questions relating to the practical application of the regulations, in order to encourage the adoption of common supervisory approaches among competent authorities.  Q&A Paper.

 

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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