Financial Industry Developments
Agencies to Propose Amending CRA Regulations to Conform to HMDA Regulation Changes, and Remove References to the Neighborhood Stabilization Program
On September 13, 2017, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly released proposed changes to each agency's Community Reinvestment Act's regulations relating "Regulation C, which implements the Home Mortgage Disclosure Act[.]" FDIC Release. Federal Reserve Release. OCC Release.
Rating Agency Developments
On September 13, 2017, DBRS issued a report entitled Third-Party Due Diligence Criteria for U.S. RMBS Transactions. Report.
On September 13, 2017, Fitch issued a report entitled Fitch Updates Future Flow Securitisation Criteria; No Rating Impact. Release.
On September 11, 2017, KBRA issued a report entitled Financial Institutions: Global Asset Manager Rating Methodology. Report.
On September 11, 2017, KBRA issued a report entitled Public Finance: U.S. Third Party Liquidity Facility-Supported Variable Rate Demand Obligations and Commercial Paper Rating Methodology. Report.
On September 11, 2017, KBRA issued a report entitled Corporates: General Corporate Rating Methodology. Report.
On September 7, 2017, Fitch issued a report entitled Fitch: LIBOR Transition Creates Uncertainty for SF Market. Release.
RMBS and Other Securities Litigation
S.D.N.Y. Grants in Part and Denies in Part Trustee Bank of New York Mellon's Motion for Summary Judgment in Suit Brought by Certificateholder Phoenix Light
On September 7, 2017, Judge Valerie Caproni in the United States District Court for the Southern District of New York granted the majority of RMBS trustee Bank of New York Mellon's ("BNYM") summary judgment motion and denied certificateholder Phoenix Light SF Ltd.'s ("Phoenix Light") cross motion in its entirety in Phoenix Light SF Ltd. v. Bank of New York Mellon. Judge Caproni's decision significantly curtailed Phoenix Light's Complaint, which alleged various breaches of the trustee's duties in connection with 21 RMBS trusts. For eight of the trusts at issue, Judge Caproni rejected Phoenix Light's breach-of-contract claims alleging that BNYM failed to notify other parties upon discovery of breaches of representations and warranties due to lack of evidence that BNYM actually discovered any breaches. Judge Caproni also rejected the breach claims in connection with another eight trusts due to Phoenix Light's failure to support the claims with evidence on a "loan-by-loan and trust-by-trust" basis. Only Phoenix Light's breach-of-contract claims related to trusts where BNYM had notice of a specific breach or an event of default survived, as did Phoenix Light's Trust Indenture Act claims for three trusts (because BNYM did not address the claims in its reply brief). The Court also granted BNYM's motion with respect to Plaintiffs' negligence, gross negligence, and negligent misrepresentation claims, finding that Plaintiffs' tort-based arguments were duplicative of their breach-of-contract allegations.
European Financial Industry Developments
New Rules on Venture Capital Funds Adopted by the European Parliament
New rules to facilitate innovative and socially beneficial companies accessing capital in the European Union were adopted by the European Parliament on September 14, 2017.
The European Parliament approved changes to Regulation (EU) no. 345/2013 on European venture capital funds ("EuVECA") and Regulation (EU) no. 346/2013 European social entrepreneurship funds ("EuSEF"), aimed at attracting more investors for start-ups.
The changes are intended to reduce costs and barriers to entry for funds that lend to entrepreneurs and small to mid-sized enterprises. They include widening the range of managers eligible to create and manage EuVECA and EuSEF funds to those with assets under management of more than €500 million. Venture capital funds will also be able to invest in unlisted companies with up to 499 employees, allowing managers to diversify their funds. It is hoped that widening the range of eligible undertakings in which qualifying venture capital funds can invest will make them more appealing for investors and increase the flow of capital for businesses. The European Securities and Markets Authority has been charged with ensuring that funds are consistently registered and supervised across the EU.
The changes to the legislation are designed to make the cross-border marketing of both types of funds easier and less expensive as part of the EU's efforts to create an integrated capital market, namely the Capital Markets Union.
The revised rules will enter into force 20 days after being published in the Official Journal of the European Union.
Basel III Monitoring Exercise Report Published
The European Banking Authority ("EBA") published a report on September 12, 2017, which outlined the results of a monitoring exercise on Basel III and the impact of the CRD IV Directive and Capital Requirements Regulation.
The report includes analysis of a number of statistics, including capital ratios, liquidity coverage ratios and the impact of phase-in arrangements. Over 200 banks were analyzed in the report.
In general, the EBA found that there was an improvement of capital positions in European banks, evidenced by an increase in total average common equity tier 1 ratio, average liquidity coverage ratio and net stable funding ratio.
The full report is available here.
European Commission Publishes Summary of FinTech Consultation
In March 2017, the European Commission published a consultation paper on FinTech, seeking input from stakeholders which could assist the European Commission's policy approach towards technological innovation in the financial sector.
In total, the European Commission received a total of 226 responses, the majority from the finance industry, and a summary of the contributions provided were published on September 12, 2017.
The summary indicates that the main risks which were raised by the industry were that of cybersecurity, the use and control of data, and money laundering. With that being said, FinTech was also seen as a driver of development within the sector which created opportunities as to efficiency, cost-saving, competition, and access to finance.
A full copy of the summary is available here. The significantly longer annex, available here, provides some of the detailed responses received.
Paper Published by AFME on Brexit
The Association for Financial Markets in Europe ("AFME") published a paper on September 6, 2017, which highlighted the necessity of transitional arrangements in the finance sector following Brexit.
AFME has made clear that it believes transitional arrangements need to be put in place prior to the United Kingdom's exit from the European Union in order to avoid a number of risks relating to the recognition of central counterparties, cross-border contracts and data transfers, as well as a number of other potential issues.
The paper suggests that transitional measures, such as grandfathering cross-border trades and contracts executed prior to Brexit, regulators adopting a flexible and pragmatic approach to structures and operating models, and regulators and central banks taking steps to maintain a stable market, are essential in order to minimize disruption.
AFME also outlines a number of elements that the design of the transitional arrangements should contain.
The full paper is available here.
