Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

France Welcomes Foreign and Alternative Capital Providers with Latest Reform of Finance Sector

Long a cornerstone of the French banking system, the "French banking monopoly" largely prevents non-bank entities from lending money to French borrowers. Although French funds have been used as vehicles by alternative capital providers in the past, such transactions could not be structured easily and without the involvement of borrower-facing credit institutions as intermediaries, or complex bond structures.  The new French ordinance that was signed by President Macron on Friday, represents an important regulatory shift away from the French banking monopoly, making France more attractive as a financial marketplace and essentially allowing foreign and alternative capital providers to make loans in France for the first time. To read the full article, please click here.


CFPB Issues Interim Final Rule To Help Mortgage Servicers Communicate With Certain Borrowers At Risk Of Foreclosure

On October 4, 2017, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule and a proposed rule in order to "provide mortgage servicers more flexibility and certainty around requirements to communicate with certain borrowers".  The interim final rule, which amends a provision of the mortgage servicing rules found in Regulation X, provides "servicers more flexibility regarding when to communicate about foreclosure prevention options with borrowers who have requested a cease in communication under federal debt collection law".  The proposed rule, which would amend certain mortgage servicing rules found in Regulation Z, provide "more certainty for mortgage servicers about when to provide periodic statements to consumers in connection with their bankruptcy case".   Comments on both the interim final rule and the proposed rule must be received on or before 30 days after publication in the Federal Register. Release

To read the Interim final rule on mortgage servicer communication flexibility, click here. To read the Proposed rule on periodic statements, click here.


Rating Agency Developments

On October 3, 2017, Moody's issued a report entitled: U.S. Health Insurance Companies. Report.

On October 3, 2017, DBRS issued a report entitled: Rating Canadian Structured Finance Transactions. Report.

On October 3, 2017, DBRS issued a report entitled: Rating European Sub-Sovereign Governments. Report.

On October 2, 2017, Fitch issued a report entitled: Ports Rating Criteria. Report.

On September 29, 2017, Moody's issued a report entitled: Privately Managed Airports and Related Issuers. Report.

On September 29, 2017, DBRS issued a report entitled: Rating U.S. Auto Fleet Lease Securitizations. Report.

On September 28, 2017, DBRS issued a report entitled: Legal Criteria for European Structured Finance Transactions. Report.

On September 28, 2017, DBRS issued a report entitled: DBRS Master U.S. ABS Surveillance Methodology. Report.


European Financial Industry Developments

FRC Financial Reporting Lab Publishes Second Implementation Study on Disclosure of Dividends

The FRC's Financial Reporting Lab initially reported on the disclosure of dividends in November 2015. The Lab reviewed 313 annual reports published during 2016 and concluded that 132 of those companies have implemented some of the disclosure recommendations from the 2015 report.

58% of the FTSE 100 made some level of disclosure relating to distributable profits or distributable reserves (up from 40% in 2015 reports), although this figure fell to 30% among the FTSE 250.

Following on from this, on October 4, 2017, the FRC's Financial Reporting Lab published an implementation study on how companies have responded to investor calls for better disclosure of dividends in the second year of reporting.

The study gives examples of best practice for the disclosure of dividend policy, factors relevant to setting dividends, the level of distributable reserves and the link between those reserves and risk, the study finally recommends four ways in which disclosures could be improved:

  • Enhancing the disclosure on any constraining factors to dividend payments.
  • Identifying explicit links between the potential impact of the company's principal risks and viability and its dividend policy.
  • Clarifying how profits might flow to the top of the company and any relevant constraints (current or potential) to that flow, and where profit is generated in the group.
  • Explaining more fully what the disclosure of dividend policy actually means in practice.

To read the report, please click here.


European Commission Adopts Delegated Regulation Supplementing Benchmarks Regulation on Conditions to Assess Impacts of Cessation of or Changes to Existing Benchmarks

On October 3, 2017, a Delegated Regulation with regard to the establishment of the conditions to assess the impact resulting from the cessation of or change to existing benchmarks under the Benchmarks Regulation (Regulation (EU) 2016/1011) (BMR) was adopted by the European Commission. This follows the draft version of the Delegated Regulation which was published by the Commission for consultation in June 2017

The Delegated Regulation is based on an optional empowerment in Article 51 of the Benchmarks Regulation. The Delegated Regulation sets out in detail under which conditions competent authorities can conclude that the cessation or changing of an existing benchmark could result in a force majeure event, or could frustrate or otherwise breach the terms of a financial contract or financial instrument, or the rules of an investment fund, referencing an existing benchmark.

The Council of the EU and the European Parliament will now have to consider the Delegated Regulation. If neither of them object to it, it will enter into force twenty days after it is published in the Official Journal of the EU (OJ). Delegated Regulation.


ESMA Publishes Updated Q&A Market Abuse Regulation

On September 29, 2017, ESMA published a further updated version of its Q&A on the Market Abuse Regulation (MAR).

A new question was added by ESMA addressing how an issuer should deal with the situation where it has delayed a disclosure of inside information in accordance with Article 17(4) of MAR but subsequently the information loses the element of price-sensitivity and accordingly its inside nature.

When an issuer does delay disclosure it must, immediately after the information is disclosed to the public, inform the competent authority of that fact and provide a written explanation on how the conditions set out in Article 17(4) of MAR were met. ESMA has noted that under Article 17(4) issuers may delay disclosure if certain conditions are met, even though under Article 17(1) issuers must inform the public as soon as possible of inside information that directly concerns them.

To summarize, it is ESMA's view that:

1.    In instances where information loses the element of price-sensitivity, it ceases to be inside information and therefore falls outside the scope of Article 17(1).

2.    In these circumstances the issuer is obliged neither to inform the competent authority in accordance with the last paragraph of Article 17(4) that disclosure of such information was delayed, nor to publicly disclose that information.

3.    In these cases, because the information had been inside information for a period of time, issuers have to comply with all relevant obligations relating to the creating and updating of insider lists. This also includes the maintenance of information relating to the delay of disclosure.

Please click here to see the Q&A from ESMA:


New Takeover Code Checklists

The Takeover Panel recently published Panel Statement 2017/19 on September 29, 2017. It contained details of three new checklists that have been published by the Panel Executive.

When certain announcements are made and distributed, each checklist must be completed and submitted to the Executive by the financial adviser to an offeror or an offeree company (as appropriate). Please note that the checklists should be used with immediate effect.

The new checklists are:

  • Possible offer (Rule 2.4) announcement checklist.
  • Rule 2.11 (Distribution of announcements) checklist for possible offer (Rule 2.4) announcement.
  • Rule 2.11 (Distribution of announcements) checklist for firm offer (Rule 2.7) announcement.

Both the checklists and guidance on how to complete and submit the checklists may be downloaded from the Takeover Panel website here.


ESMA Publishes Final Report on RTS on MiFIR Trading Obligation for Derivatives

On September 28, 2017, ESMA published its final report on draft regulatory technical standards (RTS) on the trading obligation for derivatives under the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) (ESMA70-156-227).

Article 28 of MiFIR sets out the trading obligation for derivatives. Derivatives that are subject to the trading obligation may only be traded on:

  • a regulated market (RM);
  • multilateral trading facility (MTF);
  • organized trading facility (OTF); or
  • a third country venue deemed to be equivalent by the European Commission.

The report sets out ESMA's final approach for interest rate swap (IRS) classes and credit default swap (CDS) classes that should be subject to the trading obligation, and its approach for the date from which the obligation should apply. The final report explains ESMA's revised approach taking into account feedback it received from its earlier September 2016 discussion paper.

MiFIR sets the requirement that the trading obligation can only apply to classes of derivatives that are sufficiently liquid and are available for trading on at least one trading venue. Therefore, ESMA has decided to make the following fixed-to-float IRS and CDS indices subject to the obligation:

  • Fixed-to-float interest rate swaps denominated in USD.
  • Fixed-to-float interest rate swaps denominated in EUR.         
  • Fixed-to-float interest rate swaps denominated in GDP.
  • Index CDS – iTraxx Europe Main and iTraxx Europe Crossover.

ESMA has stated that it submitted the draft RTS to the Commission for its endorsement on September 28, 2018. ESMA says that the Commission has expressed its strong commitment to apply the trading obligation from the start date of the MiFID II framework. Therefore ESMA has stated January 3, 2018 as the envisaged date of application of the RTS. This gives the Commission three months to decide whether to endorse the draft RTS. Press Release.

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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JD Supra Privacy Policy

Updated: May 25, 2018:

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Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

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Privacy Officer
JD Supra, LLC
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Sausalito, California 94965

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Updates to This Policy

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