Month: February 2013

FSA Fines UBS £9.45 Million for Failings in AIG Fund Sales

On February 12, the FSA published a final notice issued to UBS AG, setting out a fine of £9.45 million in respect of failings identified in its sale of the AIG Enhanced Variable Rate Fund (the Fund).  Having reviewed sales of the Fund made by UBS to 33 customers, the FSA identified that 19 of those customers were mis-sold the Fund, with a considerable risk that 12 of the remaining 14 may also have been mis-sold the fund.

The FSA found that UBS was in breach of a number of conduct of business rules, including:

  • Principle 9 of the FSA’s Principles for Business (failure to take reasonable care to ensure suitability of advice).
  • Principle 6 of the FSA’s Principles for Business (failure to treat its customers fairly and pay due regard to their interests).
  • FSA’s Dispute Resolution: Complaints Sourcebook and Principle 6 (failure to assess complaints fairly).

As a result of agreeing to settle at an early stage, UBS qualified for a 30% discount on what would otherwise have been a £13.5 million fine.

Short Selling Regulation: ESMA Call for Evidence

On February 12, the European Securities and Markets Authority (ESMA) published a call for evidence in order to evaluate the effects of the Short Selling Regulation.  The call for evidence was published in response to the European Commission’s request for technical advice, issued in December 2012.

The call for evidence is focused on the six main areas of the Short Selling Regulation:

  • Requirements relating to transparency and reporting.
  • Restrictions on the short selling of sovereign debt and shares.
  • Restrictions on entering uncovered sovereign credit default swaps.
  • Settlement discipline, including buy-in procedures.
  • Exemptions.
  • Intervention powers and emergency measures.

The deadline for responses to the call for evidence is March 15, 2013.

AIFMD: ESMA Final Guidelines on Sound Remuneration Policies

On February 11, the European Securities and Markets Authority (ESMA) published its final report in relation to sound remuneration policies under the Alternative Investment Fund Managers Directive (AIFMD).  The guidelines are intended to ensure that the provisions on remuneration in Articles 13 and 22(2)(e) and (f) of Annex II to the AIFMD are applied in a consistent and uniform manner.

The full text of the final guidelines is contained in Annex III to the report and include key information on:

  •  the categories of staff that they apply to;
  • the types of remuneration covered by the guidelines; and
  • internal governance arrangements of Alternative Investment Funds in respect of remuneration.

The guidelines will apply from July 22, 2013, subject to the transitional provisions prescribed by the AIFMD.

District of Massachusetts Denies in Part JP Morgan’s Motion to Dismiss RMBS Investor Suit

On February 13, Judge Rya W. Zobel of the District of Massachusetts dismissed in part, but largely sustained, an investor suit brought by Capital Ventures International (CVI) against J.P. Morgan and certain of its subsidiaries in connection with four RMBS offerings underwritten by J.P. Morgan and Bear Stearns.  CVI brought the suit under the Massachusetts Uniform Securities Act (MUSA), claiming that the defendants violated MUSA by making material misstatements in the offering materials.  The court dismissed one of the claims against the RMBS sponsors, finding an insufficient relationship between the sponsors and CVI to support liability under section 410(a)(2) of MUSA.  The court also dismissed one of the claims against the RMBS depositors for lack of control required under 410(b) of MUSA.  The court otherwise denied the motion to dismiss with respect to all other parties and claims, finding (1) that there were sufficient allegations of material misstatements against the RMBS underwriters, including allegations concerning underwriting guidelines, appraisals and LTV/CLTV ratios, owner-occupancy status, and credit ratings, (2) the claims were not time-barred, (3) the depositors could be liable as issuers under SEC Rule 159A, and (4) sufficient allegations of control by the RMBS sponsors over the depositors.  Decision.

California Attorney General Brings Action Against Standard and Poor’s

On February 5, the Attorney General of California, Kamala D. Harris, filed suit in Superior Court in California against Standard & Poor’s and its parent company, the McGraw Hill Company.  The Complaint alleges violations of California’s False Claims Act, Unfair Competition Law, and False Advertising Law, and alleges that S&P made knowingly false representations in connection with credit ratings for RMBS and CDOs between 2004 and 2007.  The complaint further alleges that California’s public pension funds lost hundreds of millions of dollars in connection with their purchase of RMBS rated by S&P.  The state seeks treble damages, civil penalties and a permanent injunction.  Complaint.

Rating Agency Developments

On February 15, Fitch published updated criteria for Latin American RMBS.  Fitch Report. 

On February 14, DBRS released its master European RMBS methodology and jurisdictional addenda.  DBRS Report. 

On February 13, S&P released its methodology and assumptions for U.S. private student loan ABS credit analysis.  S&P Report. 

On February 12, DBRS released its European CMBS surveillance criteria.  DBRS Report. 

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

CFPB Bulletin on Servicers’ Obligations During Loan Transfers

February 11, the CFPB issued a bulletin advising mortgage companies about their legal obligations that protect consumers during loan transfers between mortgage servicers.  The guidance also indicates that the CFPB will look at: (i) how a servicer has prepared for the transfer of servicing rights or responsibilities; (ii) how the new servicer handles the files it receives through a transfer; and (iii) what policies the servicers have to prevent borrower harm for loans with loss mitigations in process.  CFPB Release.  CFPB Bulletin.

FDIC Proposed Rule on Insured Deposits at Foreign Branches of U.S. Banks

On February 12, the FDIC approved a notice of proposed rulemaking to clarify that deposits in foreign branches of U.S. banks are not FDIC-insured but they may be deposits for the national depositor preference statute enacted in 1993.  Comments must be received within 60 days after publication in the Federal Register.  FDIC Release.  Proposed Rule.

CFPB Implementation Plan for Mortgage Rules

On February 13, the CFPB announced a plan it will implement over the next year for the mortgage industry’s compliance with consumer protections that go into effect January 2014.  Among the new rules are the “ability-to-pay” rule and new mortgage servicing rules.  In implementing the rules, the CFPB will: (i) coordinate with other agencies; (ii) publish plain-language guides; (iii) publish updates to financial interpretations; (iv) publish readiness guides; and (v) educate consumers.  CFPB Release.

Rating Agency Developments

On February 7, Fitch updated its criteria for asset related risks of commercial real estate loans used as collateral for covered bonds.  Fitch Report.  

On February 6, Moody’s released methodology for U.S. Housing Finance Agency single family programsMoody’s Report.  

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