Bank Prudential Regulation & Regulatory Capital
US Office of the Comptroller of the Currency Publishes Updated Business Combinations Booklet
On July 31, 2018, the U.S. Office of the Comptroller of the Currency released an updated version of the Comptroller's Licensing Manual Business Combinations booklet. The booklet, which was updated in November of 2017, has been revised to make certain technical corrections and process updates with respect to clarifications regarding the public notice and comment period and a change in the public comment calculation period.
The full text of the revised booklet is available at: https://www.occ.gov/publications/publications-by-type/licensing-manuals/bizcombo.pdf.
Final Draft EU Technical Standards on Homogeneity Conditions for STS Securitizations
On July 31, 2018, the European Banking Authority published a final report and final draft Regulatory Technical Standards under the EU Securitization Regulation on the conditions for a securitization to be considered homogenous. Homogeneity is one of the requirements for a securitization to be classed as a simple, transparent and standardized securitization or STS securitization. Exposures related to STS securitizations will attract lower risk weightings for firms subject to the Capital Requirements Regulation. The new EU securitization framework will apply across the EU from January 1, 2019.
The final draft RTS, which will apply to both asset-backed commercial paper and non-ABCP securitizations, establish four conditions for the underlying exposures to be considered homogeneous: (i) they have been underwritten according to similar underwriting standards; (ii) they are serviced according to similar servicing procedures; (iii) they fall within the same asset category; and (iv) for a majority of asset categories, they are homogeneous with reference to at least one homogeneity factor, such as type of obligor, ranking of security rights, jurisdiction or type of immovable property. The final draft RTS contain a non-exhaustive list of asset categories which reflect the most common types of underlying exposures securitized, including residential and commercial mortgages, credit facilities to individuals and corporates, auto loans and leases, credit card receivables and trade receivables. In addition, the underlying exposures of these asset categories, except for trade receivables and credit facilities for individuals, must be homogeneous with reference to at least one of the homogeneity factors.
The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU 20 days after publication in the Official Journal of the European Union.
The final draft RTS is available at:
http://www.eba.europa.eu/documents/10180/2298183/Draft+RTS+on+homogeneity+of+underlying+exposures+
in+securitisation+%28EBA-RTS-2018-02+%29.pdf and details of the
EBA's consultation on the draft RTS are available at:
https://finreg.shearman.com/european-banking-authority-consults-on-draft-te.
Final Draft EU Technical Standards on Securitization Risk Retention Requirements
On July 31, 2018, the EBA published a final report and final draft RTS under the EU Securitization Regulation (or STS Regulation) on the risk retention requirements for originators, sponsors and original lenders. The Securitization Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The final draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.
The final draft RTS have been submitted to the European Commission for endorsement. The final RTS will apply directly across the EU 20 days after publication in the Official Journal of the European Union.
The Securitization Regulation, which will apply from January 1, 2019, has replaced the risk retention requirements in the CRR. Once the final RTS enter into force, the existing Commission Delegated Regulation ((EU) No 625/2014) on risk retention requirements, made under the CRR, will be repealed.
The final draft RTS is available at: http://www.eba.europa.eu/documents/10180/2298183/Draft+RTS+on+risk+retention+%28EBA-RTS-2018-01%29.pdf, the existing Delegated Regulation on risk retention requirements are available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2014_174_R_0006&rid=1 and details of the EBA's consultation on the draft RTS are available at: https://finreg.shearman.com/european-banking-authority-consults-on-draft-tec.
Consumer Protection
UK Conduct Regulator Reminds Firms of Obligations on Selling High-Risk Products to Retail Clients
On August 1, 2018, the U.K. Financial Conduct Authority issued a statement on selling high-risk speculative investments to retail clients following the European Securities and Markets Authority's product intervention on contracts for difference products.
ESMA issued decisions in March and June 2018 to temporarily prohibit the marketing, distribution or sale of binary options and to impose restrictions on the marketing, distribution or sale of CFDs to retail clients. In the CFD decision, ESMA had clarified that turbo certificates were outside the scope of the CFD restrictions. However, in its recently updated Q&A on its product intervention, ESMA acknowledges that turbo certificates have comparable features to CFDs, such as leverage.
The FCA fully supports ESMA's approach and, like ESMA, is concerned that firms may try to circumvent the CFD restrictions by offering to retail clients products that are differently named but that possess similar features to CFDs and that may raise similar investor protection concerns. The FCA reminds firms considering marketing, selling or distributing such products to retail clients to bear in mind their conduct of business obligations, in particular around clients' best interests, communications with clients and financial promotions, suitability and appropriateness and product governance.
The FCA Statement is available at: https://www.fca.org.uk/news/statements/fca-statement-selling-high-risk-speculative-investments-retail-clients-following-esmas-action-cfd, ESMA's updated product intervention Q&A are available at: https://www.esma.europa.eu/sites/default/files/library/esma35-36-1262_technical_qas_product_intervention.pdf and details of ESMA's product intervention measures for CFDs are available at: https://finreg.shearman.com/european-securities-and-markets-authority-extend.
To view the full article, please click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
