SEC Fee Rate Advisory #2 for Fiscal Year 2015

On October 1, the SEC fiscal year 2015 started.  The SEC will be operating under a continuing resolution that will extend until December 11.  Accordingly, the fees paid under Section 31 of the Securities Exchange Act will remain at their current rate until 60 days after the enactment of a regular appropriation for the SEC.  Release.

New York Fed Introduces Community Credit Information Tool

On September 29, the New York Fed released a new informational tool about home prices, distressed sales, delinquencies and foreclosures at the national, state and county levels.  The data will be updated twice a year.  Release.  Informational Tool.

On October 1, DBRS released its methodologies for rating companies in oil and gas and oilfield services.  Oil and Gas.  Oilfield Services.

On September 30, Moody's released its methodology for rating companies in the consumer durables industry.  Report.

On September 30, Fitch proposed a new methodology for estimating losses for US RMBS transactions. Comments should be submitted by October 31.  Report.

On September 30, DBRS released its methodology for analyzing legal criteria in European structured finance transactions.  Report.

On September 29, Moody's released its methodology for rating bond programs issued by housing finance agencies and secured by multifamily loans.  Report.

On September 29, Fitch proposed a new methodology for rating commercial real estate loans securing covered bonds.  Comments should be submitted by October 27.  Report.

Note: Free registration is required for rating agency releases and reports.

Court Reverses Itself and Dismisses RMBS Fraud Complaint Against Several Banks

On September 30, Judge Sam Lindsay of the U.S. District Court for the Northern District of Texas granted a motion to dismiss plaintiff Town North Bank's amended complaint against UBS, Morgan Stanley, Merrill Lynch, and J.P. Morgan, among others.  Town North Bank asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and the Texas Securities Act.  In March 2013, Judge Lindsay had denied the defendants' motion to dismiss but reviewed the briefs anew when the defendants filed a motion for interlocutory appeal.  Upon that review, Judge Lindsay sua sponte vacated the March 2013 order and granted the motion to dismiss.  In particular, Judge Lindsay found claims related to certain of the alleged misstatements time barred under the applicable statute of repose found in 28 U.S.C. § 1658(b).  As to the remaining statements, Judge Lindsay found that Town North Bank had not adequately alleged that the Defendants "made" the statements in light of the U.S. Supreme Court's recent ruling in Janus Capital Group v. First Derivative Traders.  The court also concluded that Town North Bank did not allege scienter with sufficient particularity because the amended complaint lacked factual allegations from which the court could reasonably infer that Defendants were aware of any false statements at the time they were made.  Order.

MBS Investor Class Partially Certified Against J.P. Morgan

On September 30, Judge Paul Oetken of the U.S. District Court for the Southern District of New York partially certified a class of MBS investors under Rule 23(b) in Fort Worth Employees' Retirement Fund v. J.P. Morgan Chase & Company.  The plaintiffs allege that J.P. Morgan made misleading statements in the offering documents underlying approximately $10 billion worth of MBS certificates.  Judge Oetken certified the class for liability purposes only, but not damages.  Judge Oetken held that while plaintiffs had met the necessary elements for liability purposes, they had not come forth with a damages model that was precise enough to permit the court to permit the calculation of damages on a class wide basis.  The court's order did not preclude certification of the class for damages purposes in the future, if plaintiffs develop a model sufficient to demonstrate damages across the class.  Order.

MBIA Allowed to Pursue Fraudulent Inducement Claim Against J.P. Morgan

On September 19, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County granted in part MBIA's motion for leave to amend its complaint against J.P. Morgan in an action related to a Bear Stearns RMBS transaction that MBIA insured.  In May, the court granted summary judgment in favor of J.P. Morgan on the sole claim of fraud in the original complaint.  In that decision, however, the court noted that while MBIA could not demonstrate fraud, there may have been unpleaded causes of action for fraudulent concealment and/or relief available under Section 3105 of the New York Insurance Law.  MBIA then sought to file an amended complaint containing those two new claims and an amended fraud claim.  As all of these claims were viable at the time of the original complaint, J.P. Morgan argued that the claims were precluded by the doctrine of res judicata based on the court's summary judgment decision.  The court rejected this argument and held that res judicata only applied to the pleaded fraud claim and not to the new claims.  As to the substance of MBIA's amended claims, the court granted leave to file an amended complaint on the fraudulent concealment claim alone, dismissing the previously pleaded fraud claim and MBIA's Section 3105 claim.  Order.

UK PRA and FCA Publish Final Policy on Implementing the FPC's LTI Ratios

On October 1, the Prudential Regulation Authority (PRA) issued PS9/14 and the FCA published FG14/8 setting out their final policies on implementing the Financial Policy Committee's (FPC) recommendation on loan to income (LTI) ratios in mortgage lending.

The policies were published after the FPC noted that acting against the excessive indebtedness caused by a high number of mortgages with high LTI ratios will make the financial system more stable.

The FPC made its recommendation on LTI ratios in June.  The FPC recommended that the PRA and the FCA should ensure that mortgage lenders limit the proportion of mortgages at LTI multiples of 4.5 and above to no more than 15% of their new residential mortgages.  The final policies of the PRA and FCA include permitting the application of the LTI limit to be at a group level rather than at the level of each regulated entity.  PRA Policy Statement.  FCA Finalized Guidance.

Findings from ICO Visits to Credit Reference Agencies

On September 30, the UK Information Commissioner's Office (ICO) published a review of the manner in which personal data is processed by credit reference agencies (CRAs).

Although the report focuses on CRAs, the ICO states that the issues highlighted are equally relevant to other organizations processing large amounts of personal data and to lenders who share information with CRAs.

The report identified certain areas that could be improved, including implementing a process to remind organizations supplying data to CRAs of their obligations under the Data Protection Act 1998, and a system to ensure that all CRAs' clients are audited at least once a year.

The appendices to the report provide advice for firms relating to each of the topics covered by the report including training, staff awareness, data sharing, monitoring and reporting issues and information risk management.  Report.

UK FCA Policy Statement on Sponsor Competence and Consultations on Joint Sponsors and Sponsor Conflicts

On September 26, the Financial Conduct Authority (FCA) published consultation paper CP14/21, incorporating its policy statement CP14/02 (sponsor competence) and other changes into the Listing Rules and Prospectus Rules.  CP14/21 also includes details of a consultation on joint sponsors and invited views on sponsor conflicts. 

The main change is that the FCA has removed the competency framework against which sponsors should assess themselves.  LR 8.6.12R(9) now requires sponsors to have effective systems and controls for compliance with each of the five competencies found in LR 8.6.7R(2)(b).

The amendments to LR 8, LR 11 and Appendix 1.1 of LR, set out in the Listing Rules (Sponsors) (Amendment No 5) Instrument 2014 (FCA 2014/54) come into force on February 1, 2015.  Amendments to LR 5 and LR13, together with the changes to the Prospectus Rules, each set out in that same instrument, come into force on October 1.  Consultation Paper.