FDIC Issues Final Securitization Safe Harbor Rule

On October 22, the Federal Deposit Insurance Corporation (the "FDIC") issued a final rule revising certain provisions of its Securitization Safe Harbor Rule.  The final rule clarifies the requirements as to the retention of an economic interest in the credit risk of securitized financial assets in connection with credit risk retention regulations adopted under Section 15G of the Securities Exchange Act.   The final rule will be effective on the date that is the later of: (i) 60 days after publication of the final rule in the Federal Register; and (ii) January 1, 2016.  Final Rule.

Federal Reserve, OCC, FCA, FHFA and FDIC Adopt Joint Final Rule on Swap Margin Requirements

On October 22, the Office of the Comptroller of the Currency (the "OCC"), the Federal Reserve Board (the "Board"), the Farm Credit Administration (the "FCA"), the Federal Housing Finance Agency (the "FHFA"), and the Federal Deposit Insurance Corporation (the "FDIC") adopted a joint final rule establishing capital and margin requirements for swaps not cleared through a clearinghouse.  The intention of the rule is to promote the stability of swap dealers in light of the risk to the financial system associated with non-cleared swap activity.  The amount of margin will vary based on the relative risk of the non-cleared swap.   The rule will apply to entities that are regulated by the OCC, the Board, the FCA, the FHFA or the FDIC that register with the Commodity Futures Trading Commission or Securities and Exchange Commission as a dealer or major participant in swaps.  The rule does not apply to swaps of financial institutions with $10 billion or less in total assets that enter into swaps for hedging purposes or to swaps entered into by commercial end users for purposes of hedging commercial risk.  The rule will be phased in beginning September 1, 2016.  FDIC Press Release.  OCC Press Release.  Final Rule.

FDIC Adopts Proposed Rule to Increase Deposit Insurance Fund to Statutorily Required Minimum Reserve Ratio

On October 22, the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC") adopted a proposed rule to increase the Deposit Insurance Fund to a statutorily required minimum reserve ratio of 1.35 percent.  The rule would impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments.  The FDIC expects the reserve ratio will reach the minimum 1.35 percent after two years of payments of the proposed surcharges.  FDIC Press Release.  OCC Press Release.  Rule.

Legislation Introduced to Extend Earned Income Tax Credit to Commonwealth Residents

Following up on one of the Administration's legislative proposals to address Puerto Rico's fiscal crisis, on October 22, 2015, Senator Robert Menendez  introduced a bill "The Earned Income Tax Credit and Child Tax Credit Equity for Puerto Rico Act of 2015" (S. 2203), to make residents of Puerto Rico eligible for the earned income tax credit.  S. 2203 was co-sponsored by 8 other Democratic senators (Senators Gillibrand, Schumer, Blumenthal, Booker, Heinrich, Sanders, Warren and Murphy). The bill has been referred to the Senate Committee on Finance.  This bill is related to a bill (H.R. 3552) previously introduced by Representative Pedro Pierluisi, which has been referred to the House Committee on Ways and Means.

On October 28, Moody's updated its rating methodology for insurance premium finance-backed securities.  Report.

On October 27, Moody's updated its rating methodology for floorplan asset-backed securities.  Report.

On October 26, DBRS published its methodology for ratings in the automotive manufacturing industry.  Report.

On October 26, DBRS published its methodology for ratings in the automotive suppliers industry.  Report.

SEC Adopts Rules to Permit Crowdfunding: Proposes Amendments to Existing Rules to Facilitate Intrastate and Regional Securities Offerings

On October 30, the Securities and Exchange Commission adopted final rules under Title III of the JOBS Act ("Regulation Crowdfunding") to permit a company to offer and sell securities through crowdfunding transactions that raise a maximum aggregate amount of $ 1 million in a 12-month period.  Title III of the JOBS Act, enacted on April 5, 2012, created a federal exemption from the requirement that securities offerings be registered under the securities laws.  In the words of the Commission:   "Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects."

Specifically, Regulation Crowdfunding permits individuals to invest in securities-based crowdfunding transactions subject to certain investment limits.  In addition to limiting the amount of money an issuer can raise using the crowdfunding exemption, the rules impose disclosure requirements on issuers for certain information about their business and securities offerings, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.

The Commission also proposed amendments to existing Rule 147 under the Securities Act of 1933 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions.  The proposal also would amend Securities Act Rule 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.

Regulation Crowdfunding and its related forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016.

The SEC is seeking public comment on the proposed rule amendments for a 60-day period following their publication in the Federal Register.

A copy of Regulation Crowdfunding and Adopting Release (33-9974) can be found here.

Summary Judgment Denied in Litigation Against Countrywide 

On October 27, 2015, Justice Eileen Bransten of the New York Supreme Court issued a Decision and Order granting in part and denying in part cross motions for summary judgment brought by Countrywide and Ambac in an RMBS action brought by Ambac against Countrywide.  Justice Bransten's order addressed numerous issues, including the following.

Justice Bransten held that Insurance Law §3105 does not require Ambac to prove justifiable reliance on an alleged misrepresentation or that the misrepresentation proximately caused Ambac's harm, but instead only that there was a misrepresentation and that it was material.  Justice Bransten also concluded that the contractual repurchase remedy will not be the sole remedy available to Ambac if it can prove breaches of other sections of the Insurance & Indemnity Agreements at trial.  Justice Bransten declined to dismiss on timeliness grounds Ambac's claims with respect to loans that were not the subject of repurchase demands within six years of the relevant securitization's closing, but held that Ambac would be required to prove at trial that Countrywide discovered those loans breached within the limitations period.  Finally, Justice Bransten granted Countrywide's motion with respect to Ambac's claims for indemnification and reimbursement, holding that neither is available under the contracts at issue.  Order on Summary Judgment.

In this same action, and on the same day, Justice Bransten also ruled on the parties' motions to strike certain experts.  She granted Ambac's motion to strike portions of the testimony from a Countrywide expert report that addressed legal interpretations of New York Insurance Law on the grounds that the testimony invaded the province of the court.  Justice Bransten denied Ambac's motion to strike several other Countrywide experts and also denied Countrywide's motion to strike two of Ambac's experts.  Order on Experts.

European Commission Adopts Delegated Regulation on RTS Relating to Prudent Valuation Under CRR

On October 26, 2015, the European Commission published the text C(2015) 7245 final of a Delegated Regulation it has adopted on regulatory technical standards (RTS) for prudent valuation under Article 105(14) of the Capital Requirements Regulation  (Regulation 575/2013).

The Delegated Regulation specifies how additional valuation adjustments ("AVAs") should be applied to fair-value positions to determine a prudent value that achieves an appropriate degree of certainty having regard to:

• the dynamic nature of trading book positions;
• the demands of prudential soundness; and
• the mode of operation and purpose of capital requirements in respect of trading book positions.

The Delegated Regulation specifies two approaches for calculating AVAs for the purposes of determining the prudent value of fair-valued positions: a simplified approach and a core approach.

A separate Annex to the Delegated Regulation sets out the formulae to be used for the purpose of aggregating AVAs.

The next step will be for the Council of the EU and the European Parliament to consider the Delegated Regulation.

European Parliament Adopts SFT Regulation

On October 29, 2015, the European Commission published a press release announcing that the European Parliament has adopted the proposed Regulation on reporting and transparency of securities financing transactions (the "SFT Regulation").

Securities financing transactions ("SFTs") allow market participants to access secured funding, in order to secure financing for their activities. This involves the temporary exchange of assets as collateral for a funding transaction.

The Regulation, proposed by the European Commission in January 2014, enhances transparency in the shadow banking sector in three ways:

• introduction of reporting by any EU financial or non-financial counterparty (excluding SMEs) of all SFTs, except those concluded with central banks, to central databases known as trade repositories. Depending on their category, firms should start reporting at different stages from 12 to 21 months after the entry into force of the relevant regulatory technical standards;
• requirement for investment funds to disclose information regarding their use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents from the entry into force of the Regulation, while the existing funds will have 18 months to amend them; and
• introduction 6 months after the entry into force of the Regulation of some minimum transparency conditions that should be met on the reuse of collateral, such as
  • counterparty's consent to the reuse must have been obtained in a written agreement;
  • the potential risks must have been disclosed to the counterparty;
  • the collateral reused must be shifted from the account of the counterparty to the account of the re-user.

The provisions relating to reuse apply to all EU entities as well as third country entities which reuse collateral belonging to an EU entity.

The Commission has also published FAQs on the SFT Regulation.

Following adoption by Parliament, the SFT Regulation will be formally adopted by the Council in the near future, and will be published in the Official Journal of the EU.

Reg AB II – New Changes or Business as Usual?

Orrick Partner, Janet Barbiere, will moderate this event on December 2^nd in New York. She will be joined by Paul T. Vanderslice, Managing Director at Citigroup Global Markets.

Discussion Topics:

• Asset Representations Reviewer Issues
• Dispute Resolution mechanism
• CEO Certification
• Sponsor Interest in the Securities
• Timing of preliminary prospectus and prospective supplement updates prior to pricing

Please click here to register.