Financial Industry Developments

Federal Reserve Board Approves Extended Transition Period for Deutsche Bank AG, SVB Financial Group, and UBS Group AG to Conform Investments in Certain "Illiquid Funds" to Requirements of Volcker Rule

On June 7, 2017, the Federal Reserve Board authorized an extension of up to five (5) years for Deutsche Bank AG, SVB Financial Group, and UBS Group AG to comply with certain aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (often referred to as the Volcker rule) relating to "investments in certain 'illiquid funds[.]'" Press Release.

OCC Addresses Questions Related to Bank Collaboration with Fintech Companies and Others

Recently, with increasing frequency, questions have been posed regarding the responsibilities of bank regulated entities with respect to their "third-party relationships," particularly with financial technology companies. On June 7, 2017, the Office of the Comptroller of the Currency issued a supplement to its Bulletin 2013-29, "Third-Party Relationships: Risk Management Guidance," issued October 30, 2013, that includes a series of FAQs. Note that questions 7-11 address issues related to bank relationships with fintech companies, including marketplace lending platforms. To continue reading the full post, click here.

Rating Agency Developments

On June 7, 2017, Fitch issued a report entitled Fitch Publishes Updated U.S. Timeshare Loan ABS Rating Criteria. Press Release.

On June 6, 2017, Fitch issued a report entitled Fitch Updates Structured Finance CDOs Surveillance Rating Criteria. Press Release.

The annual CRE Finance Council took place on June 5-7, 2017 in Washington, D.C. KBRA released two recaps of the panel sessions. The first full day was packed with a variety of topics, which ranged from the real estate cycle to tax policy to the current finance regulatory environment June 6 Recap. The final day of the conference included panels on construction lending, loan documents, the borrower experience and servicing fee structures. June 7 Recap.

The 2017 NYU International Hospitality Industry Investment Conference, which provided an overview of the current state of the lodging industry, issues facing the sector and thoughts on its future direction, was held on June 5-6 in New York. KBRA released a summary of key takeaways from the conference. Report.

On June 2, 2017, Fitch issued a report entitled Fitch Updates EMEA RMBS Criteria Addendum for UK: No Rating Impact. Press Release.

On June 1, 2017, Moody's issued a report entitled Moody's Approach to Rating SF CDOs. Report.

European Financial Industry Developments

European Commission Mid-Term Review of CMU Action Plan: Financial Services Aspects

On June 8, 2017, the European Commission published a communication on the mid-term review of the capital markets union ("CMU") action plan (COM(2017) 292). This follows the action plan published by the Commission in September 2015, which set out its proposed initiatives relating to the establishment of the CMU, and the consultation paper published by the Commission in January 2017, which sought targeted input on revisions to the CMU action plan that would feed in to its mid-term review of the action plan.

The purpose of the mid-term review is to set out an additional set of actions that complement the initiatives laid down in the action plan that have not yet been completed. It consists of:

• Initiatives that follow on from completed work announced in the action plan:
  • The Commission has confirmed that it intends to proceed with legislative proposals on (i) the Pan-European Personal Pension Product (PEPP); (ii) conflict of laws rules for third-party effects of transaction and securities and claims; and (iii) an EU framework for covered bonds.
  • The Commission also intends to proceed with further work on initiatives relating to commitments announced in the action plan, including (i) amendments to the Solvency II Delegated Regulation ((EU) 2015/35); (ii) recommendations on private placements; (iii) communication on a roadmap for removing barriers to post-trade market infrastructure; and (iv) communication on corporate bond markets.
• New priority initiatives intended to strengthen the CMU action plan:
• The initiatives relate to issues including (i) the functioning of the European Supervisory Authorities (ESAs); (ii) prudential treatment of investment firms; (iii) Fin Tech; (iv) non-performing loans (NPLs); and (v) cross-border investment funds.

The Annex to the mid-term review contains a consolidated list of the CMU initiatives and the proposed timings for those initiatives.

European Commission Adopts Delegated Regulation Amending Solvency II Delegated Regulation on Infrastructure Corporates

On June 8, 2017, the European Commission adopted a Delegated Regulation amending the Solvency II Delegated Regulation ((EU) 2015/35) concerning the calculation of regulatory capital requirements for certain categories of assets held by insurance and reinsurance undertakings (infrastructure corporates) (C(2017)3673 final). An impact assessment and executive summary were published alongside the Delegated Regulation.

The Solvency II Delegated Regulation was amended, with effect from April 2016, to provide for appropriate risk calibrations for qualifying infrastructure projects, but not infrastructure corporates. EIOPA submitted a report to the Commission in June 2016, which set out technical advice on infrastructure corporates and recommended several changes to the previous treatment of infrastructure projects. This included amendments to the definition and qualifying criteria for infrastructure projects to avoid inadvertent exclusion of investments in those projects with a better risk profile.

The amendments to the Delegated Regulation will reduce the capital charges attached to investments by insurance companies in infrastructure companies. The aim is to remove regulatory barriers to investment opportunities in infrastructure that fulfill a number of criteria and are considered to have a better risk profile. The amending Delegated Regulation forms part of the Commission's wider efforts on capital markets unions (CMUs) to support insurers in their role as long-term investors in the EU economy.

It is now for the Council of the EU and the European Parliament to consider the amending Delegated Regulation. Should neither the Council nor the Parliament object to the amending Delegated Regulation, it will be published in the Official Journal of the EU (OJ). It will enter into force on the date following its publication in the OJ and will apply from that date.

ECON Draft Report on Proposed Regulation Amending CRR as Regards Transitional Period for Mitigating Impact on Own Funds of Introduction of IFRS 9

On June 8, 2017, the European Parliament's Committee on Economic and Monetary Affairs ("ECON") published its draft report on the proposed Regulation amending the Capital Requirements Regulation (Regulation 575/2013) ("CRR") regarding the transitional period for mitigating the impact on own funds of the introduction of International Financial Reporting Standard 9 ("IFRS 9") and the large exposures treatment of certain public sector exposures denominated in non-domestic currencies of member states.

The European Commission's November 2016 legislative proposal for a Regulation amending the CRR ("CRR II Regulation") contained transitional provisions relating to IFRS 9 and the large exposures treatment of certain public sector exposures. The explanatory statement to the draft report explains that the Presidency of the Council of the EU proposed that these provisions should be split from the proposed CRR II Regulation and dealt with in a separate draft Regulation "to allow for a timely entering into force of these transitional provisions." The European Parliament's Conference of Presidents approved the proposed split in May 2017. On June 1, 2017, the Council of the EU published the final Presidency compromise proposal relating to the split-out Regulation.

The draft report contains a European Parliament legislative resolution on the Regulation, the text of which sets out suggested amendments to the proposed CRR II Regulation that reflect the splitting out of the transitional provisions into a separate Regulation. The amendments delete provisions in the CRR II Regulation that do not relate to the transitional provisions. The report states that the deleted parts will be covered in a separate ECON report. It also contains an explanatory statement by the rapporteur, Peter Simon.