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Nearly All Claims Against U.S. Bank Dismissed in Ambac RMBS Trustee Suit

 

On July 16, Judge Schofield in the United States District Court for the Southern District of New York dismissed four out of five claims in a suit filed by Ambac Assurance Corp. (Ambac) against U.S. Bank National Association (U.S. Bank), challenging the Bank’s actions as trustee for a Harborview Mortgage Loan Trust. Ambac insured certain certificateholders against low cashflow from the Trust, which was backed by Countrywide-originated mortgages. In August 2011, U.S. Bank filed suit in New York state court against Countrywide and Bank of America, as its successor, alleging failure to comply with representations and warranties. When U.S. Bank agreed to stay the state suit after Countrywide proposed a $56.96 million settlement, Ambac sued U.S. Bank in the S.D.N.Y. to enjoin the settlement, alleging that the Bank breached its obligations to trust beneficiaries by accepting a low settlement amount. In March 2017, U.S. Bank initiated a trust instruction proceeding (TIP) in Minnesota to address its claims against Countrywide; meanwhile, Judge Stein in the S.D.N.Y. found in the Ambac-led suit that, because of the ongoing TIP, U.S. Bank had not yet breached its duties, and therefore Ambac’s claims were not yet ripe. On June 1, 2018, U.S. Bank disclosed its $94 million settlement with Countrywide, conditioned on approval by the Minnesota court.

In the case before Judge Schofield, Ambac alleged that U.S. Bank accepted an unreasonably low settlement, that it improperly released other lucrative claims, and that by agreeing to stay the New York state court action and bringing the TIP, U.S. Bank had wasted trust funds, harming trust beneficiaries. Judge Schofield dismissed four of Ambac’s five claims based on these facts, finding that any alleged injury was hypothetical and far too speculative, and that Ambac had not adequately alleged that U.S. Bank taking different actions would have resulted in a more favorable settlement or negotiation position. She also rejected Ambac’s counts for declaratory judgment, because such a finding would serve no useful purpose and would not resolve all of the outstanding cases. Judge Schofield let Ambac’s breach of contract claim continue, finding that Ambac sufficiently alleged that U.S. Bank’s improper accounting of recoveries under the Pooling and Servicing Agreement harmed Ambac, because it affected the amount and timing of the insurance payments that it made. Opinion and Order.

CFTC Adopts Final Rule Amending De Minimis Exception to Swap Dealer Definition

 

On March 25, the CFTC adopted a final rule amending the de minimis exception to the definition of “swap dealer.” Under the final rule, swaps entered into by Insured Depository Institutions (IDIs) in connection with loans to customers would not count towards the $8 billion aggregate notional amount threshold used in the de minimis exception. Release. Final Rule.

Alexander County Housing Authority Awards $1.9 Million Demolition Contract to RCRA Inc.

 

On March 19, the Alexander County Housing Authority awarded a demolition contract to RCRA Inc. to raze 278 housing units in Cairo. These housing developments experienced years of deferred maintenance such that they are unsafe for residents. The demolition will be completed by September 2019 and the land will be restored to green space. Press Release.

Second Circuit Upholds Dismissal of U.S. Bank’s Untimely Breach of Contract and Indemnity Claims

 

On February 6, the Second Circuit affirmed a trial court order dismissing repurchase and indemnification claims brought by the Federal Housing Finance Agency (“FHFA“), acting on behalf of U.S. Bank as Trustee, against GreenPoint Mortgage Funding Inc., predicated on allegations that mortgage loans sold by GreenPoint breached representations and warranties in the relevant loan purchase agreements. READ MORE

FINRA Requests Comment on Financial Technology Innovation in the Broker-Dealer Industry

 

On July 30, 2018, the Financial Industry Regulatory Authority (“FINRA“) published a Special Notice, in response to requests from the public, “seeking comments on how FINRA can support fintech development consistent with [its] mission.” In addition, FINRA requested “specific comment on certain fintech areas, including the provision of data aggregation services, supervisory processes concerning the use of artificial intelligence, and the development of a taxonomy-based machine-readable rulebook.” READ MORE

OTC Derivative Brexit Issues Considered by AFME and ISDA

 

A paper was jointly published by AFME and ISDA on July 30, 2018 which considered the potential contractual continuity issues which may influence OTC derivative contracts following Brexit.

As has been widely discussed, Brexit will bring an end to the single market passport. The passport currently allows regulated activities to be carried out by the UK in EU countries without additional local licenses. This however will no longer be in place following Brexit. Given that a number of contracts will have been entered into prior to Brexit and will continue thereafter, there is a risk that entities may be carrying out regulated activities in other jurisdictions without having the relevant local licensing requirements in place following Brexit.

The report, the full version of which is available here, looks at possible solutions both for UK entities, as well as regulators, in order to minimize disruption following Brexit.

ISDA Consultation Paper, “IBOR Fallbacks for 2006 ISDA Definitions: Consultation on Certain Aspects of Fallbacks for Derivatives Referencing GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW”

 

ISDA has launched a market-wide consultation on technical issues related to new benchmark fallbacks for derivatives contracts that reference certain interbank offered rates (“IBORs“). The consultation sets out options for adjustments that would apply to the fallback rate in the event an IBOR is permanently discontinued.

The ISDA consultation paper is here.

“The consultation sets out four options to account for the move from a term rate to an overnight rate: a spot overnight rate; a convexity adjusted overnight rate; a compounded setting in arrears rate; and a compound setting in advance rate. Three options are also proposed to calculate a spread adjustment: a forward approach; a historical mean/median approach; and a spot-spread approach. In each case, the spread adjustment will be fixed at the point the fallback is triggered.”

Speech by Andrew Bailey, Chief Executive of the FCA, Interest Rate Benchmark Reform: Transition to a World Without LIBOR

 

Highlights:

  • Why firms need to end their reliance on LIBOR by end-2021.
  • Why overnight risk-free rates (“RFRs“) are the right foundation for interest rate markets.
  • The progress made on transition to these overnight risk-free rates and the work that remains to be done.

“I hope it is already clear that the discontinuation of LIBOR should not be considered a remote probability ‘black swan’ event. Firms should treat it is as something that will happen and which they must be prepared for. Ensuring that the transition from LIBOR to alternative interest rate benchmarks is orderly will contribute to financial stability. Misplaced confidence in LIBOR’s survival will do the opposite, by discouraging transition.

There is some good news to report on the important steps taken towards transition. But the pace of that transition is not yet fast enough. There is much further to go.” Release.

EIOPA Launch Big Data Review of the Motor and Health Insurance Markets

 

The European Insurance and Occupational Pensions Authority (“EIOPA“) has published a press release on July 6, 2018 announcing the launch of an EU wide review on the use of Big Data. The focus of the review is on the motor and health insurance markets.

The review is intended to gather empirical evidence on the use of Big Data by insurance undertakings and intermediaries along the whole insurance value chain (including pricing and underwriting, in product development, in claims management, as well as in sales and marketing).

The review will analyze the potential benefits and risks for both industry and consumers to determine what (if any) supervisory and regulatory actions are required. It will assess new business models and data quality issues arising from Big Data, including implications for consumers.

EIOPA will conduct the review in co-operation with national competent authorities (“NCAs“) with a view to covering at least 60% of the motor and health insurance markets in each member state. The data is intended to be collected during July and August 2018. The following quantitative and qualitative questionnaires have been sent to NCAs, consumer associations and representative sample of insurance undertakings:

EIOPA intends to publish the review’s key findings in the first quarter of 2019.

The review follows the cross-sectoral review of the use of Big Data by financial institutions published by the Joint Committee of the European Supervisory Authorities (“ESAs“) in March 2018.