Judge Mostly Denies Deutsche Bank National Trust Co.’s Motion to Dismiss in RMBS Class Action

On February 3, Judge Alison Nathan of the United States District Court for the Southern District of New York largely denied Deutsche Bank National Trust Co.’s (the “Trustee’s”) motion to dismiss in a proposed class action brought by Royal Park Investments SA/NV over $3.1 billion in losses in residential mortgage-backed securities.  Royal Park alleged that the Trustee failed to require the loan sellers to repurchase or substitute loans when it became aware that the underlying mortgages were defaulting.  Judge Nathan rejected the Trustee’s argument that Royal Park failed to make a written demand to initiate a repurchase action as required in the trusts’ pooling and service agreements, holding that the Trustee had an obligation to provide notice to the other parties when it independently discovered breaches of representations and warranties.  Judge Nathan did, however, dismiss Royal Park’s derivative claims on behalf of 10 trusts that held the loans because the suit was direct rather than derivative in nature.  Order.

Morgan Stanley Settles RMBS Litigation with FDIC for $63M

On January 29, Morgan Stanley and the Federal Deposit Insurance Corporation agreed to settle five suits encompassing state and federal claims alleging that Morgan Stanley made misrepresentations in offering residential mortgage-backed securities to three now-defunct banks.  Morgan Stanley will pay $63 million to the FDIC, as receiver for Colonial Bank of Montgomery, Alabama, Security Savings Bank of Henderson, New York, and United Western Bank of Denver, Colorado.  Morgan Stanley denied all liability regarding the claims, and the settlement agreement specified that the parties settled in order to avoid further litigation.  The settlement was reached in coordination with the Department of Justice.  Settlement and Release Agreement.

FHFA, Fannie Mae and Freddie Mac Announce Independent Dispute Resolution Program

On February 2, the Federal Housing Finance Agency (the “FHFA”) announced that Fannie Mae and Freddie Mac have implemented an independent dispute resolution process for resolving repurchase disputes.  The process would allow lenders to submit their unresolved loan level disputes to an arbitrator after certain other processes have been exhausted.  Press Release.

EBA to Assess the Potential Impact of IFRS 9 on EU Banks

In a press release dated 27 January 2016, the European Banking Authority (EBA) launched an impact assessment of IFRS 9 (dealing with financial Instruments) which is due to be implemented in the EU in 2018. The impact assessment is designed to assist the EBA to understand the likely impact of IFRS 9 on regulatory own funds, the interaction between IFRS 9 and other prudential requirements, and the way institutions are preparing for the application of IFRS 9. The assessment will be based on a sample of approximately 50 EU institutions. The EBA contemplates that the assessment process will need to be repeated in the run up to the implementation date for IFRS 9 as institutions are still developing their response to IFRS 9.

European Supervisory Authorities Request Response from European Commissioner to Inconsistencies in Cross-Selling Legislation

On 26 January 2016, the Chairpersons of the European Supervisory Authorities (ESAs) (i.e. EBA, EIOPA and ESMA) sent a letter to the European Commissioner for the Directorate General Financial Stability, Financial Services and Capital Markets Union.

The letter flags up that differences in primary legislation currently preclude the ESAs from developing consistent guidelines on cross selling across the investments, insurance and banking sectors in the EU and asks that the Commission look into the differences in financial services legislation and consider the steps required in order to guarantee that the ESAs are fully equipped to regulate these practices, to the benefit of consumers, financial institutions and supervisory authorities. The ESAs suggest that the Commission may have an opportunity to review these matters as part of its follow up to its September 2015 call for evidence on the EU framework for the regulation of financial services and its December 2015 green paper on retail financial services.

ESMA and South African and Mexican Authorities to Cooperate Under EMIR on CCPs

On 26 January 2016, ESMA announced that had entered into a memorandum of understanding (MoU) with each of the Mexican Comisión Nacional Bancaria y de Valores (CNBV) and the South African Financial Services Board (FSB) under the European Markets Infrastructure Regulation (EMIR).

EMIR provides for co-operation arrangements to be established by ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission. The memoranda set out the terms on which the two authorities will cooperate and share information with ESMA regarding Central Counterparties (CCPs) which are authorised or recognized in Mexico or South Africa, and which have applied for EU recognition under EMIR. As well as establishing these arrangements, the MoUs provide ESMA with adequate tools to monitor the on-going compliance by the CCPs with the recognition conditions contained in EMIR. The MoU with FSB entered into force on 30 November 2015 and the MoU with the CNBV entered into force on 25 January 2016.  Press release. CNBV MoU. FSB MoU.

ESMA Opinion Highlights Differences with the European Commission on the Main Indices and Recognized Exchanges Under CRR

On 19 December 2014, the European Securities and Markets Authority (ESMA) submitted to the European Commission draft implementing technical standards (ITS), pursuant to the Capital Requirements Regulation 575/2013, specifying a list of main indices and recognized exchanges. On 17 December 2015, the European Commission informed ESMA of its intention to amend the draft ITS by including two additional equity indices (the Russell 3000 Index and the Hang Send Composite Index). In an opinion (ESMA/2016/163), published on 29 January 2016, ESMA made recommendations in response to this intention.

ESMA argues that the Russell 3000 Index and the Hang Send Composite Index should not be included in the ITS on the grounds that these indices do not contain relatively liquid instruments in an EEA economy, given that they are mainly composed of US and Asian Stocks. Instead, ESMA suggests adding four other additional indices (Russell 1000 Index, Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and FTSE Nasdaq Dubai UAE 20 Index), and replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA’s opinion recognizes the value of incorporating a large number of indices as this will cast a wider net of eligible collateral that European banks can use.

Finally, given the frequency with which updates to ITS are needed, ESMA suggests that the Commission reviews the regime to avoid each modification requiring a full legislative cycle.

Ambac and J.P. Morgan Reach $995M RMBS Settlement

On Monday, January 25, 2016, monoline insurer Ambac Assurance Corporation (“Ambac”) reached a $995 million settlement with J.P. Morgan, resolving two RMBS actions pending before Justice Ramos in the Supreme Court of the State of New York and Ambac’s objections to J.P. Morgan’s $4.5 billion global settlement with RMBS trustees.  We previously covered Ambac’s actions against J.P. Morgan here, here and here.  In those actions, Ambac brought claims against J.P. Morgan as the successor to EMC Mortgage and Bear Stearns for alleged misrepresentation of the quality the loans underlying eleven RMBS transactions.  The settlement also resolves Ambac’s objections to J.P. Morgan’s 2014 settlement with RMBS trustees of claims for alleged breaches of representations and warranties and servicing deficiencies. The adequacy of that settlement is currently the subject of an Article 77 proceeding before Justice Friedman of the Supreme Court of the State of New York, which we previously covered herePress Release.  Stipulation of Withdrawal.