Rating Agency Developments

On June 14, 2016, DBRS issued a report entitled: General Corporate Methodology. Report.

On June 14, 2016, DBRS issued a report entitled: DBRS Criteria: Evaluating Corporate Governance. Report.

On June 14, 2016, DBRS issued a report entitled: Rating Project Finance. Report.

On June 14, 2016, Moody’s issued a report entitled: Moody’s Approach to Rating Securities Backed by FFELP Student Loans. Report.

On June 14, 2016, Fitch issued a report entitled: Fitch Reviews Global Trading and Universal Banks. Report.

On June 13, 2016, DBRS issued a report entitled: Rating U.S. Structured Finance Transactions. Report.

On June 9, 2016, Fitch issued a report entitled: Fitch Updates Criteria for CLOs and Corporate CDOs. Report.

On June 9, 2016, Fitch issued a report entitled: Fitch Finalizing Changes to FFELP Student Loan ABS Criteria. Report.

CFTC Requests Public Comment on a Rule Amendment Certification Filing by ICE Futures U.S.

The U.S. Commodity Futures Trading Commission (CFTC) seeks comments from the public on a proposed amendment that “would clarify that parties to a block trade may engage in pre-hedging or anticipatory hedging of the position that they believe in good faith will result from the consummation of the block trade, except for an intermediary that takes the opposite side of its own customer order.” Release.

CFTC Extends No-Action Relief to SEFs and DCMs from Certain CFTC Regulations for Correction of Errors

The U.S. Commodity Futures Trading Commission (CFTC) extended the relief contained in CFTC Letter No. 15-24 that allowed swap execution facilities and designated contract markets to correct certain errors that would lead to a swap being rejected and considered void. Release.

Agencies Permit Reduced Content Resolution Plan Submissions for Firms with Limited U.S. Operations

On June 10, 2016, the Federal Reserve Board and the Federal Deposit Insurance Corporation allowed 84 entities with limited activities in the United States “to file reduced content resolution plans for their next three resolution plans.”  These reports are required under federal law and relate to each entity’s planned response to various insolvency events. FDIC Release. FRB Release.

Consumer Compliance: Notice and Request for Comment on Proposed Uniform Interagency Consumer Compliance Rating System

On June 9, 2016, the Federal Financial Institutions Examination Council announced that it is seeking comment on proposed revisions to the existing Uniform Interagency Consumer Compliance Rating System (CC Rating System).  The proposed revisions “reflect[] consumer compliance supervisory approaches already being used.” Release.

Banking Agencies Permit “Reduced Content” Living Wills for Smaller FBOs

On June 10, 2016, the Federal Reserve Board and Federal Deposit Insurance Corporation announced they are permitting 84 foreign banking organizations (not identified) with limited U.S. operations to file “reduced content” resolution plans for their next three resolution plans.  As reported, the decision is intended “to increase clarity and reduce burden by creating more certainty around future filing requirements.”  All of the 84 firms have less than $50 billion in total U.S. assets.  The agencies said “the reduced content plans should focus on changes the firms have made to their prior resolution plans, actions taken to improve the effectiveness of, or that may alter, those plans, and, where applicable, actions to ensure any subsidiary insured depository institution is adequately protected from the risks arising from the activities of nonbank subsidiaries of the firm.  The first of these reduced content plans must be submitted to the agencies by December 31, 2016. To file reduced content plans for the next three years, the firms must maintain less than $50 billion in U.S. assets and not experience any material events.

Federal Reserve Updates Risk Management Supervisory Guidance for Smaller FBOs

On June 8, 2016, the Federal Reserve updated its Supervisory Guidance that partially supersedes SR letter 95-51, “Rating the Adequacy of Risk Management and Internal Controls at State Member Banks and Bank Holding Companies.”  The guidance clarifies Board and senior management oversight of risk management, policies, procedures and limits, risk monitoring and MIS, and internal controls.  One revision extends the applicability of the guidance to the U.S. operations of foreign banking organizations with total consolidated U.S. assets of less than $50 billion (such as ISP), which were not previously subject to SR 95- 51. The guidance notes, however, that FBO risk management processes and control functions for the U.S. operations may be implemented domestically or outside of the U.S. and in cases where the functions are performed outside of the U.S., the FBO’s oversight function, policies and procedures, and information systems need to be sufficiently transparent to allow U.S. supervisors to assess their adequacy.

Additionally, the FBO’s U.S. senior management need to demonstrate and maintain a thorough understanding of all relevant risks affecting the U.S. operations and the associated management information systems, used to manage and monitor these risks within the U.S. operations.  With respect to Board responsibilities, the guidance states in a footnote: “For the purpose of this guidance, for foreign banking organizations, ‘board of directors’ refers to the equivalent governing body of the U.S. operations of the FBO.”

The guidance goes on further to state that:

The board of directors should collectively have a balance of skills, knowledge, and experience to clearly understand the activities and risks to which the institution is exposed.  The board of directors should take steps to develop an appropriate understanding of the risks the institution faces, through briefings from experts internal to their organization and potentially from external experts.  The institution’s management information systems should provide the board of directors with sufficient information to identify the size and significance of the risks.  Using this knowledge and information, the board of directors should provide clear guidance regarding the level of exposures acceptable to the institution and oversee senior management’s implementation of the procedures and controls necessary to comply with approved policies, the guidance states.

Agencies Extend Deadline for Certain Foreign Banking Organizations’ Resolution Plan Submissions

On June 8, 2016, the Federal Reserve Board and the Federal Deposit Insurance Corporation extended the deadline for Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS to present their upcoming resolution plans to July 1, 2017, as a result of these entities engaging in restructuring in order to be in “compliance with the Federal Reserve Board’s Intermediate Holding Company (IHC) requirement[.]” Press releasePress release.