Orrick's Financial Industry Week in Review

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

FHA Takes New Steps to Provide Access to Credit for Underserved Borrowers

On May 13, FHA issued a paper outlining additional steps the agency is taking to expand access to credit for underserved borrowersReleasePaper

CFTC Announces New Approach for Considering Requests for Relief from Registration for Delegating Commodity Pool Operators

On May 12, CFTC Division of Swap Dealer and Intermediary Oversight announced a streamlined approach for considering requests for registration no-action relief from commodity pool operators who delegate certain activities to a registered commodity pool operator.  Applicants will need to represent that they meet certain specified criteria to benefit from the streamlined process.  Press ReleaseStaff Letter.      

FinCEN Issues Five Advisory Rulings Concerning Bank Secrecy Act's "Money Transmitter" Definition

On April 29, FinCEN Issued five advisory rulings concerning the application of the Bank Secrecy Act's Definition of "Money Transmitter" to various business models:

(i) whether a company that provides an armored car coin and currency exchange service is a Money Transmitter and whether the armored car service exemption would apply to the service;

(ii) application of money services business regulations to the rental of computer systems for mining virtual currency;

(iii) whether a company that provides online real-time deposit, settlement, and payment services for banks, businesses and consumers is a Money Transmitter rather than a provider of prepaid access;

(iv) whether a company that offers secured transaction services to a buyer and seller in a given sale of goods or services is a Money Transmitter; and

(v) application of money services business regulations to a company that offers escrow services to a buyer and seller in a given internet sale of goods or services.  IIIIIIIV. V.

Rating Agency Developments

On May 15, Fitch released its criteria for rating Portuguese and Spanish Electricity Tariff Deficit Securitisations.  Fitch Report.

On May 14, Fitch released its approach for rating counterparty risk for structured finance and covered bondsFitch ReportDerivatives Addendum.

On May 13, Moody's released its methodology for rating U.S. housing finance agenciesMoody's Report

Note: Free registration is required for rating agency releases and reports.

RMBS and Other Securities Litigation

New York Appellate Court Dismisses Unjust Enrichment Claims But Allows Fraud Claims To Proceed in CDO Suits Against Citigroup and Merrill Lynch

On May 8, the New York Appellate Division, First Department decided appeals in two cases brought by investor Loreley Financing against Citigroup and Merrill Lynch relating to collateralized debt obligations (CDOs).  The court dismissed Loreley Financing's unjust enrichment and rescission claims, but allowed fraud claims to proceed in both actions. 

In the first action, Loreley alleged that Citigroup committed fraud by selecting risky RMBS for the CDOs it sold and by engaging in a scheme with certain investors to short the collateral in those CDOs.  The trial court dismissed Loreley's rescission claim against Citigroup but upheld its claims for unjust enrichment and fraud.  On appeal, the First Department reversed the lower court's decision in part, dismissing the unjust enrichment claim because the CDO transactions were based on written agreements.  The court affirmed the dismissal of Loreley's claims for rescission because Loreley had not alleged the absence of a complete and adequate remedy at law.  The First Department allowed Loreley's fraud claims to proceed, finding its fraud allegations were sufficiently detailed and that Citigroup's disclaimers in the offering documents about market risks and its involvement in the transaction were not specific enough to preclude Loreley from alleging reasonable reliance on Citigroup's representations.  Citigroup Decision

In the second action, Loreley alleged that Merrill Lynch failed to disclose that it had permitted a hedge fund to select collateral for the CDO and the hedge fund bet against the deal.  The First Department rejected Merrill Lynch's contention that the complaint was untimely, holding that factual disputes precluded resolution of whether the law of Jersey (in the Channel Islands) or the state of New York applied to Loreley's claims.  As in the Citigroup action, the First Department held that the unjust enrichment cause of action should have been dismissed because the transaction at issue was governed by written agreements.  The court also held Loreley had sufficiently pleaded fraud and alleged reasonable reliance, and fraud claims could proceed based on allegations that certain Merrill Lynch entities played a significant role in structuring the CDO and selling it to investors.  Merrill Lynch Decision.    

European Financial Industry Developments

EU Banking Union Regulations Published in Official Journal

ECB Regulations 468/2014 and 469/2014 – which relate to the framework for the EU Single Supervisory Mechanism (SSM) – were published in the EU's Official Journal on May 14, prior to the formal commencement of the ECB's SSM role on November 4, 2014.

Both regulations supplement the main SSM Regulation (1093/2013), which forms the core of the EU's well publicized move towards a banking union.  Under the terms of that regulation, the ECB is to be granted broad powers of supervision over "credit institutions" (e.g. banks) established in participating eurozone member states and other member states that wish to opt-in (significantly, the UK government has indicated that it does not wish to participate). In practice, this means that the ECB will be the ultimate regulator for eurozone banks, with responsibilities including:

    • licensing and authorising credit institutions;
    • passporting applications;
    • the imposition of prudential and governance requirements; and
    • supervision of recovery plans.  Regulation 468/2014Regulation 469/2014

Council of EU Adopts MiFID 2

On May 13, the Council of the EU announced that it had adopted the Markets in Financial Instruments Regulation (9343/14) and Markets in Financial Instruments Directive (9344/14) (together known as MiFID 2), thereby setting the course for their publication in the Official Journal later this year and effectiveness in 2016.

MiFID 2 broadens the scope of MiFID 1 which came into force in 2007 and provided a harmonized regulation for investment services across the member states. Much of the coverage on MiFID 2 has focused on expected curbs to high-frequency trading and "dark-pools" in equity trading, but while these activities may be affected, MiFID 2 is much more far-reaching.  The new regulation, for which over 2000 amendments have been submitted since publication of the first draft in 2011, will dramatically alter the way in which most shares, bonds, derivatives and commodities are traded, cleared and reported in member states, with the overriding objective of increasing market efficiency, openness and transparency while reducing systemic risk and market disorder.  Council of Europe Press Release


Orrick's Annual Financial Services Roundtable, June 11

Members of Orrick's Employment Law & Litigation Group invite you to join an interactive discussion of critical employment law issues impacting the financial services industry. Roundtable discussion topics include wage-and-hour cases impacting the financial services industry, employee background checks, update on EEOC and OFCCP enforcement initiatives for 2014 and the latest whistleblower law developments under federal and new California state law.  For more information and to register for this event, please click here.  


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.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.