Orrick’s Annual Financial Services Roundtable

Orrick’s Global Employment Law and Litigation Group will host an interactive discussion of critical employment law issues impacting the financial services industry.  The keynote lunch speaker will be EEOC Commissioner Chai Feldblum, who will speak and answer questions about the EEOC’s recently announced Strategic Enforcement Plan.  Click here to RSVP.

FSA Fines Lloyds Banking Group for Delayed PPI Payments

On February 19, the FSA published a final notice announcing that it had fined Lloyds Banking Group (LBG) a total of £4,315,000 for failing to make payment protection insurance (PPI) redress payments promptly.  Between May 2011 and March 2012, LBG decided to make redress payments to 582,206 customers, and aimed to make each payment within 28 days of taking the decision to pay.  Due to failings in LBG’s systems and controls, however, up to 140,209 of these payments were not made promptly.  During its investigation the FSA found that LBG:

  • Neither established an adequate process, nor engaged staff with sufficient experience, for dealing with the very large volumes of PPI redress payments.
  • Did not track PPI redress payments effectively.
  • Failed to monitor effectively whether it was making all payments of PPI redress promptly.
  • Adopted an approach to risk management when preparing redress payments to send to PPI complainants that was ineffective.

The FSA stated that since its investigation LBG has completed a comprehensive review of PPI redress payments to ensure that all customers due PPI redress have been paid the correct amount and compensated for any delay in receiving their payment.

FSA Challenges Accusations That It Was Slow on LIBOR Scandal

On February 21, the Treasury Select Committee published the FSA’s response in relation to its August 2012 report on LIBOR.  The report had criticized the FSA for being behind the US regulator in formally investigating market rumors relating to the artificial rigging of LIBOR rates and made several recommendations for improvement in the future.

In its response, the FSA challenges accusations that it was too slow to investigate the manipulation of LIBOR rates, stating instead that it had worked closely with the Commodity Futures Trading Commission since 2008 to examine allegations of rate-rigging.  The FSA noted that it has increased the intensity of its supervision since 2008, and will continue to do so following the separation into a “twin peaks” regulatory system.  The FSA also disputes the view that it interpreted its powers to initiate criminal proceedings for fraud in relation to rate-fixing too narrowly, and instead reiterates its mandate to consult with the Serious Fraud Office (and other prosecutors where necessary) where there is evidence of offences which are beyond the scope of its own powers of investigation.

G20 Communiqué and FSB Progress Report

The G20 Finance Ministers and Central Bank Governors have published a communiqué following their meeting in Moscow on February 15 and 16.  The communiqué sets out the G20’s policy agenda for reforming financial regulation, which includes:

  • Welcoming the Basel Committee’s increased focus on the comparability of risk-weighted assets.
  • Reiterating the G20’s commitment to ensuring that all global systemically important financial institutions are capable of resolution, and that operational resolution plans for all globally systemically important banks should be developed by the end of June 2013.
  • Stating that the FSB will continue to coordinate the monitoring of implementation of OTC derivative reforms, and with the aid of the Legal Entity Identifier global system which will be launched in March 2013.

Prior to the G20 summit, the FSB published a progress report on financial regulatory reforms, which emphasised that, with risk appetite beginning to return to the financial markets, the FSB’s priorities are completing the G20’s agreed reforms to the OTC derivatives markets, strengthening the oversight and regulation of the shadow banking sector and developing credible policies for ending the concept of “too-big-to-fail.”  The FSB’s report also provided an update on the implementation of the Basel III reforms, the reforms to reduce reliance on Credit Rating Agencies and the resolution regimes.

Tax Law Update: House Ways & Means Proposals for Financial Products Tax Reform

On January 24, the House Committee on Ways & Means released a discussion draft of legislative provisions (the “Draft”) that would make fundamental changes in the taxation of certain financial products, including the treatment of derivatives held by non-dealers by requiring that they be marked to market annually with gain or loss treated as ordinary income or loss.  These changes would likely be controversial.  The Draft also proposes changes to the tax code eliminating cancellation of debt income for certain debt exchanges and modifying the taxation of market discount on distressed debt that would likely be welcomed by the business community.  Click here to read the full Tax Law Update.

Rating Agency Developments

On February 21, Fitch published its global rating criteria for single- and multi-name credit-linked notes.  Fitch Report. 

On February 21, Fitch updated its criteria for solar power projects.  Fitch Report. 

On February 20, Fitch released a report on U.S. RMBS 2.0 representations and warranties.  Fitch Report.
 
On February 20, S&P released its 2013 interest rate scenarios for U.S. insurance risk-based capital model.  S&P Report. 

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

SEC Announces 2013 Examination Priorities

On February 21, the SEC published its examination priorities for 2013.  Priorities in each program area include: (i) for investment advisers and investment companies – presence exams for newly registered private fund advisers and payments by advisers and funds to entities that distribute mutual funds; (ii) for broker-dealers – sales practices and fraud; (iii) for market oversight – risk-based examinations of securities exchanges and FINRA; and (iv) for clearing and settlement – transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping and safeguarding of assets.  SEC Release.  Examination Priorities.

Fed Extends Comment Period for Prudential Standards Rule

On February 22, the Fed extended, until April 30, the comment period on a proposed rule to implement the enhanced prudential standards and early remediation requirements under Sections 165 and 166 of the Dodd-Frank Act for foreign banking organizations and foreign nonbank financial companies supervised by the Fed.  Comments were originally due by March 31.  Fed Release.