Europe

Council of EU Adopts Regulation Extending Exemptions for Commodity Dealers under CRR

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On May 30, 2016, the Council of the EU published a press release confirming that it has adopted a Regulation amending the Capital Requirements Regulation (Regulation 575/2013) (CRR) to extend an exemption from certain requirements for commodity dealers.

The expiry date for the exemption of commodity dealers from large exposure requirements and from own funds requirements has been pushed back under the amending Regulation from December 31, 2017 to December 31, 2020.

The CRR requires the European Commission to prepare reports on the prudential supervision of commodity dealers and of investment firms in general. Since the review is still underway, it is likely that new legislation that may be required would only be adopted after the initial expiry date for the exemption. The purpose of the extension is therefore to provide commodity dealers with a stable regulatory environment in the meantime.

The European Parliament adopted the amending Regulation on May 11, 2016. It will enter into force 20 days after its publication in the Official Journal of the EU (OJ).

ESAs Publish Final Draft Technical Standards on Margin Requirements for Non-Centrally Cleared Derivatives

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The Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) (“ESAs“) has published final draft Regulatory Technical Standards (“RTS“) outlining the framework of the European Market Infrastructure Regulation (EMIR). The RTS cover the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives. They also specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between counterparties.

The draft RTS prescribe that, for OTC derivatives not cleared by a Central Counterparty, counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. The draft RTS outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts. The draft RTS also lay down the operational procedures relating to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange, as well as the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

Rating Agency Developments

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On December 2, Moody’s released its updated approach to rating Europe, Middle East and Africa CMBS.  Moody’s Report.

On December 2, DBRS released its methodology for rating U.S. credit card ABS.  DBRS Report.

On November 28, DBRS released its operational risk assessment procedures for servicers of European Structured Finance (ESF) products.  DBRS Report.

On December 5, Kroll released its request for comment on its proposed methodology for assessing non-Qualified Mortgage risk in U.S. RMBS.  Kroll Request.

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Rating Agency Developments

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On December 13, Moody’s released its methodology for U.S. stand-alone housing bond programs secured by credit enhanced mortgages.  Moody’s Report.  

On December 13, S&P released its methodology for pre-insolvency structural protections in Europe.  S&P Report. 

On December 12, Fitch published criteria for rating financial institutions above the sovereign.  Fitch Report.  

On December 11, Fitch updated its criteria for analyzing financing and leasing companies.  Fitch Report.  

On December 11, Moody’s released its U.S. manufactured housing loan ABS surveillance methodology.  Moody’s Report.  

On December 11, Moody’s released its methodology for mortgage insurers.  Moody’s Report.  

On December 10, S&P released its methodology for Mexican trade receivables ABS transactions.  S&P Report.

Rating Agency Developments

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On June 4, S&P issued two Requests for Comment articles on proposed changes to its CMBS criteria. The purpose of the proposed criteria is to improve and simplify the agency’s approach to rating CMBS offerings and to harmonize S&P’S approach to evaluating commercial real estate. S&P Release.

On June 6, Moody’s updated its rating methodology for RMBS in Europe, the Middle East and Africa. Moody’s Report.

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U.K. Regulator Fines Former Merrill Lynch Broker £350,000 for Market Abuse

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On 15 February, the U.K. regulator, the Financial Services Authority (FSA), fined Mr. Andrew Osborne, a former Managing Director at Merrill Lynch, £350,000 for engaging in market abuse by improperly disclosing inside information to Greenlight Capital Inc. that Punch Tavern Plc, for whom he was acting, was in the advanced stages of an equity fundraising. The FSA considered that Mr. Osborne had failed in his duties not to disclose inside information and to consider the risk of market abuse, duties of which Mr. Osborne as an approved person with considerable experience was fully aware. The decision comes on the back of the FSA’s decisions on 25 January to fine Mr. David Einhorn and Greenlight Capital Inc. in relation to the same matter. Final Notice of Andrew Osborne.

Rating Agency Developments – Week of February 13, 2012

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On February 7, DBRS released its methodology for CLOs and CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its Canadian surveillance methodology for CDOs of large corporate credit. DBRS Methodology.

On February 7, DBRS released its cash flow assumptions for corporate credit securitizations. DBRS Methodology.

On February 6, DBRS released its swap criteria for European structured finance transactions. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European ABS and SME CLO servicers. DBRS Methodology.

On February 6, DBRS released its operational risk assessments for European RMBS servicers. DBRS Methodology.

On February 6, DBRS released its master European structured finance surveillance methodology. DBRS Methodology.

On February 6, DBRS released its legal criteria for European structured finance transactions. DBRS Methodology.

Rating Agency Developments – Week of February 6, 2012

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On February 3, Fitch updated its global criteria report for non-performing loan transactions. Fitch Report.

On February 2, DBRS released its methodology for North American CRE non-performing loan liquidating trusts. DBRS Report.

On February 1, DBRS released its methodology for Canadian HELOCs. DBRS Report.

On January 31, Fitch updated its private student loan ABS criteria. Fitch Report.

On January 31, Fitch answered frequently asked questions about UK RMBS master trusts. Fitch Report.

On January 30, Fitch updated its criteria on legal uncertainty in emerging market securitizations. Fitch Report. 

On January 30, Moody’s released its methodology for municipal bonds and commercial paper supported by a borrower’s self-liquidity. Moody’s Report.

On January 30, Moody’s released its pre-2005 RMBS surveillance methodology. Moody’s Report.

On January 30, DBRS released its methodologies for Canadian auto lease and auto loan securitizations. DBRS Auto Lease Report. DBRS Auto Loan Report.

On January 26, S&P gave advance notice of proposed changes to its U.S. local government general obligation bond criteria. S&P Report.

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CFTC and SEC Report on International Swap Regulation

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On January 31, pursuant to section 719(c) of the Dodd-Frank Act, the CFTC and the SEC delivered a report to Congress on international swap regulation. The report: (i) describes the regulatory framework for OTC derivatives in the Americas, EU and Asia; (ii) analyzes the similarities and differences across jurisdictions; (iii) discusses potential areas for harmonization; and (iv) makes recommendations for next steps. Joint Report.

FSA Fines David Einhorn and Greenlight Capital £7.2 Million for Market Abuse Activity

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On January 25, the U.K. Financial Services Authority (FSA) decided to fine David Einhorn and his hedge fund Greenlight Capital Inc £7.2 million for engaging in market abuse in relation to an equity fund raising by Punch Taverns Plc raising in 2009. Mr. Einhorn learnt of the proposed fund raising after which he instructed that his fund’s holding in the firm be sold. While the FSA accepted that Mr. Einhorn did not believe the information to be inside information, the FSA considered that his belief was unreasonable and that his failure to identify the information as such was a serious breach of the standard of market conduct expected from someone with his professional experience and of his industry standing. Press Release. Decision Notice for David Einhorn. Decision Notice for Greenlight Capital Inc.