Industry Developments

Bill Introduced in Congress to Make “Valid When Made” the Law of the Land

 

Chief Deputy Whip Patrick McHenry (R, NC-10), the Vice Chairman of the House Financial Services Committee, introduced H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016, which would reaffirm the longstanding legal precedent under the National Bank Act and the Federal Deposit Insurance Act that federal law preempts a loan’s interest if valid when made. The legislation was introduced to address one of the issues raised by the Second Circuit in Madden vs. Midland Funding. Legislation.

European Commission Implementing Regulation Establishing a List of Critical Benchmarks Used in Financial Markets under Benchmarks Regulation in OJ

 

On August 12, 2016, the European Commission Implementing Regulation (EU) 2016/1368 establishing a list of critical benchmarks used in financial markets pursuant to the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (2016/1011/EU) (Benchmarks Regulation), was published in the Official Journal of the EU (OJ).

The Regulation highlights that benchmarks play an important role in the determination of the price of many financial instruments and financial contracts and of the measurement of performance for many investment funds. In order to fulfill their economic role, benchmarks need to be representative of the underlying market or economic reality they reflect. Should a benchmark no longer be representative of an underlying market, such as interbank offered rates, there is a risk of negative effects on, inter alia, market integrity, the financing of households (loans and mortgages) and businesses in the Union.

The Implementing Regulation, which specifies the Euro Interbank Offered Rate (EURIBOR) as a critical benchmark, enters into force on the day following its publication in the OJ (that is, August 13, 2016). It will apply from January 1, 2018.

European Commission Adopts Implementing Regulation on Information for Calculation of Technical Provisions and Basic Own Funds for Q3 2016 Reporting under Solvency II

 

On August 8, 2016, the European Commission adopted an Implementing Regulation laying down information for the calculation of technical provisions and basic own funds for reporting with reference dates from June 30 until September 29, 2016 (that is, the third quarter of 2016) in accordance with the Solvency II Directive (2009/138/EC).

In the Regulation, technical information on relevant risk-free interest rate term structures, fundamental spreads for the calculation of the matching adjustment and volatility adjustments are formulated for every reference date, in order to guarantee uniform conditions for the calculation of technical provisions and basic own funds by insurance and reinsurance undertakings for the purposes of Solvency II.

The technical information to be used by insurance and reinsurance undertakings when calculating technical provisions and basic own funds for reporting with reference dates from June 30 until September 29, 2016 are detailed in the annexes to the Implementing Regulation, as follows:

  • Annex 1: the relevant risk-free rate term structures
  • Annex 2: the fundamental spreads for the calculation of the matching adjustment
  • Annex 3: the volatility adjustments for each relevant national market

The Regulation will enter into force the day after it has been published in the Official Journal of the EU (OJ). It will apply from June 30, 2016.

CFTC Announces Measures to Enhance Protection of Customer Funds

 

On August 8, 2016, the U.S. Commodity Futures Trading Commission (CFTC) announced three separate enhancements relating to the protection of customer funds. The new protections address the exemption of certain Federal Reserve Banks from liability under the Commodity Exchange Act, as well as the use of money market funds by derivatives clearing organizations and futures commission merchants. Press Release.

CFTC Announces Actions Addressing Application of the Dodd-Frank Act to Cross-Border Transactions

 

On August 4, 2016, the U.S. Commodity Futures Trading Commission (CFTC) announced two separate actions relating to the application of the Dodd-Frank Act to cross-border transactions. The CFTC issued a Final Response to District Court Remand Order in Securities Industry and Financial Markets Association, et al. v. United States Commodity Futures Trading Commission that explains the CFTC’s approach to application of swaps regulations internationally. The CFTC’s Divisions of Swap Dealer and Intermediary Oversight (DSIO), Clearing and Risk, and Market Oversight (Divisions) also issued a no-action letter that extends relief to swap dealers registered with the CFTC from certain transaction-level requirements under the Commodity Exchange Act. Press Release.

CFPB Finalizes New Foreclosure Protections

 

On August 4, 2016, the Consumer Financial Protection Bureau (CFPB) issued updated servicing rules to expand foreclosure protections for homeowners and struggling borrowers. The new measures include expanding consumer protections to surviving family members, clarifying borrower protections in servicing transfers, providing periodic statements to borrowers in bankruptcy, and requiring servicers to provide certain foreclosure protections more than once over the life of the loan, among other protections. The majority of the provisions of the final rule will become effective 12 months after publication in the Federal Register. Press Release. Final Rule.

Rating Agency Developments

On August 2, 2016, Moody’s issued a report entitled: Moody’s Approach to Rating Securitisations Backed by Non-Performing and Re-Performing Loans.  Report.

On August 1, 2016, S&P issued a report entitled: General: Global Methodology for Rating Retranchings of ABS, CMBS, and RMBS.  Report.

On July 29, 2016, DBRS issued a report entitled: Global Methodology for Rating Banks and Banking Organisations.  Report.

On July 28, 2016, Fitch issued a report entitled: Fitch Updates Global Rating Criteria for CLOs and Corporate CDOs.  Report.

On July 28, 2016, Fitch issued a report entitled: Fitch: No Rating Changes from Update to Global LMI Criteria in RMBS.  Report.

Agencies Finalize Rule Exempting Certain Commercial and Financial End Users from Initial and Variation Margin Requirements

On August 1, 2016, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency and the Farm Credit Administration announced a final rule that contains certain exemptions for “certain commercial and financial end users from margin requirements for certain swaps not cleared through a clearinghouse.”  The rule implemented without any changes the interim final rule from November 2015. Press Release. Press Release. Press Release. Press Release.

Consumer Financial Protection Bureau Considers Proposal to Overhaul Debt Collection Market

On July 28, 2016, the Consumer Financial Protection Bureau (“CFPB”) announced that it is considering a proposal that would significantly alter the debt collection industry “by capping collector contact attempts and by helping to ensure that companies collect the correct debt.”  Press Release.