Month: March 2017

OCC Provides Additional Details to Evaluate Charter Applications From fintech Companies

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On March 15, 2017, the Office of the Comptroller of the Currency (“OCC“) issued a “Draft Licensing Manual Supplement for Evaluating Charter Applications from Financial Technology Companies,” which provides additional details on the evaluation of national bank charter applications from financial technology (“fintech“) companies that engage in the business of banking. The supplement explains how the OCC will apply the licensing standards and requirements in existing regulations and policies to fintech companies applying for special purpose national bank charters. The supplement also describes unique factors that the agency will consider in evaluating applications from fintech companies; expectations for promoting fair access, fair treatment and financial inclusion; and the agency’s approach to supervising those fintech companies that become national banks. Release. Manual Supplement.

Nationstar Mortgage to Pay $1.75 Million Penalty for HMDA Violations

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On March 15, 2017, the Consumer Financial Protection Bureau (“CFPB“) ordered Nationstar Mortgage LLC (“Nationstar“) to pay a $1.75 million civil penalty for violating the Home Mortgage Disclosure Act (“HMDA“) by consistently failing to accurately report data about mortgage transactions between 2012 through 2014. The $1.75 million civil penalty is the largest HMDA penalty imposed by the CFPB to date. The CFPB found that (1) Nationstar’s HMDA compliance systems were flawed and generated mortgage lending data with significant, preventable errors; (2) Nationstar failed to maintain detailed HMDA data collection and validation procedures and failed to implement adequate compliance procedures; and (3) Nationstar failed to consistently define data among its various lines of business. In addition to the civil penalty, the CFPB ordered Nationstar to develop and implement an effective compliance management system and to review, correct and make available its corrected HMDA data from 2012-2014. Release. Full Order.

Rating Agency Developments

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On March 16, 2017, DBRS issued a report entitled General Corporate Methodology. Report.

On March 16, 2017, DBRS issued a report entitled North American Single-Asset/Single-Borrower Methodology. Report.

On March 16, 2017, Fitch issued a report entitled U.S. Auto ABS Quarterly Index Report. Report.

On March 16, 2017, Moody’s issued a report entitled Global Alcoholic Beverage Industry. Report.

On March 16, 2017, Moody’s issued a report entitled Regulated Electric and Gas Networks. Report.

On March 15, 2017, DBRS issued a report entitled Rating North American CMBS Interest-Only Certificates. Report.

On March 10, 2017, Fitch issued a report entitled Criteria for Analyzing Large Loans in CMBS. Report.

On March 10, 2017, Fitch issued a report entitled Global Non-Bank Financial Institutions Rating Criteria. Report.

On March 10, 2017, Moody’s issued a report entitled Financial Guarantors. Report.

On March 8, 2017, Fitch issued a report entitled Updated U.S. Auto Lease ABS Rating Criteria. Release.

European Parliament Publishes Report on Fifth Money Laundering Directive Proposal

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On March 9, 2017, the European Parliament published a report on the Fifth Money Laundering Directive (MLD5), this being the same report adopted by the Parliament’s Economic and Monetary Affairs Committee (ECON), as well as Parliament’s Civil Liberties, Justice and Home Affairs Committee (LIBE).

The report focuses on draft EP legislation resolutions and also contains opinions from the Committee on Legal Affairs (JURI), Development (DEVE) and International Trade (INTA).

Following publication of the report, the EP must now permit MEPs to start discussions with the European Commission and the Council to begin the process of amending and potentially implementing the directive so that it can be integrated by Member States.

EPC Publishes Updated White Paper on Mobile Payments in the SEPA

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On March 7, 2017, the European Payments Council (“EPC“) published version 5 of a white paper that evaluates mobile payments across Single Euro Payments Area (“SEPA“). The white paper, the result of a collaborative effort between the EPC and expert groups in the area, is designed to help evolve an integrated payment market across the SEPA. It focuses primarily on mobile remote payments and mobile proximity payments and suggests ways in which these could improve in order to further support and develop SEPA card payments and credit transfers, for businesses and consumers alike.

It is the intention of the EPC to further consult industry bodies in order to develop interoperability between different mobile payment systems, to then be used by all interested parties.

House Committee on Financial Services Comments on OCC Fintech Charter

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All 34 Republican members of the Financial Services Committee of the U.S. House of Representatives, including Chairman Jeb Hensarling (Tex. – R) and Vice Chairman Patrick McHenry (N.C. – R), in a letter dated March 10, 2017, to Comptroller of the Currency Thomas Curry, urged the Office of the Comptroller of the Currency (“OCC“) not to “rush” the decision to create special purpose national bank charters for fintech companies without giving stakeholders the opportunity to see the details of the prospective charter and the opportunity to comment, and also without giving the incoming Comptroller the opportunity to assess the charter after Comptroller Curry’s term expires in April 2017. The letter advises Comptroller Curry that if such opportunities for review, comment and assessment are not provided, “Congress will examine the OCC’s actions and, if appropriate, overturn them.” A number of banks, community bank organizations and others previously provided comments to the OCC urging the OCC to assure that there will be a level playing field for newly chartered fintech banks and existing banks.

EMMI Considers EURIBOR Reforms

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On March 9, 2017, the European Money Markets Institute (“EMMI“) issued a paper that considered the legal grounds for a proposed reform to EURIBOR.

Possible reform to EURIBOR was previously outlined by the EMMI in October 2015 (available here), and the most recently issued paper delves deeper into possible evolution. In particular, the paper considers the legal ramifications of the points previously considered.

The EMMI has encouraged EURIBOR users to consider the proposed reforms in an attempt to address possible issues around any changes. The paper is available here.

European Commission Publishes Speech on FinTech

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On March 8, 2017, the European Commission (EC) published a speech that considered the challenges currently faced by the financial services sector in the EU, with a particular emphasis on FinTech.

Financial technology, commonly referred to as FinTech, has been a hot topic in recent times, with the European Commission maintaining a task force specifically dealing with it.

The speech, given by Oliver Guersent, commented on a number of points, including the need to ensure that all human interaction was not excluded and the possible investor protection risks surrounding “robo-advice.” The speech can be found in its entirety here.

European Banking Authority Publishes Report on Liquidity Coverage Ratio Disclosure

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On March 8, 2017, the European Banking Authority (“EBA“) issued a report that considered the disclosure requirements in relation to the liquidity coverage ratio.

As it stands, European regulation specifies the liquidity coverage ratio for credit institutions, with the goal of maintaining a buffer against stressed situations and acting as an important tool in the assessment of risk management.

The guidelines that have been published harmonize and specify the necessary disclosures applicable to credit institutions. The final guidelines are available here.

First Department Grants Summary Judgment Against RMBS Collateral Manager for Failure to Raise Issue of Fact Regarding Loss Causation

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On March 2, 2017, the New York Supreme Court, Appellate Division, First Department reversed a decision from the New York Supreme Court and dismissed a complaint filed by two hedge funds against the collateral manager of a $400 million collateralized debt obligation (“CDO“) investment. Plaintiff hedge funds Basis PAC-Rim Opportunity Fund (Master) and Basis Yield Alpha Fund (Master) (together, “Basis“) filed a lawsuit asserting fraud claims against defendant TCW Asset Management Company (“TCW“), which had served as the collateral manager for the Dutch Hill II CDO. Dutch Hill II was created to serve as an investment vehicle for the purpose of taking a net long position on extremely risky RMBS; TCW selected the assets for the Dutch Hill II portfolio and made representations to Basis about the viability of the subprime RMBS market. Basis purchased over $27 million of Dutch Hill II notes in 2007, but the notes were all but valueless following the housing crisis. In moving for summary judgment, TCW submitted expert evidence showing that the housing market crash would have caused Basis’s losses even if the collateral underlying the CDO had not been misrepresented, as Basis alleged. In response, Basis did not submit sufficient evidence rebutting that opinion or showing that any of the particular misrepresentations by TCW caused its losses. The Supreme Court had denied summary judgment, holding that there were issues of fact as to loss causation. The First Department reversed, concluding that by failing to rebut TCW’s evidence, Basis had not raised an issue of fact as to loss causation.  Opinion.