Financial Industry Developments

New York Department of Financial Services Promulgates First-in-the-Nation State Cybersecurity Regulation

On February 16, 2017, the New York Department of Financial Institutions ("DFS") promulgated a regulation that requires "Covered Entities" to establish and maintain a cybersecurity program designed to protect consumers and the financial services industry itself (the "Regulation"). Report.

A "Covered Entity" means any individual or any nongovernment entity that operates under or is required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the New York State Banking Law, Insurance Law or Financial Services Law. Accordingly, Covered Entities include, among others, New York branches and representative offices of foreign banks, but do not include "investment advisers" and "broker-dealers." 

The Regulation is risk-based and includes regulatory minimum standards and encourages Covered Entities to keep pace with technological advances. The Regulation specifically provides protections to prevent and avoid cyber breaches, including: 

• Controls relating to the governance framework for a cybersecurity program, including requirements for a program that is adequately funded and staffed, overseen by qualified management and reported on periodically to the most senior governing body of the organization;
• Risk-based minimum standards for technology systems, including access controls, data protection including encryption and penetration testing;
• Required minimum standards to help address any cyber breaches, including an incident response plan, preservation of data to respond to such breaches and notice to DFS of material events; and
• Accountability by requiring identification and documentation of material deficiencies, remediation plans and annual certifications of regulatory compliance to DFS.

The Regulation will be become effective on March 1, 2017. To read more, please click here.

CFTC's Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Transition for March 1, 2017 Compliance Date for Variation Margin and No-Action Relief From Minimum Transfer Amount Provisions

On February 13, 2017, the U.S. Commodity Futures Trading Commission (the "CFTC") announced that, between March 1, 2017 and September 1, 2017, it would "not recommend an enforcement action against a swap dealer (SD) for failure to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date." Importantly, the CFTC is not delaying the compliance date, but rather providing a "grace period" for compliance.

In the same release, the CFTC announced it would "not recommend an enforcement action against an SD, subject to certain conditions, that does not comply with the minimum transfer amount (MTA) requirements of" two CFTC regulations. Release.

Exemptions for Security-Based Swaps

On February 10, 2017, the Securities and Exchange Commission (SEC) extended to February 11, 2018 the expiration dates of certain interim final rules relating to "exemptions under [various securities laws] for those security-based swaps that prior to July 16, 2011 were security‑based swap agreements and are defined as securities under the Securities Act and the Exchange Act as of July 16, 2011 due solely to the provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act." Release.

Rating Agency Developments

On February 15, 2017, DBRS issued a report entitled North American Single-Asset/Single-Borrower Methodology. Report.

On February 15, 2017, DBRS issued a report entitled DBRS Commercial Real Estate Property Analysis Criteria. Report.

On February 15, 2017, DBRS issued a report entitled Rating Entities in the Real Estate Industry. Report.

On February 15, 2017, DBRS issued a report entitled DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. Report.

On February 15, 2017, Fitch issued a report entitled Fitch Updates Rating Non-Financial Corporates Above the Country Ceiling Criteria. Release.

On February 13, 2017, DBRS issued a report entitled DBRS Criteria: Guarantees and Other Forms of Support. Report.

On February 13, 2017, Fitch issued a report entitled Fitch Updates Criteria for U.S. State Housing Finance Agency GO Ratings. Release.

On February 9, 2017, Fitch issued a report entitled Fitch Updates Criteria for Rating Global Asset Backed Commercial Paper. Release.

European Financial Industry Developments

Transparency International Publishes "Top Secret: Countries Keep Financial Crime Fighting Data to Themselves"

On February 15, 2017, Transparency International ("TI") published the above report, recommending that national authorities engage to a greater level in making public disclosure of their countries' anti-money laundering ("AML") statistics.

TI's report investigated leading EU nations (notably the UK, France, Italy and Germany) as well as the U.S. and found, in particular, that AML work was only partially available as a matter of public record and that it was largely only available from international AML institutions, rather than by any national bodies themselves.

TI made a number of recommendations in its report, chief among them being a desire to see the publishing of yearly AML statistics as a standard recommendation by international AML institutions such as the Financial Action Task Force (FATF).

Find the report here.

Vladis Dombrovskis Gives Speech on the International Financial System

The European Commission has published a speech given by Vladis Dombrovskis, European Commissioner for Financial Stability, Services and Capital Markets Union, on February 10, 2017. Amid general concerns about the state of both European and international financial regulation, Mr. Dombrovskis placed emphasis on cooperation among international financial communities in finding a holistic and common approach to financial regulation. Mr. Dombrovskis stressed, in particular, the importance of a common standard of financial conduct, suggesting that the creation of low‑level regulations in one country with little oversight could trigger a contagion affect across other countries, therefore bringing fundamentally inadequate regulatory framework across the globe.

On this latter point, Mr. Dombrovskis highlighted what he thought might be the impact of different financial epicenters (notably New York, Paris, London and Frankfurt) having widely divergent rules. In particular, Mr. Dombrovskis thought this would create far greater scope for varying financial institutions to engage in regulatory arbitrage and would in fact cause the same institutions further costs to comply with each jurisdiction's different rules.

In concluding, Mr. Dombrovskis stressed that international cooperation in the area was vital and should at present underpin the ever-evolving relationship between the UK and the EU.

Find the speech here.

European Parliament Publishes Provisional Version of Resolution It Has Adopted on Its 2016 Report on Banking Union

The European Parliament has published a draft of the text of the resolution it has adopted on its annual report on banking union. The Parliament's resolution is divided into themes, these being resolution, supervision and deposit insurance. The Parliament notably encourages all states that have yet to join the Euro currency to do so or to join the banking union, so as to align the internal market with the same.

It also expresses concern at the growth of the shadow banking sector and highlights that the UK's Brexit referendum result now requires a substantive assessment of EU-wide financial supervision, with particular focus on ensuring that exit negotiations played out between the two parties should not lead to an uneven playing field between non-EU and EU financial institutions. In particular, the Parliament stands by the current levels of regulation and suggests that the exit vote and negotiations should not be used to generally promote deregulation of the financial markets across the EU as this may have dire economic consequences internationally.

The resolution can be found here.