Europe

The AIFMD Developments

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HM Treasury Responds to Consultation on Transposing AIFM Directive

On May 13, HM Treasury published its response to its January 2013 consultation on transposing the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD).  HM Treasury also published a revised draft version of the Alternative Investment Fund Managers Regulations.  The response mainly provides information about HM Treasury’s approach to sub-threshold managers and transitional arrangements.  Response.

FSA Second Consultation Paper on Implementing AIFM Directive: Consultation Period Ends

On May 10, the consultation period ended for the FSA’s second consultation paper on the implementation of the Alternative Investment Funds Managers Directive (2011/61/EU) (AIFM Directive) (CP13/9, also known as CP2).  Final rules will not be published until June, but the Financial Conduct Authority is meant to confirm some of its final policy positions before then to give firms marginally more time to factor these positions into their implementation plans.  The key policy question is whether the FCA will accept AIFM and depositary authorisation or variation applications before July 22.

AIFM Directive Implementing Regulations Published in OJ

On May 16, the texts of two European Commission Implementing Regulations required under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFM Directive or AIFMD) were published in the Official Journal of the European Union (OJ).  Text One.  Text Two.

Europe

European Commission Requests ESMA Deliver Draft Regulatory Technical Standards on Cross-Border Application of EMIR

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On May 13, the European Securities and Markets Authority (ESMA) published a letter (dated April 22, 2013) from Jonathan Faull, European Commission Director General of Internal Market and Services, to Steven Maijoor, ESMA Chair.  The letter relates to the regulatory technical standards which are set out in articles 4(4) and 11(14) of EMIR (the Regulation on OTC derivatives, central counterparties and trade repositories (Regulation 648/2012)).  Articles 4(4) and 11(14) of EMIR deal with the application of EMIR to transactions between non-EU entities with a direct, substantial and foreseeable effect within the EU.

ESMA postponed the development of these technical standards in June, in light of discussions which were ongoing with international regulators on the coordination of the implementation of OTC derivatives market reforms.  The letter requests that ESMA deliver the two draft regulatory technical standards by September 25.  Letter.

Europe

European Commission Consults on EU Banking Structural Reforms

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On May 16, the European Commission published a consultation paper on reforms to the structure of the EU banking sector, which focuses on policy options for structural separation.  The Commission is seeking views on policy options relating to the scope of banks potentially subject to separation.  The deadline for responses to the consultation is July 3.  Consultation Paper.

Europe

UK Prospectus Regulations 2013

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On May 14, the UK Prospectus Regulations 2013 and an accompanying explanatory memorandum were published.  These regulations amend sections of the Financial Services and Markets Act 2000 (FSMA) as part of the implementation of the Directive amending the Prospectus Directive and Transparency Directive (2010/73/EU).

The most significant amendment is to section 86(1A) of FSMA, which sets out the circumstances in which a further prospectus is not required in the context of a retail cascade.  Section 86(1A) of FSMA now provides that, in the case of certain non-equity securities issued in a continuous or repeated manner by credit institutions, this condition is satisfied if the securities have not ceased to be issued in a continuous or repeated manner.  The Prospectus Regulations 2013 will come into force on May 31.  Prospectus Regulations 2013.  Explanatory Memorandum.

Litigation

New York State Court Allows Trustee Lawsuit Against DB Structured Products to Proceed

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On May 13, Justice Kornreich of the Supreme Court of the State of New York denied DB Structured Products, Inc.’s (DBSP) motion to dismiss an RMBS putback action brought against it by the trustee for the relevant RMBS trust.  The plaintiff alleged that DBSP breached representations and warranties concerning the mortgage loans backing the trust and then failed to fulfill its contractual obligation to repurchase those loans.  Justice Kornreich held that plaintiff’s claims were timely because each alleged failure by DBSP to comply with its recurring repurchase obligation constituted an independent contractual breach that re-started the statute of limitations.  Order.

Litigation

New York State Court Dismisses RMBS Putback Action Against Nomura As Time-Barred

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On May 10, Justice Sherwood of the Supreme Court of the State of New York dismissed on statute of limitations grounds an RMBS putback action brought against Nomura Credit & Capital, Inc. (Nomura).  Plaintiff alleged that Nomura breached representations and warranties concerning mortgage loans securitized in a $259 million RMBS trust and sought to compel Nomura to buy back the loans or rescind the entire transaction.  Justice Sherwood held that plaintiff’s claim for breach of contract accrued at the time of the transaction – when the representations were made – not when Nomura declined to repurchase allegedly breaching loans.  Applying that accrual date, Justice Sherwood found the claims untimely.  The amended complaint was filed by the trustee more than six years after the time of the transaction, and it did not relate back to the filing of the original complaint and summons with notice because the original hedge fund plaintiffs lacked standing to sue under the governing agreements.  Orrick, Herrington & Sutcliffe represents Nomura in this case.  Order.

Rating Agencies

Rating Agency Developments

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On May 17, DBRS released its criteria for rating market-linked securities.  DBRS Report. 

On May 17, DBRS released a criteria report relating to Canadian bankruptcy and restructuring legal considerations.  DBRS Report. 

On May 15, Moody’s released its methodology for rating EMEA SME balance sheet securitizations.  Moody’s Report. 

On May 15, Fitch released its loan-level loss model for rating Canadian residential mortgage pools.  Fitch Report. 

On May 14, DBRS released its derivative criteria for European structured finance transactions.  DBRS Report. 

On May 13, Fitch released its counterparty criteria for structured finance and covered bonds.  Fitch Report.  Fitch Report (Derivative Addendum). 

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

Europe

European Commission Publishes Proposed Legislative Reforms of EU Banks

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On May 6, the European Commission published a roadmap for legislative changes.  This follows the October 2012 publication of the Liikanen report, which provided a set of recommendations on banking reform sponsored by the Commission.

The initiative seeks to address issues in the EU banking sector, including moral hazard, excessive leverage, lack of market discipline and competition distortions.  Accordingly, the roadmap lays down a framework for anticipated EU directives covering which banking activities should be separated from each other or be subjected to separation requirements, the nature and extent of the separation and the de minimis exceptions available for smaller banks.

Although the proposals are expected to have a profound effect on the structure of banks, the Commission states that the “vast majority” of EU banks will not be affected by the initiative.  Roadmap.  Liikanen Report.

Litigation

Federal Court Dismisses United States Action Against Countrywide In Part

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On May 8, Judge Jed Rakoff of the United States District Court for the Southern District of New York dismissed claims by the United States for damages and civil penalties under the False Claims Act against Countrywide and Bank of America.  The court held that the government could proceed with its claims for violations of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.  FIRREA permits the government to recover civil penalties for fraudulent activities that “affect” federally insured financial institutions.  The government alleged that Countrywide’s mortgage origination business had defrauded Fannie Mae and Freddie Mac.  The court noted it would explain its reasoning at a later date.  Order.  Amended Complaint.