Financial Industry Developments

CFTC Proposes to Amend Rules Governing Chief Compliance Officer Duties and Annual Reports for Certain Registrants

On May 3, 2017, the U.S. Commodity Futures Trading Commission (CFTC) announced that it will publish in the Federal Register proposed amendments to Part 3 of its regulations. The proposed amendments would (1) define "senior officer" in Regulation 3.1; (2) clarify the duties of a Chief Compliance Officer ("CCO") of a futures commission merchant, swap dealer, or major swap participant; and (3) modify the CCO annual report's content and submission requirements. The comment period ends 60 days after the proposal's publication in the Federal Register. Press Release. Proposal.

Rating Agency Developments

On May 3, 2017, DBRS issued a report entitled Rating Canadian Public Hospitals. Report.

On May 3, 2017, Fitch issued a report entitled Global Structured Finance Rating Criteria. Report.

On May 3, 2017, Moody's proposed limited updates to its approach for rating US and Canadian conduit/fusion CMBS. Report.

On May 3, 2017, Moody's proposed changes to its approach to rating asset-backed commercial paper. Report.

On April 28, 2017, DBRS issued a report entitled Operational Risk Assessments for Canadian Structured Finance. Report.

On April 27, 2017, Fitch issued a report entitled Non-Financial Corporates Hybrids Treatment and Notching Criteria. Report.

On April 27, 2017, Fitch issued a report entitled Global Money Market Fund Rating Criteria. Report.

RMBS and Other Securities Litigation

NCUA Enters $445 Million Settlement with UBS in Lawsuit Alleging Untrue Statements in Connection with Sale of RMBS

On April 25, 2017, the National Credit Union Administration ("NCUA"), as liquidating agent for U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, voluntarily dismissed its complaint against UBS Securities, LLC ("UBS") and Mortgage Asset Securitization, Inc., in the United States District Court for the District of Kansas following a settlement between the parties. Under the terms of the settlement, UBS agreed to pay $445 million to end the NCUA's five-year old lawsuit (the filing of the lawsuit was covered here). The NCUA's suit involved claims for losses suffered by the two failed credit unions from allegedly untrue statements and omissions of fact by UBS regarding RMBS that it underwrote and sold. This settlement is in addition to the $79.3 million the NCUA also recovered from UBS in April 2016 for RMBS losses suffered by two other defunct credit unions. Voluntary Dismissal.

European Financial Industry Developments

EMMI Report on Outcome of EURIBOR Pre-Live Verification Program

On May 5, 2017, the European Money Markets Institute ("EMMI") published a report on the outcome of the Euro Interbank Offered Rate ("EURIBOR") pre-live verification ("PLV") program.

The PLV program has given EMMI an in-depth view of the market underpinning EURIBOR. It confirmed that market activity has changed as a result of current regulatory requirements, other sources of liquidity available to market participants, and other external factors. In this context, EMMI concluded that:

• The rate and volatility levels under both methodologies (that is, current quote-based vs. fully transaction-based) are insufficiently similar for a seamless transition to be feasible under current market conditions.
• The decreased level of daily market activity under current market conditions does not allow for a methodology that is fully based on transactions, as this would not yield a sufficiently sound and robust benchmark.

In its FAQs published alongside the report, EMMI stressed that there will be no immediate changes to the EURIBOR methodology and that the current quote-based EURIBOR will continue for the period necessary to develop an alternative methodology. EMMI stated that it remains committed to align the EURIBOR benchmark with the EU Benchmarks Regulation ((EU) 2016/1011). Accordingly, it will work on a hybrid methodology (that is, a model that is supported by transactions whenever available and relies on other pricing sources when necessary).

EBA Amends ITS on Benchmarking of Internal Approaches for 2018 Benchmarking Exercise

On May 4, 2017, the European Banking Authority ("EBA") published an amended version of its implementing technical standards ("ITS") on benchmarking of internal approaches under Article 78(8) of the CRD IV Directive (2013/36/EU) (EBA ITS 2017 02).

The final draft ITS are contained in a zip file that has been added to the EBA's dedicated webpage on regulatory technical standards (RTS) and ITS on benchmarking portfolios. They are intended for use by the EBA and competent authorities in their 2018 assessment of internal approaches for credit and market risk. The ITS have been amended to reflect updates to the Single Rulebook. They also reflect updates to the benchmarking portfolios that were necessary to facilitate the 2018 benchmarking exercise for both credit and market risk so that they remain relevant for supervisors.

The amendments are expected to apply to the submission of initial market valuation data in November 2017 and of other market and credit risk data in April 2018. The EBA has submitted the updated ITS to the European Commission, but the Commission has not yet adopted them.

The EBA aims to annually update the ITS to ensure future benchmarking exercises are relevant and successful.

Brexit - European Council Adopts EU Negotiating Guidelines

On April 29, 2017, a Special European Council, meeting as 27 member states, adopted the Article 50 guidelines to formally define the EU's position for the Brexit negotiations with the UK.

The guidelines are set out under six headings that cover core principles, a phased approach to the negotiations, an agreement on arrangements for an orderly withdrawal, preliminary and preparatory discussions on a framework for the EU-UK future relationship, the principle of sincere cooperation, and the procedural arrangements for negotiations under Article 50.

On May 22, 2017, the General Affairs Council is expected to authorize the opening of the negotiations, nominate the European Commission as the EU negotiator, and adopt the negotiating directives. The guidelines and the negotiating directives may be updated in the course of the negotiations as necessary.