Orrick's Financial Industry Week in Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

FHFA Seeks Input on Fannie Mae and Freddie Mac Guarantee Fees

On June 5, FHFA announced it is requesting input on the guarantee fees charged by Fannie Mae and Freddie Mac to lenders. The request includes questions about the optimum level of fees and implications for mortgage credit availabilityPress ReleaseRequest.   

Bank Regulatory Agencies Seek to Identify Reductions to Regulatory Burden

On June 4, the Fed, FDIC and OCC published the first of several requests for comments to identify outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires the federal banking regulators to review regulations issued by the agencies at least every 10 years. It also requires the regulators to break down the regulations by category, present each category for comment and identify areas of regulations that are outdated, unnecessary or unduly burdensome.

The regulators have divided the regulations into 12 categories and will request comments with respect to each category over the next two yearsFed Press ReleaseRule Notice.  

Rating Agency Developments

On June 2, Fitch released its rating guidelines for rating letter of credit-supported bondsFitch Report.

On May 30, Fitch released its global criteria for rating credit card ABSFitch Report.

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

RMBS and Other Securities Litigation

Second Circuit Vacates Judge Rakoff's Ruling Rejecting SEC-Citigroup Settlement

On June 4, the U.S. Court of Appeals for the Second Circuit vacated a November 28, 2011, decision of the U.S. District Court for the Southern District of New York in which the district court declined to approve a settlement of claims that the SEC brought against Citigroup Global Markets Inc.  The SEC alleged that Citigroup had negligently misrepresented its role and economic interest in selecting RMBS to be included in the pool of reference obligations in respect of a billion-dollar synthetic CDO transaction.  The lower court critiqued the SEC's practice of settling enforcement actions without requiring defendants to admit fault.  The Second Circuit held that the court's role in approving an SEC settlement is limited to determining whether there is a factual basis to support the proposed consent judgment, that the judgment is fair and reasonable, and, if injunctive relief is imposed by the judgment, that the public interest would not be disserved.  The appellate court further ruled that the SEC's discretion to settle on terms it finds acceptable must be given substantial deference, and held that the lower court misapplied the law and abused its discretion by requiring the parties to show adequacy of the settlement and the truth of the SEC's allegations.  The Second Circuit remanded the case to the district court to again consider settlement approval applying the correct, more deferential standard of review.  Decision

European Financial Industry Developments

ECB Opines on the Proposed Money Market Funds Regulation

On June 4,  the European Central Bank (ECB) published an opinion on the European Commission's proposed regulation on Money Market Funds (MMF).  The MMF regulation, which is aimed at enhancing the liquidity and stability of MMF, is part of a wider effort to develop a regulatory framework for shadow banking entities, over which concerns have been growing in relation to financial stability.

In the opinion, the ECB makes supporting observations towards the proposed regulation in the following areas:

    • the interconnection of the regulation and the legal frameworks for undertakings for collective investment in transferable securities (UCITS) and alternative investment fund managers (AIFMs);
    • financial stability;
    • the constant net asset value of MMFs;
    • the provision of external support;
    • risk management of MMFs;
    • the role of MMFs in intermediation;
    • internal rating systems; and
    • reporting requirements for MMFs.

In addition to those observations, the ECB also suggests a number of technical amendments to the proposed regulation. Opinion.   

FMLC Publishes Response on Bail-in Powers

In response to a consultation by HM Treasury, the UK's Financial Markets Law Committee (FMLC) published a letter on June 4 relating to the bail-in powers introduced by the Financial Services (Banking Reform) Act 2013. This act expands the powers available to the Bank of England and HM Treasury to make "bail-in" resolutions in relation to certain classes of investor in failing banks and investment firms by writing down their claims or converting them to equity.

Commenting specifically on the Banking Act 2009 (Restriction of Special Bail-in Provision, etc.) Order 2014 and the Banking Act 2009 (Mandatory Compensation Arrangements Following Bail-in) Regulations, the FMLC remarks and advises on technicalities which should be reflected in draft implementing secondary legislation. FMLC Letter.   

EBA Publishes Final Draft Technical Standards and Guidelines for G-SIIs

On June 5, the European Banking Authority (EBA) published final draft regulatory technical standards (RTS) and implementing technical standards (ITS) relating to global systemically important institutions (G-SIIs).

The RTS and ITS relate to the requirements in the CRD IV Directive (2013/36/EU) and the Capital Requirements Regulation (Regulation 575/2013) (CRR) concerning G-SIIs. Broadly, CRD IV requires that institutions designated as G-SIIs meet higher capital standards to reflect the potential impact their failure could have on the global financial system. Designation of GSIIs is expected to take place in January 2015, with the enhanced capital requirements becoming mandatory the following year.  RTSITS

Events

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.

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