Orrick's Financial Industry Week in Review

by Orrick, Herrington & Sutcliffe LLP

Financial Industry Developments

SEC Proposed Rule on Security-Based Swaps

On April 17, the SEC issued a proposed rule on recordkeeping, reporting and notification requirements for security-based swap dealers and major security-based swap participants.  The proposed rule would also establish additional recordkeeping requirement for broker-dealers to account for security-based swap activities.  Comments must be submitted within 60 days after publication in the Federal Register.  SEC ReleaseSEC Proposed Rule

Rating Agency Developments

On April 17, Fitch released its criteria for rating securities backed by Federal Family Education Loan Program (FFELP) loans, including rehabilitation loans.  Fitch Report.

On April 16, Fitch released its criteria for analyzing RMBS cash flowFitch Report.

On April 14, Fitch released an exposure draft setting forth its proposed criteria for rating CMBS and commercial mortgage loans in EMEAFitch Report

On April 14, DBRS released its methodology for rating Canadian structured finance transactions.  DBRS Report.

Note: Free registration is required for rating agency releases and reports.
RMBS and Other Securities Litigation

Court Grants Bank Of America's Motion To Dismiss RMBS Action

On March 31, Judge Lewis A. Kaplan of the SDNY adopted a Magistrate Judge's Report and Recommendation, granting Bank of America's motion to dismiss an RMBS action brought by two IKB entities.  IKB asserted claims for common law fraud, negligent misrepresentation, fraudulent concealment, and aiding and abetting in connection with more than US$56 million in RMBS sold by Bank of America and Merill Lynch & Co.  The court held that IKB did not sufficiently allege falsity in connection with any of the allegedly misrepresented loan characteristics, including LTV ratios, owner occupancy ratios and departures from underwriting guidelines.  It further held that IKB did not allege scienter with sufficient particularity and did not adequately allege reliance.  OrderReport & Recommendations

RBS Wins Partial Dismissal Of Claims In RMBS Action

On April 9, Judge Paul G. Gardephe of the U.S. District Court for the Southern District of New York (SDNY) granted in part and denied in part a motion to dismiss brought by several RBS entities in an RMBS action alleging common law fraud, negligent misrepresentation, and fraudulent concealment in connection with US$243 million of RMBS.  The action was filed by the German Bank Landesbank Baden-Wittemberg and a number of special investment funds that invested in three securitizations marketed and sold by the defendants.  Judge Gardephe granted RBS's motion to dismiss plaintiffs' negligent misrepresentation, fraudulent concealment and mutual mistake claims.  He also granted RBS's motion to dismiss plaintiffs' fraud claims with respect to representations concerning LTV ratios and owner-occupancy status of the loans underlying the RMBS.  Judge Gardephe denied, however, RBS's motion to dismiss plaintiffs' fraud claims with respect to representations concerning originator compliance with underwriting guidelines and certificate credit ratings.  He also denied RBS's motion to dismiss the complaint on the pleadings for lack of standing and as time-barred.  Order.   

FGIC, BNY Mellon Announce US$950 Million RMBS Settlement with Bank Of America

In a statement released April 16, Financial Guaranty Insurance Company (FGIC) announced that it had reached a settlement with Bank of America Corp. regarding nine second-lien RMBS sponsored by Countrywide Home Loans, Inc., for which FGIC provided financial guaranty insurance.  Under the terms of the settlement, which resolves FGIC's claims concerning loans in the securitizations that allegedly breached representations and warranties, Bank of America will pay a cash settlement of approximately US$584 million to FGIC.  Bank of America separately agreed to settle claims asserted by Bank of New York Mellon, as Trustee of the underlying securitization trusts, on a trust-by-trust basis.  Bank of America has already completed settlements for seven of the nine securitizations through payment of roughly US$307 million to Bank of New York Mellon, and has agreed to pay an additional US$48 million if the settlements concerning the remaining two securitizations receive requisite investor approvals.  Press Release

Prudential's RMBS Action Against Bank of America Dismissed In Substantial Part

On April 17, Judge Stanley R. Chesler of the U.S. District Court for the District of New Jersey granted in part and denied in part a motion to dismiss brought by defendants Bank of America and Merrill Lynch in an action alleging common law and statutory claims arising from more than US$2 billion in RMBS purchased by various Prudential entities.  Judge Chesler dismissed Prudential's claims to the extent they alleged misrepresentations in connection with owner occupancy status, LTV ratios and appraisals, transfer of title to the mortgages, and certificate credit ratings.  Judge Chesler also dismissed Prudential's New Jersey RICO claim for failure to allege a distinct enterprise and Prudential's negligent misrepresentation claim, holding that New Jersey does not impose a duty of care on parties engaged in an arms' length transaction.  Judge Chesler denied defendants' motion as to Prudential's common law fraud and equitable fraud claims arising out of alleged misstatements regarding the originators' compliance with loan underwriting guidelines and as to most of Prudential's federal securities claims.  Order

Lawsuit Alleges U.S. Bank Breached Its Duties As RMBS Trustee

A lawsuit filed April 11,  in New York federal court alleges that U.S. Bank, as trustee for 25 RMBS trusts, breached its contractual and trust duties in connection with those trusts.  The action was filed as a putative class and/or derivative action by Royal Park Investments SA/NV on behalf of defunct Belgian bank Fortis Bank NA/SV and similarly situated investors.  According to the complaint, U.S. Bank was aware of thousands of loans in the RMBS trusts that breached representations and warranties in the contracts governing the securitizations and further knew that the loans were not being properly serviced.  But due to conflicts of interest, among other things, U.S. Bank failed to enforce the repurchase of allegedly defective loans or take any corrective action with respect to improper servicing.  As a result, the complaint alleges, U.S. Bank breached its obligations under the governing contracts and its duties of trust under the Trust Indenture Act and common law.  Complaint.

European Financial Industry Developments

Law360 Article: The 6 Most Important Changes To The Russian Pledge Rules

Currently, Russian civil law is undergoing a fundamental reform, comparable in extent to that carried out in the early 1990s. The main goal of this reform is to replace various outmoded legal structures inherited from the Soviet era, and to bring Russian civil law into harmony with the law of the major developed economies.  Orrick's article summarizes what we consider to be the most important of the changes in Russian Security Interest (Pledge) Law, which will become effective in 2014. 

European Parliament Approves UCITS V Directive

On April 15, the European Parliament gave its final approval to the Undertakings for Collective Investments in Transferable Securities Directive (UCITS V).  UCITS V sets out rules designed to better protect small investors from fund managers who take unnecessary or excessive risks.  Among the new rules are provisions to ensure that UCITS funds or UCITS fund managers appoint an independent "depositary" to act as a custodian of assets and to monitor deposits made by investors.  Press Release.   

European Parliament Approves MiFID II Directive and MiFIR

On April 15, the European Parliament voted to approve the text of the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR).

The new rules seek to close loopholes in existing legislation on financial markets.  One of the changes is that the authorities will be able to limit the size of a net position that someone can hold in commodities derivatives.

The new rules now need to be approved by the Council of the EU.  Press Release.   

European Banking Authority Publishes Opinion on European Commission's Proposed Amendments to ITS

On April 16, the European Banking Authority (EBA) published via its website an opinion dated April 4, 2014 on amendments proposed by the European Commission to the EBA's draft implementing technical standards (EBA/ITS/2013/02) (ITS) on supervisory reporting under the Capital Requirements Regulation (Regulation 575/2013).

In the opinion, the EBA agrees to the European Commission's proposal to amend the ITS so that banks would not be required to submit reports under ITS prior to the Commission Regulation adopting the ITS entering into force.  Opinion


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.