As expected following yesterday’s action by the US Office of the Comptroller of the Currency,1 at today’s board meeting2 of the Federal Deposit Insurance Corporation (FDIC), the board proposed a rule to clarify Federal interest rate authority to address marketplace uncertainty regarding the enforceability of the interest rate terms of loan agreements following a bank’s assignment of a loan to a non-bank, including confusion resulting from a recent decision from the US Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC).3 The FDIC’s proposal would codify legal guidance on which the agency has relied for more than 20 years regarding interest rates that may be charged by State-chartered banks and insured branches of foreign banks.
The United States Office of the Comptroller of the Currency (OCC) has proposed a rule to clarify that when a national bank or savings association sells, assigns or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.
On October 31, 2019, in a lease dispute related to credit card processing equipment, a California appellate court held that the parties’ choice of New York forum for dispute resolution was unenforceable due to the existence of a pre-dispute waiver of a non-waivable right guaranteed by the California constitution, statutes, and case law interpreting the same. With a lot of fintech business conducted in northern California, this decision refusing to uphold New York choice of law and forum since the underlying agreement included a waiver that was impermissible under California law is significant. The case is Handoush v. Lease Fin. Group, LLC, No. A150863, 2019 WL 5615674 (Cal. Ct. App. Oct. 31, 2019).
Navigating the European Rules and Regulations.
Synthetic securitization has had a rocky ride in Europe. 2004-2005 was the high watermark. The financial crisis almost killed off the market, before a gradual recovery began. In 2018, there were 49 European synthetic securitization deals, reaching a post-crisis record of EUR 105 billion.
On October 30, 2019, SEC Chairman Jay Clayton announced that the SEC will review its RMBS asset-level disclosure requirements with “an eye toward facilitating SEC-registered offerings.” The announcement notes the absence of SEC-registered RMBS securitizations in recent years and seeks input from investors, issuers and other market participants with respect to several questions posed in the announcement, including questions about the RMBS market, the asset-level disclosure requirements for RMBS, and the market practice of providing 5-digit zip codes to investors in non-registered issuances. The announcement follows recent reports that some market participants have approached regulators to seek relief from certain of the disclosure requirements of Regulation AB, which many consider difficult or even impossible to comply with. Chairman Clayton’s announcement signals that the SEC is open to reconsidering the Regulation AB framework as it relates to RMBS. Read the full announcement here.
In July, the Federal Deposit Insurance Corporation (the “FDIC”) proposed a change (discussed here and here) to certain provisions of its securitization safe harbor rule (the “Rule”) to eliminate the requirement that the securitization documents for non-grandfathered bank-sponsored securitizations not otherwise subject to Regulation AB (i.e. non-public transactions) require compliance with the disclosure and periodic reporting requirements of Regulation AB. If adopted in its proposed form, this would significantly ease the compliance burden associated with non-public bank-sponsored ABS issuances, potentially resulting in a greater volume of such transactions.
The European Commission (the “Commission”) has now adopted and published the regulatory technical standards (the “RTS”) in relation to the transparency requirements under the EU Securitisation Regulation (the “Securitisation Regulation”).
The Securitisation Regulation has been applicable since 1 January 2019 to all securitisations (as defined therein) other than securitisations existing prior to that date to the extent that they are grandfathered. Article 7 of the Securitisation Regulation sets out transparency requirements (the “Article 7 Requirements”) for originators, sponsors and securitisation special purpose vehicles (“SSPEs”). In addition, Article 5 of the Securitisation Regulation requires institutional investors, other than the originator, sponsor or original lender, to verify (among other things) that the originator, sponsor or SSPE has, where applicable, made available the information required by Article 7 in accordance with the frequency and modalities set out therein.
Read the full Legal Update here.
On 22 October 2019, Mayer Brown’s supply chain and working capital finance team hosted its annual Supply Chain and Working Capital Finance seminar in London. Now in its third year, the seminar brought together key members of Mayer Brown’s supply chain and working capital finance team from around the world as well as over 100 outside guests for a day-long programme to review recent trends and developments in the dynamic supply chain and working capital finance market. Topics covered included an overview on receivables purchase in England, a discussion on new trends/current issues in the supply chain and working capital market in England, the U.S., Asia and other emerging markets, and a business panel to discuss insights to market development in the securitisation, receivables purchase and asset-based lending practice areas.
Slides from the programme are available here.
The London programme is one of four such programmes run by the Mayer Brown supply chain and working capital finance team around the world. Our Hong Kong and Singapore programmes were held on 3 September 2019 and 6 September 2019 respectively and our New York programme was held on 15 October 2019.
On October 15th, Mayer Brown’s supply chain finance team hosted its annual Supply Chain and Working Capital Finance seminar in New York. Now in its fifth year, the seminar brought together key members of Mayer Brown’s supply chain team from around the world as well as over 250 outside guests for a day-long program to review recent trends and developments in the dynamic supply chain finance market. Topics covered included risk distribution, dealing with alternative finance providers, best practices for cross-border transactions, off-balance sheet inventory finance and true sale and bankruptcy law.
Slides from the program are available here
The New York program is one of four such programs run by the supply chain finance team around the world. Our London program is being held Tuesday, October 22nd. Programs in Singapore and Hong Kong were held in early September.
The European Banking Authority (the “EBA”) has recently launched a public consultation on its proposals to create a simple, transparent and standardised (“STS”) framework for synthetic securitisations, as set out in its Draft Report on STS Framework for Synthetic Securitisation published on 24 September 2019 (the “Discussion Paper”), which can be found here. While the Securitisation Regulation allows traditional securitisations to benefit from preferential regulatory capital treatment if they meet the applicable STS criteria, together with some additional requirements under the Capital Requirements Regulation (as amended), synthetic securitisations are not yet able to qualify as STS.
The Discussion Paper sets out the EBA’s proposed STS criteria for synthetic securitisations. These criteria broadly follow the existing STS criteria for non-ABCP securitisations in the Securitisation Regulation, with some amendments and some additional criteria covering matters which are specific to synthetic transactions. STS designation would be limited to balance sheet securitisation and arbitrage securitisations would be excluded. A separate question is whether STS synthetic securitisations will be able to benefit from preferential regulatory capital treatment as with traditional securitisations, as many market participants hope, but the Discussion Paper does not reach a conclusion on this point.
The deadline for comments on the Discussion Paper is 25 November 2019.
We will be considering this issue in more detail in future updates and will continue to monitor this closely.