Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

Federal Reserve and FDIC Post Resolution Plans for Eight Major Financial Firms

On July 5, 2017, the Federal Reserve Board (the "Board") and the Federal Deposit Insurance Corporation ("FDIC") posted the public portions of the annual resolution plans, commonly known as living wills, for eight of the largest financial firms in the US. Although the eight firms this—is Bank of America Corporation, The Bank of New York Mellon Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation and Wells Fargo & Company—were required to submit their plans on July 1, 2017, the Board and FDIC also announced that they were extending the deadline for American International Group, Inc. (AIG) and Prudential Financial, Inc. to submit their next resolution plans from December 17, 2017 to December 18, 2017. Report. Press Release.

SEC to Allow Issuers to File Draft Initial Registration Statements on a Nonpublic Basis 

On June 29, 2017, the Securities and Exchange Commission ("SEC") announced that it would begin to allow issuers to file draft initial registration statements under the Securities Act of 1933 (the "Securities Act") on a nonpublic basis. Any company, foreign or domestic, will be allowed to submit registration statements for nonpublic review, similar to the benefit granted to emerging growth companies under the Jumpstart Our Business Startups Act (JOBS) as long as it confirms in a cover letter that it will publicly file its registration statement at least 15 days prior to any road show or, in the absence thereof, at least 15 days prior to the requested effective date of its registration statement. The SEC also announced that it would begin to accept draft registration statements submitted prior to the end of the 12th month following the effective date of an issuer's initial Securities Act registration statement, or its registration statement under Section 12(b) of the Securities and Exchange Act of 1934, for nonpublic review so long as the issuer confirms in a cover letter that it will publicly file its registration statement and nonpublic draft submission on EDGAR at least 48 hours prior to any requested effective time and date. Report. Press Release.

Federal Reserve Releases Results of CCAR

On June 28, 2017, the Federal Reserve Board announced that it has completed its annual review of the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies and did not object to the capital plans of all 34 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). However, the Federal Reserve Board is requiring one firm to address weaknesses in its capital planning process and resubmit its capital plan by the end of 2017. Report. Press Release.

Federal Reserve Board Releases Results of Supervisory Bank Stress Tests

On June 22, 2017, the Federal Reserve Board released the results of its annual supervisory stress tests conducted on 34 bank holding companies. According to the results, the nation's largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession. The supervisory stress tests are carried out pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act and is one component of the Federal Reserve's analysis during the Comprehensive Capital Analysis and Review (CCAR), which is an annual exercise to evaluate the capital planning processes and capital adequacy of large bank holding companies. Report. Press Release

 

 

Rating Agency Developments

On July 7, 2017, Kroll published its Research Recap for Q2 2017. Here are several articles of interest:

On June 29, 2017, DBRS published an update to its rating methodology for U.S. equipment lease and loan securitizations. Report.

On June 29, 2017, Fitch published an update to its rating criteria for insurance-linked securities. Release.

On June 28, 2017, Fitch published a report entitled U.S. State Housing Finance Agencies: Single-Family Mortgage Program Rating Criteria. Report.

On June 28, 2017, Fitch published a report entitled U.S. RMBS Surveillance and Re-REMIC Rating Criteria. Report.

On June 23, 2017, Moody's published a report entitled Regulated Electric and Gas Utilities. Report.

On June 23, 2017, S&P issued a report entitled RMBS: Methodology And Assumptions: Assessing Pools Of Residential Loans In Austria, Denmark, Germany, And Sweden. Report.

On June 22, 2017, S&P issued a report entitled ABS: Global Methodology And Assumptions For Corporate Securitizations. Report.

On June 22, 2017, Fitch published a report entitled U.S. RMBS Rating Criteria. Report.

On June 22, 2017, Fitch published a report entitled EMEA CMBS and CRE Loan Rating Criteria. Report.

 

 

European Financial Industry Developments

EBA Launches Supplementary Data Collection on Revision of Investment Firm Prudential Framework

On July 6, 2017, the European Banking Authority ("EBA") published a press release announcing the launch of a supplementary data collection relating to its proposals for a revised prudential framework for investment firms. It also published a template for investment firms authorized under the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) with instructions.

This exercise follows up on the first data collection launched on July 15, 2016, and the discussion paper published by the EBA on November 4, 2016, in which the EBA consulted on its proposals for developing a new prudential framework.

The EBA notes that, following feedback to the discussion paper, it has improved its initiation proposals concerning primarily the calculation of capital requirements based on risk proxies (known as "K-factors") under the following three types of risk: (i) risk to customers (RtC), risk to market (RtM) and risk to firm (RtF). It has decided to undertake a supplementary data collection to allow for a complete calibration of all the relevant aspects of the new prudential regime and a final impact assessment of its proposal on regulatory capital requirements. The data collection has been designed to reduce that burden by limiting the number of variables requested to the minimum necessary to accomplish the intended purpose.

The deadline for firms to submit completed templates to the relevant national competent authorities is August 3, 2017.

European Commission Adopts Implementing Regulation on Its Own Supervisory Reporting to Reflect IFRS 9 Changes to FINREP

On July 5, 2017, the European Banking Authority ("EBA") published a press release announcing that the European Commission (EC) adopted an Implementing Regulation on June 29, 2017, which amends the Implementing Regulation on supervisory reporting of institutions (Regulation 680/2014) under the Capital Requirements Regulation (Regulation 575/2013) (CRR). The text of the Implementing Regulation and its Annexes has been published by the Commission.

The changes relate to the provisions in Regulation 680/2014, which concern financial reporting ("FINREP") and are intended to align these provisions with International Financial Reporting Standard 9 (IFRS 9). Regulation 680/2014 includes FINREP requirements that are founded on international accounting standards and must be updated in line with any updates made to the relevant accounting standards.

It is now time for the Implementing Regulation to be published in the Official Journal of the EU (OJ). It will apply from March 1, 2018.

European Commission Guidelines on Application of PRIIPS Regulation

On July 4, 2017, the European Commission adopted a communication containing guidelines on the application of the Regulation on key information documents ("KIDs") for packaged retail and insurance-based products ("PRIIPS") (Regulation 1286/2014) (PRIIPS Regulation).

The PRIIPS Regulation lays down rules on the content and format of the KID to be drawn up by PRIIP manufacturers and on the provision of the KID to retail investors and those selling or advising on the products. By smoothing out potential interpretative divergences throughout the EU, the guidelines hope to help providers and distributors of investment products, funds and investment insurance policies design their KIDS. Along with several others, the guidelines address the following issues:

  1. products covered by the PRIIPS Regulation;
  2. products made available to retail investors against no consideration;
  3. multi-option PRIIPS;
  4. insurance-based investment products with PRIIPS and non-PRIIPS as underlying investment options;
  5. territorial application;
  6. use of KIDs by UCITS;
  7. PRIIPS only sold by intermediaries;
  8. distribution of a PRIIP without a KID; and
  9. a non-PRIIP product offered alongside a PRIIP. 

The communication was published in the Official Journal of the EU (OJ) on July 7, 2017, as 2017/C 218/02. Firms must comply with the Regulation from January 1, 2018.

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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