Rating Agency Developments

On August 16, 2017, Fitch issued a report entitled U.S. RMBS Seasoned, Re-Performing and Non-Performing Loan Rating Criteria. Report.

On August 14, 2017, Fitch issued a report entitled Sukuk Rating Criteria. Report.

European Financial Industry Developments

European Commission Adopts Delegated Regulation on Waiver of Own Funds Requirements for Certain Covered Bonds Under the CRR

On August 21, 2017, the European Commission published the text of a Delegated Regulation that amends the Capital Requirements Regulation (Regulation 573/2013) ("CRR"). The main amendment pertains to Article 496(1) of the CRR. Currently, Article 496(1) allows competent authorities to waive, for certain covered bonds, the threshold of 10% referred to in Article 129 CRR until December 31, 2017.

The Commission has stated, however, that, given that some institutions rely in their business models on the use of this threshold waiver, it is appropriate for legal certainty to amend Article 496(1) to make the waiver permanent without the time limitation.

The Commission adopted the Delegated Regulation on August 11, 2017, and it is now for the Council of the EU and European Parliament to consider the Delegated Regulation. If neither objects, it will be published in the Official Journal of the EU and enter into force 20 days after its publication in the same. It will then start to apply from January 1, 2018.

To see the Delegated Regulation in full, please click here.

CMA Publishes Finalized Versions of Regulated Payment System Appeals Rules and Guide

On August 18, 2017, the Competition and Markets Authority ("CMA") published the final version of its rules of procedure (CMA65) which governs appeals made under section 79 of the Financial Services (Banking Reform) Act 2013 ("FSBRA") in respect of certain decisions made by the Payment Systems Regulator ("PSR") under the same Act.

The FSBRA states that, in relation to decisions made by the PSR that:

• require the granting of access to a payment system; or
• require the variation of certain agreements relating to payment systems; or
• require a person who has an interest in the operator of a regulated payment system to dispose all or part of that interest;

these can be appealed to the CMA by any person who is affected by the decision.

This ground is broad, and so the CMA will only allow appeals where it is satisfied that the PSR's decision was wrong on the basis that:

• the PSR failed properly to have regard to, or give appropriate weight to, the matters the PSR must have in regard to carrying out its functions under Part 5 FSBRA; or
• the decision was based, either wholly or partly, on an error of fact or;
• the decision was wrong in law.

Under the rules of procedure, any person who wishes to make an application to appeal a decision must first send a notice, marked "Notice of Payment Systems Appeal," directly to the CMA within the two months following the date the appellant was notified of the decision or the date of publication of the decision (whichever is earlier). The CMA also has discretion to extend the two month time period where it concludes that there were exceptional circumstances for any appeal beyond this time.

To see the full draft of the rules, please click here.

European Commission Adopts Delegated Regulation That Supplements the MiFIR on the Treatment of Package Orders

On August 14, 2017, the European Commission has published the draft text of a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (Regulation 600/2014) ("MiFIR") with regard to the treatment of package orders.

Currently, Article 9(1)(e) of MiFIR provides that, where certain conditions apply, a waiver is given for both pre- and post-trade transparency requirements for packaged orders. This waiver is, however, limited where the package order is considered "liquid".

Pursuant to the power of the Commission to adopt a Delegated Regulation establishing a clear methodology for determining package orders for which there is a "liquid market," the Commission has introduced this Delegated Regulation. Article 1 of the Delegated Regulation sets out general methodology for establishing which for package orders there is a "liquid market." Articles 2 to 5 then go on to specify the conditions under which a package order can fulfill asset-specific criteria set out in Article 1(b).

Following the introduction of the draft text of the Delegated Regulation, the Council of the EU and European Parliament will consider it. Subject to any objections, it will then enter into force 20 days after its publication in the Official Journal of the EU and apply from January 3, 2018.

To see the draft text of the Delegated Regulation, please click here.

ECB Publishes Interview Transcript on the Preparatory Work of Banks and Supervision as a Result of Brexit

The European Central Bank ("ECB") has published a transcript of an interview, given by Sabine Lautenschlager (ECB Executive Board Member and Supervisory Board Vice-Chair), on the kind of preparation affected banks will have to undertake following the UK's decision to leave the European Union. The interview is wide ranging, but includes the following pertinent points:

• The ECB wants euro-area banks to be proactive and well prepared and is currently in discussion with all euro-area banks under its supervision that will be affected by Brexit.
• The ECB has suggested that all affected banks should prepare for a hard Brexit. It has also recommended that all affected banks create their strategies for Brexit quickly and pass these on to the ECB, as they only have an extremely narrow time frame in which to assess plans and applications.
• The ECB has itself set up a project to prepare for Brexit. It will need to increase its staff as it expects a significant increase in the number of internal model applications, qualifying holding procedures and licensing applications.

To see the full interview, please click here.