Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

OCC Solicits Public Comments on Revising the Volcker Rule

On August 2, 2017, the Office of the Comptroller of the Currency ("OCC") issued a public notice that it is seeking public input on revising the final regulation implementing section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (commonly known as the Volcker Rule).

The Notice, to be published in the Federal Register, solicits public input on whether certain aspects of the implementing regulation should be revised to better accomplish the purposes of section 619 while decreasing the compliance burden on banking entities and fostering economic growth. In particular, the OCC invites input on ways to tailor the rule's requirements and clarify key provisions that define prohibited and permissible activities. The agency also seeks input on how the federal regulatory agencies could implement the existing rule more effectively without revising the regulation.  The OCC noted that:  "This is one piece of a larger interagency effort to improve the rule."

The OCC requests that respondents provide any comments within 45 days of publication in the Federal Register. Release.



Rating Agency Developments

On August 2, 2017, DBRS issued a report entitled: North American Commercial Mortgage Servicer Evaluations. Report.

On July 31, 2017, Fitch issued a release entitled: Fitch Updates UK Whole Business Securitisation Rating Criteria. Release.

On July 28, 2017, Fitch issued a release entitled: Fitch Updates Closed-End Fund and Market Value Structures Rating CriteriaRelease.



European Financial Industry Developments

EBA Publishes Discussion Paper on Approach to Fintech

On August 4, 2017, the European Banking Authority ("EBA") published its discussion paper (EBA/DP/2017/02) on its approach to fintech.

During the spring of this year, the EBA undertook a fintech mapping exercise in order to gain a better insight into the financial services offered and financial innovations applied by fintech firms in the EU, and their regulatory treatment. Competent authorities in 22 member states and two EEA states provided estimates on the current number and expected growth of fintech firms established in their respective jurisdictions. They also provided information on certain of the fintech firms, detailing information on the main financial innovations applied, main financial services provided, regulatory status and target end-users.

The EBA considers that there is merit in it undertaking follow-up work in several areas, as a result of the mapping exercise, work completed by other intergovernmental and EU bodies relating to fintech and previous work that the EBA has done on specific innovations. These areas relate to:

  • Authorization and sandboxing regimes.
  • The impact on the prudential risks for credit institutions and electronic money institutions.
  • The impact of fintech on the business models of the above institutions.
  • Consumer protection and retail conduct of business issues.
  • The impact of fintech on the resolution of financial firms.
  • The impact of fintech on anti-money laundering and countering the financing of terrorism.

In relation to the above areas, the discussion paper points out the issues, summarizes the EBA's work to date to address them, identifies possible gaps and outlines the additional work that the EBA may wish to pursue. The objective of the discussion paper is to seek the opinions of external stakeholders on the EBA's assessment and on the comprehensiveness and viability of the possible future work in the areas identified.

Comments can be made until November 6, 2017 and there will be a public hearing on October 4, 2017. The EBA will then assess the responses with the aim of deciding the further steps to be taken during 2018.

EBA Consults on Fraud Reporting Requirements under PSD2

On August 2, 2017, the EBA published a consultation paper (EBA/CP/2017/13) on its draft guidelines on reporting requirements on statistical data on fraud under Article 96(6) of the Directive on payment services in the internal market ((EU) 2015/2366) (PSD2).

One of the goals of PSD2 is to increase the security of retail payments in the EU. The aim of the EBA's proposed guidelines, which have been developed together with the European Central Bank (ECB), is to ensure that the high-level fraud reporting requirements under PSD2 are implemented consistently among member states, and that the aggregated data provided by competent authorities to the EBA and the ECB is reliable and comparable.

The guidelines propose requirements applicable to all payment service providers (PSPs), but excluding account information service providers, and also set out requirements that are applicable to all competent authorities in the EU. The meaning of "fraudulent payment transactions" is also defined for the purpose of the data reporting under the guidelines. Periodic reporting requirements on payment transactions and fraudulent payment transactions are also included in the guidelines, together with the methodology for collating ad reporting data.

The consultation closes on October 31, 2017, after which the final guidelines will be published. A public hearing on the guidelines is being held by the EBA on October 5, 2017.

EBA Reports on Funding Plans and Asset Encrumbance

On July 31, 2017, the EBA published the following reports on EU banks' funding plans and asset encumbrance:

  • Funding plans. The report assesses the feasibility of EU banks' funding plans submitted to the EBA. It was drafted in response to the European Systemic Risk Board's (ESRB) recommendations on the funding of credit institutions. The funding plans reported in accordance with the EBA guidelines published in July 2014 on harmonized definitions and templates for funding plans of credit institutions, form the basis of the analysis. Data was collected from a sample of the largest banks in each member state, including Barclays plc, HSBC and Lloyds. Report.
  • Asset encumbrance. The EBA monitors asset encumbrance in order to assess whether changes have broader implications for access to unsecured instruments. The report mainly uses data from 2016, which highlights a small increase in the level of asset encumbrance across the EU compared with the figures for 2015 and 2014. The report also demonstrates a wide dispersion of asset encumbrance across countries and institutions. This report is the EBA's third report which analyses asset encumbrance in EU banks, having published the previous report in June 2016. Report.

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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