Orrick's Financial Industry Week in Review - June 10, 2013

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

SEC Proposed Rule on Money Market Reform

On June 5, the SEC proposed two alternatives for amending rules that govern money market mutual funds under the '40 Act.  The alternatives would (i) require money market funds to sell and redeem shares based on the current market-based value of the securities in their underlying portfolios (transact at a floating NAV) or (ii) require money market funds to impose a liquidity fee if the fund's liquidity levels fell below a certain threshold and permit the fund to temporarily suspend redemptions under that scenario.  Comments on the proposed rule must be submitted within 90 days of publication in the Federal Register.   SEC ReleaseSEC Proposed Rule.  

FDIC Final Rule on Orderly Liquidity Authority

On June 4, the FDIC adopted a final rule which establishes the criteria for determining if a company is engaged in "activities that are financial in natural or incidental thereto" for purposes of being subject to the orderly liquidation authority under the Title II of the Dodd-Frank Act.  FDIC MemoFDIC Final Rule

FDIC Credit Risk Assessment Report

On June 6, the FDIC released a report which discusses the credit risk assessments that banks must now apply to investment portfolios.  FDIC Release

CFTC No-Action Relief

On June 4, the CFTC issued a no-action letter providing relief from the clearing requirement for swaps entered into by eligible treasury affiliates.  An eligible treasury affiliate electing the relief described in the no-action letter must report certain information to a registered swap data repository or the CFTC; however, the election is not required to be reported until September 9, 2013.  CFTC ReleaseNo-Action Letter

CFPB Exam Procedures for New Mortgage Rules

On June 4, the CFPB published an update to its exam procedures for the new mortgage regulations issued in January 2013 relating to appraisals, escrow accounts, and compensation and qualifications for loan originators.  CFPB ReleaseInterim TILA ProceduresInterim ECOA Procedures

Rating Agency Developments

On June 7, Fitch released its criteria for Japanese CMBS surveillance.  Fitch Report

On June 6, Fitch released updated EMEA RMBS criteria, including (i) its master rating criteria for EMEA RMBS transactions; (ii) its criteria for the analysis of cash flows in EMEA RMBS transactions and (iii) its EMEA residential mortgage loss criteria.  Fitch EMEA Master Criteria ReportFitch EMEA Cashflows ReportFitch EMEA Mortgage Loss Report

On June 4, Moody's released its global structured finance operational risk guidelines.  Moody's Report

On June 3, Fitch updated its covered bonds rating criteria with a mortgage liquidity and refinance stress addendum.  Fitch Report

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

Recent Orrick Alerts

Bankruptcy Court Permits Patriot to Modify Union Agreements

Patriot Coal became the third major debtor in the last year to modify benefits or reject a CBA under sections 1113 and 1114 of the Bankruptcy Code.  Following similar rulings in the Hostess and AMR Corporation bankruptcies, Bankruptcy Judge Kathy Surratt-States on May 29, 2013, granted Patriot authorization to modify agreements with the United Mine Workers of America and reject union CBAs.  To read more about the court's analysis and the impact of this ruling, please click here.

RMBS Litigation

RMBS Claims Against U.S. Bank National Association Dismissed in Part

On May 31, Judge John G. Koeltl of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss claims brought against U.S. Bank National Association (U.S. Bank) by the Oklahoma Police Pension and Retirement System on behalf of a putative class of investors in Bear Stearns residential mortgage-backed securities.  Plaintiff alleges that U.S. Bank, as trustee for the RMBS, owed it and the putative class duties under the governing agreements and the Trust Indenture Act of 1939 (TIA).  Judge Koeltl held that the certificates at issue were not covered by the TIA because the contracting parties structured the transactions so as to exempt them from the TIA, as allowed by the statute.  The court held Plaintiff had, however, adequately alleged standing and had stated a claim for breach of contract based on alleged failures to ensure adequate title and documentation of the loans, to enforce the repurchase protocol and to provide notice of default by the servicer.  The court allowed these claims for breach of contract to proceed, but dismissed duplicative claims for breach of the covenant of good faith and fair dealing.  Opinion.

Rating Agency Litigation Consolidated In Southern District of New York

On June 6, the United States Judicial Panel on Multidistrict Litigation issued a transfer order consolidating consumer fraud and securities actions brought by the attorneys general of fifteen states against Standard & Poor's Financial Services LLC (S&P) and two related declaratory judgment actions brought by S&P.  The state attorneys general suits, which had been pending in fifteen separate federal district courts, allege that S&P (and Moody's Investor Service, Inc., in one of the cases) mischaracterized its independence in rating mortgage-backed securities and collateralized debt obligations.  The Panel noted that the actions implicated common factual issues and centralized the actions in the federal district court for the Southern District of New York.  Transfer Order.

European Financial Industry Developments

European Authorities Propose to Take Control of Libor from London

On June 6, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published their final report setting out principles for benchmark-setting processes in the EU (ESMA/2013/659).  The final report is divided into seven sections: General framework for benchmark setting; Principles for benchmark administrators; Principles for benchmark submitters; Principles for benchmark calculation agents; Principles for benchmark publishers; Principles for benchmark users and Principles for the continuity of benchmarks.

  • The inter-bank lending rate, Libor, is one benchmark that will be affected by this report.
  • Libor is the inter-bank offered rate currently set in London and is meant to reflect the average rate that banks pay to lend to each other.
  • The report follows the Libor scandal which emerged in June 2012 when UK and US authorities fined Barclays £290m for fixing the key inter-bank interest rate. Since then, Swiss bank UBS and Royal Bank of Scotland have been given fines of £940m and £390m, respectively.  Final Report

ESMA Publishes Technical Advice on Short Selling Regulation

On June 3, The European Securities and Markets Authority (ESMA) published its technical advice to the European Commission on the impact of the Short Selling Regulation (ESMA/2013/649). The advice includes:

  • Current reporting and disclosure thresholds are correct, but technical improvements are suggested for the method for calculating net short positions in shares and for information provided to competent authorities and the public through the notifications of actively managed funds and on positions held through convertible bonds or subscription rights.
  • Further clarifications for the exemption for market making activities. Areas for change include the scope of the exemptions and the conditions for being able to use them, particularly the trading venue membership requirement.
  • The provisions for temporary bans when there are significant price falls should be reconsidered with a view to simplification and ensuring more consistency.

The advice will contribute to the Commission's report on the review of the Regulation, which it is required to present to the European Parliament and the Council of the European Union by June 30.  Technical Advice.

Bank of England Annual Report for 2013

On June 4, the Bank of England (BoE) published its annual report for 2013.  The BoE's priorities for 2013/14 relating to financial stability include:

  • Maintaining the stability and improving the resilience of the financial system by continuing to develop EU and UK resolution regimes through a bail-in tool and through financial institutions' recovery and resolution plans.
  • Delivering macroprudential policy, through the Financial Policy Committee (FPC), which involves influencing the international framework for macroprudential regulation, including through the European Systemic Risk Board (ESRB).
  • Integrating microprudential supervision into the BoE.
  • Influencing and implementing policy to advance the objectives of the PRA.  Annual Report

FCA Publishes Undertaking by Equitable Life Regarding Unfair Contract Terms

On May 31, the FCA published an undertaking given by the Equitable Life Assurance Society under the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (UTCCRs), relating to the fairness of a disclaimer in a payment instruction form (PI form).  Undertaking.

Events

IMN's Global ABS 2013 Conference

More than 3,000 participants will attend this gathering of the global structured products market from June 18-20 in Brussels, Belgium.  Participants will engage with the regulatory community, network with clients and participate in key policy discussions on ways to rebuild the European securitization market.  Orrick is an Associate Level Sponsor.  For more information, please click here.

Impact Finance CLE Panel

Financing that creates significant social change requires a broad range of factors in order to be successful.  In an effort to help those in social sector finance better understand these factors, Orrick has partnered with three leading organizations in this space – ACCION International, Calvert Foundation and the Nonprofit Finance Fund – to offer a special CLE session on June 24 to discuss important considerations related to Impact Finance (also referred to as impact investing).  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.

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