IOSCO Publishes Consultation Paper on Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives

On September 17, the IOSCO published a consultation paper on risk mitigation standards for non-centrally cleared OTC derivatives (CR06/2014).

The standards have been developed in consultation with the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures and propose nine standards whose objectives are to increase financial stability, facilitate the management of counterparty credit and other risks and promote legal certainty.

Comments are invited before the closing of the consultation on October 17.  Consultation.

HSBC Settles RMBS Claims with FHFA

On September 12, the FHFA and several HSBC affiliates and certain of their current and former officers (collectively, HSBC) announced a US$550 million settlement of claims that the FHFA had brought against HSBC in the Southern District of New York.  FHFA, acting as conservator for Fannie Mae and Freddie Mac, alleged that HSBC made false and misleading statements in offering documents issued in connection with 19 RMBS securitizations.  It brought claims for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as the Virginia and Washington, D.C., Securities Acts.  HSBC did not admit liability or wrongdoing.  Settlement Agreement.

Rating Agency Developments

On September 19, Fitch released its criteria for analyzing large loans within single-borrower or multiborrower U.S. CMBS transactionsReport

On September 17, DBRS released its methodology for rating U.S. structured finance transactionsReport

On September 17, DBRS released its third-party due diligence criteria for U.S. RMBS transactionsReport

On September 16, S&P released its criteria and key credit factors for several types of project finance transactions, including:

On September 16, S&P also released its methodology for assessing operating risks, its methodology of assessing transaction structure risks and its framework methodology for project finance transactions:

On September 16, Moody’s released its rating methodology for credit card receivables-backed securities and other securities backed by revolving consumer loansReport

On September 16, Fitch released its revised Fund Quality Ratings assessing funds’ investment processes and operational attributes.  Report

On September 15, Fitch released its revised rating criteria for trade receivables securitizationsReport

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CFTC Adopts Final Rule on Utility Operations-related Swaps with Utility Special Entities

On September 17, the CFTC approved a final rule on the exclusion of utility operations-related swaps with utility special entities from de minimis threshold for swaps with special entities.  “Special entities” refers to certain federal agencies and states, political subdivisions of states, and certain of their agencies, instrumentalities and pension systems, and certain electric and natural gas utilities.  Press ReleaseFact Sheet.

IOSCO Provides Update to Survey on Commodity Derivatives Markets Supervisory Principles

On September 9, IOSCO published an update to its survey on the principles for the regulation and supervision of commodity derivatives markets.  The final report provides an update on IOSCO’s 2012 review of its principles for commodity derivatives markets.

Market authorities that submitted answers to the 2012 report were requested to update IOSCO as to their progress towards full implementation of the principles.  The majority of respondents were broadly compliant with the principles.  Where commodity derivative markets exist and market authorities acknowledged non-compliance, many of those market authorities have proposed or enacted initiatives aimed at achieving full compliance over time.  Update.  

BCBS Report on Basel III Monitoring Exercise

On September 11, the BCBS issued a report and an accompanying press release, which summarized the aggregate results of the latest Basel III monitoring exercise, using data as of December 31, 2013.  The report covers analysis relating to matters including capital ratios, capital shortfalls, level of capital, composition of capital and leverage ratio.

Data, as of December 31, 2013, shows that most large internationally active banks now meet the Basel III risk-based capital minimum requirements, and capital shortfalls have been further reduced relative to the target levels.

A total of 227 banks participated in the study, comprising of 102 Group 1 banks (internationally active banks that have Tier 1 capital of more than EUR3 billion) and 125 Group 2 banks (a representative sample of all other banks).  ReportPress release

Morgan Stanley Settles MBS Class Action with Pension Funds

On September 8, a stipulation and agreement of settlement was filed in relation to an action brought against Morgan Stanley & Co. by a group of pension funds led by Public Employees’ Retirement System of Mississippi and the West Virginia Investment Management Board.  In the putative class suit, the funds alleged that Morgan Stanley misled institutional investors about the mortgage pools underpinning its mortgage-backed securities.  Under the settlement agreement, Morgan Stanley will pay US$95 million to buyers of certain mortgage-backed securities issued in 2006 and 2007 without admitting to liability or wrongdoing.  Stipulation and Agreement.

MBS Claims Against Bank of America Dismissed

On September 9, Judge Mariana Pfaelzer of the U.S. District Court for the Central District of California granted Bank of America’s motion to dismiss claims for fraudulent concealment, negligent misrepresentation, aiding and abetting, mutual mistake and successor liability brought by Deutsche Zentral-Genossenschaftsbank AG (DZ Bank) in a lawsuit over Bank of America’s MBS offerings.  In doing so, Judge Pfaelzer extended her earlier decision in the case, dismissing as time-barred under German and New York law, claims regarding the sale of Countrywide MBS.  The court applied the same analysis to offerings by Bank of America/Merrill Lynch not backed by Countrywide loans.  Claims related to credit ratings remain in the case.  Judge Pfaelzer also declined to suggest to the Judicial Panel of Multidistrict litigation that the Panel remand DZ Bank’s case to state court.  Order