Financial Industry Developments

FHFA, Fannie Mae and Freddie Mac Announce Independent Dispute Resolution Program

On February 2, the Federal Housing Finance Agency (the "FHFA") announced that Fannie Mae and Freddie Mac have implemented an independent dispute resolution process for resolving repurchase disputes.  The process would allow lenders to submit their unresolved loan level disputes to an arbitrator after certain other processes have been exhausted.  Press Release. 

Rating Agency Developments

On February 2, DBRS released its critical obligations rating criteria.  Research.

On February 1, KBRA released its general rating methodology as it pertains to corporate issuers.  Report.

Distressed Debt and Restructuring Developments

VIDEO: Debtwire European Distressed Debt Market Outlook 2016

RMBS and Other Securities Litigation

Judge Mostly Denies Deutsche Bank National Trust Co.'s Motion to Dismiss in RMBS Class Action

On February 3, Judge Alison Nathan of the United States District Court for the Southern District of New York largely denied Deutsche Bank National Trust Co.'s (the "Trustee's") motion to dismiss in a proposed class action brought by Royal Park Investments SA/NV over $3.1 billion in losses in residential mortgage-backed securities.  Royal Park alleged that the Trustee failed to require the loan sellers to repurchase or substitute loans when it became aware that the underlying mortgages were defaulting.  Judge Nathan rejected the Trustee's argument that Royal Park failed to make a written demand to initiate a repurchase action as required in the trusts' pooling and service agreements, holding that the Trustee had an obligation to provide notice to the other parties when it independently discovered breaches of representations and warranties.  Judge Nathan did, however, dismiss Royal Park's derivative claims on behalf of 10 trusts that held the loans because the suit was direct rather than derivative in nature.  Order.

Morgan Stanley Settles RMBS Litigation with FDIC for $63M

On January 29, Morgan Stanley and the Federal Deposit Insurance Corporation agreed to settle five suits encompassing state and federal claims alleging that Morgan Stanley made misrepresentations in offering residential mortgage-backed securities to three now-defunct banks.  Morgan Stanley will pay $63 million to the FDIC, as receiver for Colonial Bank of Montgomery, Alabama, Security Savings Bank of Henderson, New York, and United Western Bank of Denver, Colorado.  Morgan Stanley denied all liability regarding the claims, and the settlement agreement specified that the parties settled in order to avoid further litigation.  The settlement was reached in coordination with the Department of Justice.  Settlement and Release Agreement.

European Financial Industry Developments

ECB Publishes the Response of the Eurosystem to the European Commission's Call for Evidence on the EU Regulatory Framework for Financial Services

On February 4, the European Central Bank ("ECB") published a response of the ECB and the national central banks of member states of the eurozone (Eurosystem) to the European Commission's call for evidence on the EU regulatory framework for financial services.

The Eurosystem's response makes the following remarks:

• the financial crisis led to much-needed and far-reaching reform of the European regulatory framework and a redesign of its supervisory architecture;
• the regulatory framework for banks is largely in place, but a few important initiatives on the regulatory agenda for banks and the non-bank sector still need to be finished;
• initiatives to support the financing of the economy should maintain the robustness of the regulatory framework which resulted from the post-crisis reforms;
• reaping long-term benefits implies both assuming temporary costs that emerge in the transitional period and complementing regulation with measures to correct any unintended long-term impacts that are identified;
• it is important to ensure that regulations are able to preserve financial stability, while leaving sufficient room for markets to develop and fully play their role in the economy; and
• the European exercise should take into account ongoing initiatives at the international level.

The Eurosystem's response aims to provide evidence from recent impact studies of the effects of the new regulatory framework and to highlight areas where possible improvements could be made, including: (i) rules affecting the ability of the economy to finance itself and to grow; (ii) unnecessary regulatory burdens; (iii) interactions of individual rules, as well as inconsistencies and gaps in the existing regulations; and (iv) rules giving rise to unintended consequences.  Response.

BCBS Finalizes Revised General Guide to Account Opening

On February 4, the Basel Committee on Banking Supervision ("BCBS") published a revised draft of its guidelines on "sound management of risks related to money laundering and financing of terrorism" which comprises the Guidelines issued in January 2014 and the addition of a new Annex IV – General Guide to Account Opening.

Annex IV is intended to focus on some of the mechanisms that banks can use in developing an effective consumer identification and verification programme and sets out the information that should be collected at the time of account opening. BCBS acknowledges that customer identification and verification policies and procedures will differ to reflect risks arising from the relevant categories of customers, products and services.

Annex IV is divided into two substantive sections: the first deals with what types of information should be collected and verified for natural persons seeking to open accounts; and the second describes what types of information should be collected and verified for legal persons and legal arrangements.  Guidelines.

EIOPA Publishes Consultation Paper on the Development of an EU Single Market for Person Pension Products

On February 1, the European Insurance and Occupational Pensions Authority ("EIOPA") published a consultation paper on its advice on the development of an EU Single Market for personal pension products ("PPP"). This consultation is in response to EIOPA's 2014 preliminary report "Towards an EU-Single Market for personal pensions" and EIOPA's 2015 consultation paper on the creation of a standardised Pan-European Personal Pension product.

EIOPA is asking:

1. Would PPPs benefit from harmonisation of provider governance standards?
2. Would PPPs benefit from harmonisation of product governance rules?
3. Would PPPs benefit from harmonisation of distribution rules?
4. Would PPPs benefit from harmonisation in disclosure rules?
5. Are respondents aware of any differences in prudential regimes that would lead to an unlevel playing field amongst PPP providers?
6. Are further supervisory powers necessary?
7. Do respondents agree with EIOPA's assessment of the policy options' impacts?

The Consultation Paper is open for responses until April 26 and such responses will be published on EIOPA's public website.  Consultation Paper.