On June 21, the Fed, CFPB, FDIC, NCUA, and OCC issued guidance to mortgage servicers to address risks related to military homeowners who have informed the servicer that they have received military Permanent Change of Station orders. If the agencies determine that a servicer has engaged in unfair, deceptive, or abusive practices, or practices that otherwise violate Federal consumer financial laws and regulations, the agencies will take supervisory and enforcement actions. Guidance. Fed Release.
Month: June 2012
OCC Lending Limit Rule
On June 20, the OCC adopted an interim final rule amending its lending limit rule to apply to certain credit exposures from derivative transactions and securities financing transactions. Effective July 21, Section 610 of the Dodd-Frank Act revises the definition of loans and extensions of credit for the lending limit to include certain credit exposures from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction. The interim final rule adopted by the OCC implements this statutory change which applies to both national banks and savings associations. Comments on the interim final rule are due by August 6. OCC Release. Rule.
FHFA Anti-Fraud Measures for Fannie, Freddie and Federal Home Loan Banks
On June 18, the FHFA announced the Suspended Counterparty Program, an initiative to require Fannie Mae, Freddie Mac and the Federal Home Loan Banks to notify the FHFA whenever an individual or company with whom they do business is adjudicated to have engaged in fraud or other financial misconduct. The FHFA will determine whether the individual or company should be suspended from doing business with Fannie Mae, Freddie Mac or the Federal Home Loan Banks. The program becomes effective on August 15. FHFA Release.
FHFA Proposes Rule for PACE Programs
On June 15, the FHFA, as required by a preliminary injunction from the Northern District Court of California, issued a notice of proposed rulemaking on state and local energy retrofit financing arrangements known as Property Assessed Clean Energy, or PACE. FHFA, as conservator, had directed Fannie Mae and Freddie Mac not to purchase any mortgage where PACE financing with a priority lien was placed on the underlying property. Comments must be submitted by July 30. Notice of Proposed Rulemaking.
Independent Foreclosure Review Remediation Guidance and Extension
On June 21, the OCC and the Fed released guidance to determine the compensation or other remedy that borrowers will receive for financial injury identified during the independent foreclosure review required by consent orders issued in April 2011 to correct deficient mortgage servicing and foreclosure processes. The agencies also announced a two-month extension to September 30 of the deadline for eligible borrowers to request a free review of their mortgage foreclosures under the independent foreclosure review. The OCC also released its second interim report on the status of the independent foreclosure review. Fed Release. OCC Status Report Release.
Speech by FSA’s Clive Adamson on ‘Regulating in a New Era of Professionalism’
On 14 June 2012, Clive Adamson, Director of Supervision of the Conduct Business Unit at the FSA gave a speech to Marketforce and the Institute of Economic Affairs entitled ‘Regulating in a new era of professionalism’ which gave a high level view of the changes taking place in UK regulation, how the FSA expects professionalism to play a part in this, and what it means for regulated firms. Speech.
The main points were as follows:
• It is the FSA’s intention that the Financial Conduct Authority (FCA) will look and feel different from the FSA. The aim is to move away from a primarily reactive style to a judgment based, confident and pre-emptive regulator that acts to ensure consumers get a better deal and markets are fair and orderly.
• The new supervisory approach will comprise of five main elements:
• More forward-looking in assessment of potential problems.
• Intervene earlier when the FCA sees problems.
• Address the underlying causes of problems that the FCA sees, not just the symptoms.
• Secure redress for consumers if failures do occur – for example, as with payment protection insurance.
• Take meaningful action against firms that fail to meet the FCA’s standards, through levels of fines that have a credible deterrent effect.
• A key component of the FCA’s approach is to continue implementing the work that the FSA has already started around professionalism and provision of advice.
• The Retail Distribution Review (RDR), which comes into effect on 31 December 2012, is an example of action being taken to fulfil one of the FCA’s operational objectives – consumer protection.
• The Retail Conduct Risk Outlook (RCRO), published in March 2012, also sets out the regulator’s views on how professionalism needs to be at the core of advice for long-term savings, including pensions and retirement planning.
• From an industry perspective, firms should look at their customers as unique individuals, consider their personal situations and fully understand their objectives and potential financial needs. Advice should be just that, advice – not a sales/product driven process.
Consolidated Version of FSMA Published
On 12 June 2012, HM Treasury published a revised consolidated version of the Financial Services and Markets Act 2000 (“FSMA”), which reflects the Financial Services Bill 2012-13 in the form introduced to the House of Lords on 11 June 2012. The consolidated version is intended as an illustrative document to aid scrutiny of the draft Financial Services Bill by Parliament and interested parties. Consolidated version of FSMA.
The Financial Services Bill will extensively amend FSMA and other existing legislation, such as the Bank of England Act 1998 and the Banking Act 2009.
The Committee stage of the Financial Services Bill in the House of Lords will commence on 27 June 2012.
EU Council Compromise Proposal on MAR
On 12 June 2012, the Presidency of the Council of the EU published a new compromise proposal (dated 11 June 2012) on the proposed Regulation on insider dealing and market manipulation (MAR). Compromise Proposal.
Additions and changes to the previous proposal of 22 May 2012 are shown in mark-up, however, it does not indicate where text in the European Commission’s proposal has been deleted.
The MAR proposal, together with the European Commission’s proposed Directive on criminal sanctions for insider dealing and market manipulation (CSMAD), will revise and replace the Market Abuse Directive (2003/6/EC) (MAD). These proposals are known as “MAD II”.
European Commission President Calls for Banking Union
José Manuel Barroso, president of the European Commission, commented in an interview with the FT this week that all 27 EU countries should submit their big banks to a single cross-border supervisor as part of a banking union. He said that the EU needs to take “a very big step” towards deeper integration if it is to learn lessons from the sovereign debt crisis. Mr Barroso thought that the changes, which would also include an EU-wide deposit guarantee scheme and a rescue fund paid for by levies on financial institutions, could be achieved in 2013 without changes to existing treaties.
The UK chancellor, George Osborne does not want Britain to be part of any banking union which would make taxpayers liable for recapitalising eurozone banks. However, he thinks that the union is desirable, so long as Britain is not obliged to take part. Mr. Barroso considered that it would be right to allow Britain to opt out of the banking union, so long as it did not block the union’s progress.
The Commission published a memorandum on the proposed banking union on 6 June 2012. Memorandum on banking union.
UK Government White Paper on Banking Reform
On 14 June 2012, HM Treasury and the Department for Business, Innovation and Skills (BIS) published a white paper on banking reform setting out the government’s proposals for implementing the key recommendations of the Independent Commission on Banking (ICB) chaired by Sir John Vickers. White Paper.
Key proposals of the White Paper are:
• Retail banking operations will be ring-fenced, with operations core to consumer and small business services separated from investment banking.
• Those ring-fenced operations will face limits on exposures to other banks – they will only be allowed to carry out tasks like facilitating other institutions’ payments and managing liquidity.
• The biggest banks will hold 17% of risk-weighted assets as primary loss-absorbing capital.
• Bail-in bonds will be used to make creditors cover some of the cost of a bank failing, without a full collapse.
• But depositors will still be protected and will have a senior claim to bondholders, as well as a legal guarantee on deposits up to £85,000.
• Banks must comply with Basel III’s 3% tier one leverage ratio.
The deadline for responses to the White Paper is 6 September 2012 with the Government due to publish a draft bill in the autumn. The Government states in the white paper that it is committed to completing all primary and secondary legislation by the end of this Parliament in May 2015. The deadline for banks to comply with all of the ICB recommendations is 2019.