U.S. Financial Industry Developments
Community Reinvestment Act: Revisions to Impact of Evidence of Discriminatory or Other Illegal Credit Practices on Community Reinvestment Act Ratings
On August 15, 2018, the Office of the Comptroller of the Currency released guidance "which clarifies [its] policy for applying the regulatory framework to determine the effect of evidence of discriminatory or other illegal credit practices on the Community Reinvestment Act ("CRA") rating of a national bank, federal savings association, or federal branch." Release.
Bureau of Consumer Financial Protection Updates Regulation P to Implement Legislation Amending Gramm-Leach-Bliley Act
On August 10, 2018, the Bureau of Consumer Financial Protection released a final rule which "finalized amendments to implement legislation that allows financial institutions that meet certain requirements to be exempt from sending annual privacy notices to their customers." Release.
Investigation of Small Business Lending Practices of Fintech Companies
Last year, Congressman Emanuel Cleaver II (D-MO) launched an investigation into the small business lending practices of Financial Technology "Fintech" companies, studying the various methods companies use to protect against discriminatory practices. One of the primary concerns raised by Congressman Cleaver was the specific algorithms used by Fintech firms. Click here to view the full report.
European Financial Industry Developments
CB:PSB Issues Guidance to Support Implementation of Advanced Standard for Top Bankers
In the UK, guidance to support the implementation of advanced standards for professional bankers was published on August 15, 2018. The guidance is available here. The guidance is in fact dated January 2018, the same date as the advanced standard which was published in May 2018.
The standard sets out the Chartered Banker Professional Standard Board's ("CB:PSB") expectations around the quality of work and conduct of high ranking professional bankers. The CB:PSB is focusing on individuals responsible for developing a customer-focused culture, ethical professionalism and a set of behaviors as set out in the Chartered Banker Code of Professional Conduct and the FCA and PRA individual accountability regime.
The guidance specifically targets those who are developing policies, procedures and systems within their institutions. However, the CB:PSB believes it will also be useful to other players in the industry who support the ongoing improvement of conduct and professional expertise within the banking industry.
Regulation on European Crowdfunding Service Providers Draft Published by ECON
On August 13, 2018, the European Parliament's Economic and Monetary Affairs Committee ("ECON") published its draft report on the European Commission's proposal for a Regulation on European crowdfunding service providers ("CSPs"). The report is available here.
The main headlines of the text are the following:
The threshold for crowdfunding offers should be raised from €1,000,000 to €8,000,000;
The Regulation can provide guidance for initial coin offerings ("ICOs");
Third country CSPs wanting to provide services across the EU should be allowed to, as long as they are authorized by third country National Competent Authorities ("NCAs") and there are guarantees in place to ensure CSPs follow the same rules as CSPs with a European passport;
The experience of NCAs on giving authorization and supervising crowdfunding platforms should be recognized and their role in the European framework should be enhanced; and
Crowdfunding platforms often vary in level of complexity, so the Regulation could differentiate between platforms facilitating matching of investors and project owners on the one hand, and platforms that decide the pricing and packaging of offers on the other, by requiring different disclosure levels for each.
The next stage is that ECON will vote on the draft report and then it will be considered by Parliament in plenary.
OJ Publishes Implementing Regulations Supplementing the BMR
Two Implementing Regulations supplementing the Benchmarks Regulation ((EU) 2016/1011) ("BMR") have been published in the Official Journal of the EU ("OJ").
The Two Implementing Regulations are:
Commission Implementing Regulation (EU) 2018/1105, available here, which sets out Implementing Technical Standards ("ITS") in relation to procedures and forms for providing information by competent authorities to ESMA under the BMR. Article 47(2) BMR is the relevant part of legislation here; and
Commission Implementing Regulation (EU) 2018/1106, available here, which sets out ITS in relation to templates for the compliance statement to be published and maintained by administrators of substantial and non-substantial benchmarks contained within the BMR. Article 25(7) BMR is the relevant bit of legislation in this area.
In terms of relevant dates, both Implementing Regulations are dated August 8, 2018. They enter into force on August 29, 2018 (20 days after publication in the OJ) and will apply from October 29, 2018.
Rating Agency Developments
On August 13, 2018, Fitch issued a report entitled: Covered Bonds Rating Criteria. Report.
On August 10, 2018, Fitch issued a report entitled: U.S. Federal Family Education Loan Program Student Loan ABS Rating Criteria. Report.
On August 9, 2018, Moody's issued a report entitled: Moody's Proposes Update to Financial Statement Adjustments: Treatment of Lease Obligations. Report.
On August 9, 2018, Moody's issued a report entitled: Financial Statement Adjustments in the Analysis of Non-Financial Corporations. Report.
On August 9, 2018, Moody's issued a report entitled: Financial Statement Adjustments in the Analysis of Financial Institutions. Report.
RMBS and Other Securities Litigation
New York Federal Court Upholds Privilege and Specificity Requirements Regarding Alleged Awareness of Rep Breaches
U.S. District Court Judge Katherine Polk Failla denied Plaintiff-Investors' attempts in Blackrock Allocation Target Shares et al. v. Wells Fargo et al., No. 1:14-cv-09371 (S.D.N.Y.) to overturn two magistrate judge decisions preventing them from accessing Wells Fargo's privileged communications and ordering them to identify with greater specificity when Wells Fargo allegedly became aware of problems in a series of residential mortgage-backed securities trusts.
Plaintiffs accused Wells Fargo of failing to take proper action as trustee once Wells Fargo allegedly became aware of purported breaches of representations and warranties in the trusts, among other problems. Plaintiffs attempted to argue that Wells Fargo could not withhold from production documents that could reveal whether or to what degree it had information about the alleged problems in the trust. Judge Failla disagreed, holding that "Plaintiffs must prove not only the existence of R&W breaches for each loan within each trust at issue, but also that Wells Fargo, at least, 'should have been aware' of such breach," concluding that their burden therefore depended "on the underlying loan documents and data related to those documents, not on any legal opinion that Wells Fargo may or may not have received in relation to those documents."
Judge Failla also held that Plaintiffs must state with specificity when Wells Fargo allegedly discovered each of the claimed breaches, ordering them to provide such information in response to a challenged interrogatory. Plaintiffs had claimed that Wells Fargo discovered the alleged breaches "by January 2009 and thereafter." Judge Failla noted that while Plaintiffs are not required to "provide the exact hour and minute" of alleged discovery, "to prove that Wells Fargo 'almost … actually knew' of an R&W breach or … acquired 'information that would lead a reasonable person to inquire further,' Plaintiffs must bring forth facts showing that Wells Fargo acquired data at least suggesting that a given R&W breach had occurred. Such facts will inherently involve timing, as Plaintiffs will be unable to satisfy this burden without showing the relevant information came to Wells Fargo's attention at some point."