Financial Services Spotlight

June 2016 Second Half Developments

Posted by Roy Andersen on Jul 6, 2016 12:00:00 PM

Overview

The CFTC published a proposed rule on clearing interest rate swaps and identified a number of new swaps that would be required to be cleared.   In addition, the CFTC tightened the recordkeeping and reporting of certain swap transactions and the SEC finalized a rule requiring trade acknowledgements.  The FDIC published two rules on the treatment of failed banks with assets related to securitizations and its own requirements to maintain records of how it manages receiverships.

Swaps Recordkeeping and Reporting

On June 27, 2016, the CFTC published a final rule that would clarify regulations to clearly delineate the swap data reporting requirements associated with each of the swaps involved in a cleared swap transaction.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-27/html/2016-14414.htm

Proposed: http://www.gpo.gov/fdsys/pkg/FR-2015-08-31/html/2015-21030.htm

Record Retention at Failed Banks

On June 27, 2016, the FDIC published a final rule that would establish schedules for the retention by the FDIC of the records of a covered financial company (i.e., a financial company for which the necessary determination has been made for the appointment of the FDIC as receiver pursuant to Title II of the Dodd-Frank Act) as well as for the records generated or maintained by the FDIC that relate to its exercise of its Title II orderly liquidation authorities as receiver with respect to such covered financial company. See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-27/html/2016-15020.htm

Proposed: http://www.gpo.gov/fdsys/pkg/FR-2014-10-24/html/2014-25338.htm

Securitization or Participation Assets in Failed Bank

On June 27, 2016, the FDIC published a final rule that would require servicers of residential mortgage loans to mitigate losses on securitized mortgages.   The FDIC has set forth criteria under which, in its capacity as receiver or conservator of an insured depository institution, it will not, in the exercise of its authority to repudiate contracts, recover or reclaim financial assets transferred in connection with securitization transactions.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-27/html/2016-15019.htm

Proposed: http://www.gpo.gov/fdsys/pkg/FR-2015-11-25/html/2015-29821.htm

Clearing for Interest Rate Swaps

On June 16, 2016, the CFTC published a proposed regulation to require that interest rate swaps denominated in certain currencies or having certain termination dates be submitted for clearing.  This is the second determination by the CFTC regarding interest rate swaps.  The First Clearing Requirement Determination required the clearing of swaps within four classes of interest rate swaps and two classes of credit default swaps (CDS) that meet certain specifications. The proposed rule would add a requirement to clear fixed-to-floating interest rate swaps denominated in nine additional currencies.  See the proposed rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-16/html/2016-14035.htm

Trade Acknowledgment and Verification of Security-based Swaps

On June 17, 2016, the SEC published a final rule to require security-based swap dealers and major security-based swap participants to provide trade acknowledgments and to verify those trade acknowledgments in security-based swap transactions.  This rule was published for comment back in 2011.  A primary goal is to reduce unconfirmed trades that may allow errors to go undetected.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-17/html/2016-13915.htm

Proposed: http://edocket.access.gpo.gov/2011/2011-1218.htm

Penalty Adjustments for Credit Unions

The NCUA on June 21, 2016, issued its interim final rule to adjust the maximum amount of each civil monetary penalty (CMP) within its jurisdiction to account for inflation. Because of various factors including not increasing the penalties on a regular basis, the penalties have increased over 50%, some verging on doubling.  See the interim rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-21/html/2016-14719.htm

Community Development Fund for Credit Unions

On June 21, 2016, the NCUA published a proposed rule regarding the Community Development Revolving Loan Fund it to improve its transparency, organization, and ease of use by credit unions.  The Fund is a source of financial support, in the form of loans and technical assistance grants, for credit unions serving predominantly low-income members.  See the proposed rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-21/html/2016-14718.htm

North Korea Emergency Continued

On June 21, 2016, the President published a notice that the emergency declared regarding North Korea would be continued for another year.  The actions and policies of the Government of North Korea continue to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.  The President also detailed the recent actions taken by the U.S. to isolate North Korea.  The emergency was first declared in 2008.  See the notice at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-23/html/2016-15036.htm

Western Balkans Emergency Continued

On June 23, 2016, the President published a notice that the emergency declared regarding the Western Balkans would be continued for another year.  The actions of persons threatening the peace and international stabilization efforts in the Western Balkans, including acts of extremist violence and obstructionist activity, continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. The emergency has been in place since 2001.  See the notice at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-23/html/2016-15041.htm

CFPB Indexing Amounts in Regulation Z

On June 27, 2016, the CFPB published a final rule to increase the amounts in certain sections of Regulation Z.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-27/html/2016-14782.htm

CFTC Penalty Increases

On June 27, 2016, the CFTC published an interim final rule to adjust civil money penalties as required by federal laws to reflect inflation.  The rule lists the new penalties and in many cases the penalties exceed $1,000,000.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-27/html/2016-15078.htm

FDIC alternatives to credit ratings for Insured Branches

On June 28, 2016, the FDIC published a proposed rule to revise the FDIC's asset pledge requirement for insured U.S. branches of foreign banks. The eligibility criteria for the types of assets that foreign banks may pledge would be amended by replacing the references to credit ratings with the revised definition of ``investment grade.'' The proposed rule would apply this investment grade standard to each type of pledgeable asset, establish a liquidity requirement for such assets, and subject them to a fair value discount. The Dodd-Frank Act directs each federal agency to review and modify regulations that reference credit ratings. See the proposed rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-28/html/2016-15096.htm

FinCEN Penalty Increases

On June 30, 2016, FinCEN published an interim final rule to adjust civil money penalties

as required by federal laws to reflect inflation.  Some of the penalty amounts were set in the 1980’s and thus these penalties have now doubled.   For example, not following the  recordkeeping requirements for funds transfers can now result in penalties of almost $20,000.  See the final rule at:
https://www.gpo.gov/fdsys/pkg/FR-2016-06-30/html/2016-15653.htm

Topics: North Korea, CFTC, Security-Based Swaps, Regulation Z, Interest Rate Swaps, Western Balkans

About the Spotlight


The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

 

Meet the Authors


Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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