Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

Class Action Against Lending Club and WebBank Headed to Defeat

On Monday, January 31, 2017, a federal district court in the Southern District of New York granted a motion to compel arbitration in Bethune v. Lending Club Corporation, et al., a closely watched putative class action raising important issues for the fintech industry. To read the full article, please click here.

Final Rule Revising the Capital Plan and Stress Test Rules

On January 31, 2017, the Federal Reserve Board (the "Board") adopted a final rule that revises the capital plan and stress test rules for (i) bank holding companies with $50 billion or more in total consolidated assets and (ii) U.S. intermediate holding companies of foreign banking organizations. Under the final rule, large and noncomplex firms are no longer subject to the qualitative assessment of the Board's Comprehensive Capital Analysis and Review ("CCAR"). However, large and noncomplex firms will remain subject to their capital requirements as part of CCAR's quantitative assessment and will still be subject to regular supervisory assessments examining their capital planning processes. Press Release. Final Rule.

The OCC Publishes Final Rule Adjusting Civil Money Penalties for Inflation

On January 27, 2017, the Office of the Comptroller of the Currency (the "OCC") published a final rule amending its rules of practice and procedure for national banks and in adjudicatory proceedings for federal savings associations. The final rule adjusts the maximum amount of each civil money penalty within the OCC's jurisdiction to account for inflation. The effective date of the final rule is January 27, 2017, and the adjusted maximum amounts apply to penalties assessed after January 15, 2017 for violations occurring on or after November 2, 2015. Press Release. Final Rule.

 

Rating Agency Developments

On January 31, 2017, Moody's updated its U.S. RMBS surveillance methodology. Report.

On January 31, 2017, Moody's updated its rating methodology for rated issuers in the telecommunications service provider industry globally. Report.

On January 27, 2017, Moody's revised its approach to assessing credit risk for companies in the soft beverage industry globally. Report.

On January 27, 2017, S&P released an advance notice of proposed criteria changes for rating U.S. residential mortgage-backed securities (RMBS). Report.

 

European Financial Industry Developments

The Financial Services Aspects of the Brexit White Paper

On February 2, 2017, the Department for Exiting the European Union, the department of the UK government tasked with extricating the UK from the EU, published a white paper on the UK's exit from and new partnership with the EU. The white paper contains further detail on the UK government's approach to financial services in sections 8.22 to 8.26.

The white paper states that the UK government will target the following aims in its negotiations with the EU in respect of the financial services sector:

  • Achieving the "freest possible trade" in financial services between the UK and EU member states.
  • Establishing strong co-operation and oversight arrangements with the EU, reflecting the interconnectedness of financial markets. The paper suggest that the UK will continue to support and implement international financial standards.
  • Negotiating on the UK's future status and arrangements with regard to EU agencies, including the European Supervisory Authorities (ESAs) (that is, ESMA, EIOPA and the EBA).
  • Agreeing on a "phased process of implementation" to allow for the UK and the EU to prepare for the new arrangements that will apply following the UK's departure from the EU. It is suggested that the phased process might relate to the future legal and regulatory framework for business. In any event, the UK government will take steps to mitigate the impact on economic and other functions, including passing legislation if necessary.

The UK government argues that factors such as the UK's legal system, language and infrastructure will help to ensure that it remains a preeminent global financial center after the implementation of Brexit.

Further to the publishing of the white paper, the Financial Markets Law Committee published a letter on February 3, 2017, addressed to Andrew Tyrie, Treasury Select Committee chair, commenting on the UK's financial services industry in the context of the UK's withdrawal from the EU. The letter has been written in response to the Committee's inquiry on the UK's future economic relationship with the EU. The letter notes that post-Brexit, the UK will lose access to the European single market in financial services and will become a third country from the perspective of EU law. The letter notes that there are serious uncertainties as to the conditions that the UK and regulators will have to satisfy as a third country. As such, staged transitional arrangements negotiated well in advance of the UK's withdrawal from the EU will be valuable in promoting legal certainty and minimizing disruption.

European Commission to Publish Legislative Proposal to Revise the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories ("EMIR")

On January 31, 2017, the European Commission published a speech by Valdis Dombrovskis, Commission Vice President, on finance for growth in manufacturing.

The speech included the Commission's recent review of EMIR, the outcome of which the European Commission reported on in November 2016.

Mr. Dombrovskis commented that, during the review process, the European Commission received substantial feedback on the rules governing derivatives. Several respondents, including regulators and industry participants, argued that there is scope to make the rules and reporting obligations in this area more proportionate, particularly for non-financial counterparties.

The European Commission agrees with this feedback and intends to address some of the issues by revising existing technical standards to make reporting standards simpler and clearer. It will publish its legislative proposal to revise EMIR in spring 2017.

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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