May 18, 2016 Newsletter
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May 18, 2016

Issue Spotlight

Industry Jobs

SFIG Calendar



Advocacy Outlook

Industry News Highlights


SFIG invites you to attend the first in our series of blockchain symposia next Tuesday, May 24th:

1900 K Street NW
Washington D.C. 20006
Registration available here.

Don’t miss the opportunity to learn how blockchain will impact your life as a securitization professional!

Following an overview of the key fundamentals and history of blockchain, panelists will discuss its potential impact on a wide variety of industries, with a particular focus on financial services and structured finance. Panelists will discuss the potential impacts that blockchain could have along several points within the securitization value chain. Our panelists will also provide their thoughts on the current state of play (i.e., different collaborative efforts occurring throughout the banking sector) and discuss the current and potential future role of regulators and other policymakers.

Panelists include, among others:

  • David Beam, Partner, Mayer Brown LLP
  • Greg Lumelsky, Assistant General Counsel, Bank of America
  • Matt Mulder, Chief Counsel and Legislative Director, Rep. Patrick McHenry, U.S. House of Representatives
  • Prakash Santhana, Director Payments Integrity, Cyber Risk Services, Deloitte Financial Advisory Services LLP

Moderated by: Sairah Burki, Senior Director, ABS Policy, SFIG

5:00pm Registration
5:30pm – Panel Discussion
6:30pm – Cocktail Reception

**This invitation has been widely distributed in compliance with Congressional ethics rules. The event will be closed to the press.**

If you would like to be included in the newly created Blockchain Task Force, please email For questions regarding events or symposia, please contact

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SFIG and IMN are pleased to announce the Honourable Charles Sousa, Minister of Finance, Legislative Assembly of Ontario, as the Keynote Speaker at the Structured Finance Canada Conference on Wednesday, June 1st at the Hyatt Regency Toronto in Ontario, Canada.

Charles Sousa is Ontario’s Minister of Finance and the Member of Provincial Parliament (MPP) for the riding of Mississauga South. Charles also serves as Vice-Chair of the Treasury Board and Management Board of Cabinet.
Charles was first elected in October 2007. He has held positions as Minister of Citizenship and Immigration, Minister Responsible for the 2015 Pan & Parapan American Games, Minister of Labour and Chair of Treasury Board and Management Board of Cabinet. He has also served as Parliamentary Assistant to the Minister of Economic Development Trade and the Minister of Government Consumer Services.
As Minister of Finance, Charles has delivered multiple Budgets and Fall Economic Statements. He negotiated the formation of the Canadian Cooperative Securities Regulator and continues to lead a national discussion on retirement income security. [View Full Bio]

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As we previously announced, SFIG has formed a task force to evaluate the Consumer Financial Protection Bureau’s ("CFPB") proposed rule that would prohibit companies from using mandatory arbitration clauses that prevent class action lawsuits in new contracts with consumers. Below, Mayer Brown has written an Issue Spotlight on this subject. We would caveat that this Issue Spotlight does not necessarily reflect the opinions of SFIG. The SFIG task force will determine SFIG’s position on this proposal.

Please contact or to join the task force.

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SFIG’s Women in Securitization “WiS” initiative was thrilled to welcome more than 100 attendees to our panel discussion last week, Women at the Intersection of Finance and Policy. The event was attended by a broad cross-section of industry participants in financial services, policy and government.

SFIG thanks our distinguished panel of prominent women for engaging in a frank and open dialogue about their career progressions and personal experiences. Their stories and sage advice were inspiring! We thank the audience as well for their active participation.

We also extend a special thank you to Morgan Lewis & Bockius LLP for hosting the event and a wonderful cocktail reception.

If you are interested in learning more about the initiative or joining Women in Securitization, please click here.

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SFIG is pleased to welcome our two newest staff members: Tom McCrocklin and Dani Hernandez.

Tom McCrocklin serves as Director of Advocacy and will report directly to   Richard Johns, SFIG's Executive Director. Mr. McCrocklin will lead the group's interactions with regulators and legislators in Washington D.C. and elsewhere as it pertains to policies and positions derived by the membership.

Mr. McCrocklin brings a depth of experience in financial services and related advocacy efforts. He most recently served as the Head of Federal Affairs at Zurich North America in Washington D.C., overseeing the company's federal public policy portfolio. Previously, he was a Senior Counsel on the U.S. House of Representatives Committee on Financial Services. Prior to that, Mr. McCrocklin was the Director of Federal Affairs at the Independent Insurance Agents of America. He also worked on Capitol Hill for two individual members of the House of Representatives.

Dani joins SFIG in the role of Executive Administration. She comes with six years of experience as an executive assistant and event producer in various organizations such as law firms, museums, and theatre companies. Originally from San Francisco, she earned Bachelor of Arts degrees in Media Studies (specializing in digital photography and design) and Art History (specializing in 20th century American art) from Pitzer College in Claremont, CA.

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By Mayer Brown’s Andrew J. Pincus, Steven M. Kaplan, Archis A. Parasharami, and Stephen Lilley

The rule just proposed by the Consumer Financial Protection Bureau to regulate arbitration agreements is not a surprise: the Bureau has said for months that it was developing such a rule. 

The CFPB’s recent 377-page proposal effectively bans the use of arbitration by companies in the consumer financial services arena. As proposed, it would subject providers of covered consumer financial products or services and potentially holders of such assets to abusive class action litigation. Built upon a flawed study, the proposal ignores the longstanding federal policy favoring arbitration and amounts to an invitation to the plaintiffs’ bar to declare “open season” on companies caught within the CFPB’s net.

The CFPB now will receive comments for 90 days. If a rule is adopted in the proposed form, parties are certain to seek judicial review. For now, affected companies should consider (1) commenting on the proposal, directly or through trade associations; (2) reviewing existing arbitration clauses to determine how they will apply; (3) anticipating the likely increase of abusive class action litigation regarding consumer financial products and services; and (4) for investors in the secondary market, considering how the rule may affect future transactions.

The CFPB’s Proposal

Exclusion from arbitration of all class actions filed in court. The principal restriction on arbitration agreements is as far-reaching as it is easy to explain: a flat prohibition on invoking an arbitration provision to require arbitration with respect to claims asserted in a class action filed in court (§ 1040.4(a)(1)). Indeed, the proposal requires that the arbitration agreement state: “We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court.  You may file a class action in court or you may be a member of a class action even if you do not file it” (§ 1040.4(a)(2)(i)). The sole exception to the Bureau’s prohibition is if a court has already held that class treatment is improper (and immediate appellate rights exhausted), which is like saying it’s okay to close the barn door only after the horse has long been gone.

Reporting requirements. The proposal also would require companies to submit information to the CFPB regarding each arbitration conducted under agreements covered by the rule—such as the claim and any counterclaim, the arbitrator’s award, a copy of the arbitration agreement, and any communications relating to a company’s failure to pay arbitration fees or with the designated arbitral forum’s fairness principles.

Scope. The Bureau states that its intent is “to cover a variety of consumer financial products and services that the Bureau believes are in or tied to the core consumer financial markets of lending money, storing money, and moving or exchanging money.” The following consumer products and services would be subject to the arbitration regulation (§ 1040.3(a)(1)-(10)):

  • Extending “consumer credit” as defined in Regulation B, or acting as a “creditor” under the Regulation by participating regularly in consumer credit decisions or referring applicants to creditors or selecting creditors to whom requests for credit may be made (although some merchants and sellers of nonfinancial products and services are excluded);
  • Extending or brokering auto leases (although auto dealers are excluded);
  • Debt management or settlement services relating to an extension of consumer credit that would be covered by the rule;
  • Providing consumers with credit reports, credit scores, or other information from a consumer report (except if the report is provided in connection with an adverse credit action with respect to a product or service not subject to the arbitration rule);
  • Providing accounts subject to the Truth in Savings Act;
  • Providing accounts or remittance transfers subject to the Electronic Fund Transfer Act;
  • Transmitting or exchanging funds for consumers, unless with respect to products and services not covered by the proposed rule;
  • Accepting financial data from a consumer, or providing a product or service to accept such data, for the purpose of initiating a payment or credit or charge card transaction for the consumer—unless the person accepting the data is selling the nonfinancial product or service that is the subject of the transaction;
  • Check cashing, check collection, or check guaranty services;
  • Collection of a debt arising from the above financial products or services by the entity providing the product or service giving rise to the debt, its affiliate, or one acting on behalf of the entity or affiliate; an entity purchasing the debt or its affiliate or one acting on its behalf; or a debt collector as defined in the Fair Debt Collection Practices Act.

Notably, the CFPB is proposing to cover creditors as defined by Regulation B instead of Regulation Z. The definition of a creditor under Regulation B is broader than the definition under Regulation Z.

Expressly excluded from the proposed regulation are (§§ 1040.3(b)(1)-(5)):

  • Merchants, retailers, and other sellers of nonfinancial goods and services that provide an extension of credit directly to a consumer for the purpose of allowing the consumer to purchase the nonfinancial good or service from the merchant, retailer, or other seller—unless the credit extended significantly exceeds the market value of the nonfinancial good or service (or the sale of the nonfinancial good or service is a subterfuge to avoid regulation) or the merchant or seller regularly extends credit and the credit is subject to a finance charge, in which circumstances the arbitration regulation would apply;
  • Persons who provide the specified product or service to no more than 25 consumers in the current and prior year;
  • Activities falling within the statutory exclusions from the CFPB’s authority set forth in Sections 1027 and 1029 of the Dodd-Frank Act, that provide protection (often subject to significant limitations) for—among others—real estate brokerage, accounting, legal, and  insurance services and (as noted above) for auto dealers;
  • Broker-dealers subject to regulation by the Securities and Exchange Commission;
  • The federal government and its affiliates; and
  • State, local, and tribal entities to the extent they provide the consumer financial product “directly to a consumer who resides in the government’s territorial jurisdiction.”

Importantly, an affiliate of a company providing a financial product or service is subject to the proposed regulation when the affiliate is acting as a service provider to that company. That means that activities of the affiliate not subject to the arbitration regulation—either because the affiliate’s activity does not qualify as providing a financial product or service or because it falls within one of the exclusions—would nonetheless be subject to the arbitration regulation (§ 1040.2(c)(2)).

Finally, when a business’s relationship with a consumer includes some products or services covered by the regulation and some that are not, the arbitration regulation applies only to those covered by the regulation. The “Official Interpretations” appended to the proposed rule state that a business that is subject to the proposed rule “must comply with this part only for the products or services that it offers or provides that are covered” by the rule. (Official Interpretations, Section 1040.2(c).1). The proposal permits the arbitration agreement to state, in relevant part, “[w]e are providing you with more than one product or service, only some of which are covered by the Arbitration Agreements Rule issued by the Consumer Financial Protection Bureau,” and that the ban on applying the arbitration agreement to class actions in court “applies only to class action claims concerning the products or services covered by that Rule” (§ 1040.4(a)(2)(ii)).

The Bureau’s proposal provides an illustrative list of the businesses likely to be subject to the rule:

“banks, credit unions, credit card issuers, certain automobile lenders, auto title lenders, small-dollar or payday lenders, private student lenders, payment advance companies, other installment and open-end lenders, loan originators and other entities that arrange for consumer loans, providers of certain automobile leases, loan servicers, debt settlement firms, foreclosure rescue firms, certain credit service/repair organizations, providers of consumer credit reports and credit scores, credit monitoring service providers, debt collectors, debt buyers, check cashing providers, remittance transfer providers, domestic money transfer or currency exchange service providers, and certain payment processors.”

Effective date. The Dodd-Frank Act provides (in Section 1028(d)) that any arbitration regulation issued by the CFPB may apply only to arbitration agreements entered into 180 days after the effective date of the regulation (the “Compliance Date”). Recognizing this limitation, and the general rule that regulations do not take effect until 30 days after their promulgation, the proposed rule states that it would apply to contracts entered into 211 days after the date the final rule is published in the federal register (§ 1040.5(a)).

The delayed effective date means that all arbitration agreements in effect 210 days after the rule’s effective date can continue to be enforced—and any class waiver in those agreements can continue to be enforced—for the agreement’s duration. Significantly, moreover, the Official Interpretations state that a business does not enter into an arbitration agreement, and therefore the regulation is not triggered, if it “[m]odifies, amends, or implements the terms of a product or service that is subject to a pre-dispute arbitration agreement that was entered into before” 211 days after the rule’s effective date. This appears to mean that businesses can change the terms of service governing an existing consumer relationship without invalidating the pre-existing arbitration clause (including any class waiver) (see Official Interpretations, Section 1040.4.a.ii). 

But if a business with an existing relationship with a consumer provides that consumer with a new product or service after the Compliance Date, any arbitration agreement with respect to that new product or service will be subject to the limitations in the Bureau’s regulation (see Official Interpretations, Section 1040.4.a.i.A). And if, 211 days or more after the effective date (the Compliance Date), an entity subject to the rule acquires or purchases a product that is covered by the rule and subject to an arbitration agreement, that arbitration agreement becomes subject to the Bureau’s restrictions (see Official Interpretations, Section 1040.4.a.i.B.).

Implications for the secondary market. Some laws expressly authorize consumers to bring affirmative claims against assignees of loans and other consumer agreements for violations of law committed by the originator or seller. A purchaser is insulated from most claims, however, if it qualifies as a holder in due course or equivalent under the UCC or common  law. The Federal Trade Commission’s (“FTC”) “Holder Rule” eliminates holder in due course status for certain types of contracts and loans. Under the Holder Rule, which the FTC promulgated in 1976, sellers of consumer goods or services are required to include the following notice (“Holder Notice”) in at least 10-point, boldface type to consumers in connection with covered consumer credit contracts:


The Holder Rule applies to credit extended to consumers, defined as natural persons who seek or acquire goods or services for personal, family, or household purposes. It applies to two such types of covered loan transactions: purchase money loans and credit sales. The Holder Rule does not apply to most mortgage loans. Under the Holder Rule, it is an unfair or deceptive act or practice, in violation of Section 5 of the FTC Act, to fail to include the Holder Notice in certain consumer credit contracts. The CFPB can also enforce the Holder Rule against covered institutions.

The Holder Rule can have a material impact on the value of assets a holder acquires and can subject assignees to certain claims and defenses for conduct that an assignee may not have initially taken part in or considered. In particular, industry participants should take note of the types of claims that the consumer can assert against the holder and, given the already expansive nature of the Holder Rule, to which products and services the Holder Rule applies.

The FTC is currently undertaking an administrative review of the Holder Rule, having accepted comments in February of this year. Whether the FTC clarifies, narrows, (or worse, expands) the rule’s scope remains to be seen. Understood in keeping with its original purpose, the Holder Rule would act to preserve consumer claims, not speak to the forum – i.e., in court or in arbitration – in which those claims may be asserted. 

Given expansive judicial interpretations of the Holder Rule, however, it is another important factor for actors in the secondary market to consider as they evaluate consumer credit products in the wake of the CFPB’s arbitration rule. For example, if the Holder Rule is interpreted to authorize affirmative claims, then there is potential for class action claims to be brought against holders of covered consumer assets. To make matters worse, a purchaser may not be able to enforce a class action waiver in an arbitration agreement for a loan originated prior to the Compliance Date but purchased after such date.

The Rulemaking Process and Judicial Review

The Bureau’s issuance of a proposed rule is just the beginning of the rulemaking process. The Bureau has established a ninety-day period for any interested party to file comments (the period begins on the date the proposed rule is published in the Federal Register, which has not yet occurred). 

The CFPB then is obligated to study the comments, decide whether to modify any provisions of the proposed rule—or terminate the rulemaking without issuing a rule—and, if a rule is issued, explain its provisions and respond to the public comments. That process typically requires at least several months following the close of the comment period.

The Dodd-Frank Act specifies (in Section 1028(b)) that the Bureau may promulgate a regulation governing arbitration only if it finds that the regulation “is in the public interest and for the protection of consumers”; in addition, the findings underlying the rule “shall be consistent with” the arbitration study required by the statute. The Act also requires the Bureau to consider (a) “the potential benefits and costs to consumers and [regulated businesses], including the potential reduction of access by consumers to consumer financial products or services resulting from” the proposed rule; and (b) the impact of proposed rules on smaller financial institutions and on consumers in rural areas (Section 1022(b)(2)(A)).

To the extent the Bureau’s final rule fails to satisfy these statutory requirements, or is otherwise arbitrary and capricious or contrary to law, anyone adversely affected by the rule may seek judicial review—invoking the applicable provisions of the Administrative Procedure Act—and obtain an order invalidating the rule. 

Finally, the questions about the constitutionality of the CFPB’s structure raised by the D.C. Circuit prior to oral argument in the PHH Corp. v. CFPB case, and the focus on that question at the oral argument, cast a shadow on the proposed arbitration rule. A holding in PHH that the Bureau’s structure confers too much unconstrained authority on a single individual—the Bureau’s Director—and therefore violates the Constitution could provide grounds for invalidating the arbitration rule. And if the issue is not addressed by the PHH Court, it is likely to be raised in any judicial challenge to a final arbitration rule.

Contingency Planning

Although the arguments supporting judicial review are powerful, many businesses are nonetheless engaging in contingency planning to address the possibility that the rule will be finalized and implemented. 

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SFIG Positions

With SFIG continuing to expand its reach across new conferences and additional policy challenges, we are looking for additional talent.

If you are smart, enthusiastic, hard-working, and want to be part of a growing organization in a fun and supportive environment, please contact us at or visit our website at

Opportunities exist for a variety of experience sets, ranging from Data/Policy Analyst to Manager of Advocacy. We look forward to hearing from you!

Industry Positions

Some of the latest industry positions available include:

Principal - Structured Product Group (RMBS) PGIM 05-04-2016
Director/Senior Director - Data and Operations Leader Fitch Ratings 05-03-2016
Director/Senior Director - Research and Criteria Leader Fitch Ratings 05-03-2016
Director/Senior Director - Asset Manager Leader Fitch Ratings 05-03-2016
Enterprise Sales T-REX 03-04-2016
Associate Director/Director - Structured Finance - Model Management Fitch Ratings 02-29-2016
Mid-Level Corporate Trust Associate K&L Gates LLP 02-22-2016

Please visit our Jobs page for a full listing of available positions.

For questions about positions at SFIG, please contact For questions about the website jobs portal, please contact

Current members are encouraged to advertise open positions within their company on SFIG's website by filling out the form here.

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  • THURSDAY, May 19, 2016
    10:00 a.m. – 11:00 a.m. (ET)
  • THURSDAY, May 26, 2016
    10:00 a.m. – 11:00 a.m. (ET)

FRIDAY, May 20, 2016
1:00 p.m. - 2:00 p.m. (ET)


WEDNESDAY, May 25, 2016
2:00 p.m. – 3:00 p.m. (ET)


MONDAY, May 30, 2016
2:00 p.m. – 3:00 p.m. (ET)

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TUESDAY, May 24, 2016
1900 K Street NW
Washington D.C. 20006
Registration available here.

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TUESDAY, May 31, 2016
3:00 p.m. – 5:00 p.m. (ET)
McCarthy Tétrault LLP
Toronto, Ontario
Registration available here.

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TUESDAY, May 31, 2016 – WEDNESDAY, June 1, 2016
Hyatt Regency Toronto
Toronto, Ontario
Registration available here.

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TUESDAY, June 14, 2015 – THURSDAY, June 16, 2016
The Barcelona International Convention Centre
Barcelona, Spain
Registration available here.

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If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail For specific inquiries on any of SFIG’s advocacy efforts, please contact the staff member listed for the related project.

SFIG’s Marketplace Lending Committee was established in August 2015, as an SFIG participant committee and is open to all SFIG members who have a legitimate interest in marketplace lending. The committee was formed with two primary intentions: 1) to work with members involved in marketplace lending to educate the industry as a whole, with a particular focus on the securitization of assets generated through that lending channel; and 2) to determine appropriate securitization-specific policy and engage in related advocacy, leveraging SFIG’s prominence and experience across all asset classes to support the continued responsible growth of securitization in marketplace lending.

The committee recently launched its “Best Practices” initiative to establish industry consensus and provide recommendations around one or multiple accepted approaches. The five established Best Practices work streams are 1) Data & Reporting 2) Representations & Warranties 3) Regulatory 4) Operational Considerations and 5) Enforcement.

The committee previously commented on the Treasury Department's Request for Input on Online Marketplace Lending on September 30th.

SFIG’s Student Loan Committee recently responded to Fitch’s proposed amendments to FFELP student loan ABS rating methodology. The committee also submitted a response to the Proposed Changes to Moody’s Approach to Rating Securities Backed by FFELP Student Loans this past October.

To join SFIG’s Student Loan Committee and learn more, please contact

The RMBS 3.0 Task Force released its Third Edition RMBS 3.0 Green Papers in November 2015. The task force has continued its efforts to address key issues specific to private label mortgage securities through work-streams relating to (1) Representations, Warranties, and Repurchase Enforcement; (2) Due Diligence, Data, and Loan-Level Disclosure; (3) Role of Transaction Parties; and (4) Bondholder Communications. We encourage members to participate in any or all of the working groups to contribute towards the mission of RMBS 3.0. For its 2016 agenda, the task force will address topics including the inclusion of an independent Deal Agent in transactions, Bondholder Communications, Data and Loan-Level Disclosure, Repurchase Enforcement, and Settlements, as well as undertake a review of the previously published Green Papers.

For additional information on RMBS 3.0, please contact

SFIG, through its GSE Reform Task Force, along with several other trade associations, submitted a letter to the FDIC, Fed and OCC regarding the effect of homeowner’s association ‘super-liens’ on private-label RMBS and whole loan transactions. The task force also submitted comments on FHFA’s update to the single security initiative on October 7, 2015. The task force is expecting to receive an update from the SFIG participants on the Industry Advisory Group for the Common Securitization Platform and Single-Security following its second meeting on December 7th. The task force has also formed policy positions on the Carney-Delaney-Himes GSE Reform bill and updated its briefing book to support its advocacy efforts. With the release of the bill, SFIG staff also updated its GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills.

To join SFIG’s GSE Reform Task Force and learn more, please contact

The Mortgage Loan-Level Disclosure Task Force is studying the recent Regulation AB II release of Schedule AL and comparing it to SFIG’s Schedule L submission to the Securities and Exchange Commission in February 2014. SFIG also continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. The task force will also be conducting an analysis of the data elements included in SFIG’s Schedule L submission in order to determine any privacy concerns.

Please contact for additional information on SFIG’s work on this topic.

The Volcker Task Force has been working with SFIG’s various asset class and legal counsel committees to identify areas within the Volcker Rule in need of clarification, particularly questions regarding covered funds and the loan securitization exemption.

Please contact to participate on the Task Force.

The Risk Retention Industry Guide Working Group recently launched its interim Industry Guide, ahead of the RMBS compliance date, focused on issues either relevant to all asset classes or specific to RMBS. The Working Group continues to work on a final guide focused on creating best practices and developing consensus positions around several areas within the Credit Risk Retention final rule.

Please contact with any questions.

SFIG’s Chinese Market Committee recently completed their White Paper, A Comprehensive Guide to U.S. Securitization, for Chinese regulators and the Chinese Securitization Forum to educate them on the U.S. securitization landscape. The committee also continues to hold discussions with a focus on SFIG’s partnership with the CSF, potential upcoming educational discussions and the sharing of recent market developments in China.

If you would like more information on SFIG’s work with respect to Chinese securitization, please contact

The Regulation AB II Task Force has been focused on the disclosure and offering process requirements within the final rule. Asset specific work streams have been formed to develop comment letters on the outstanding proposals within the final rule and the Task Force submitted the first part of its comment letter this past June. SFIG submitted a supplemental comment letter covering credit card and equipment floorplan asset classes on January 12, 2016.  Future discussions across asset class committees and the Regulation AB II Task Force will focus on the remaining outstanding proposed rules, including potentially requiring issuers to provide the same disclosure for Rule 144A offerings as required for registered offerings.

SFIG members who are interested in joining this task force or asset specific committees should contact

The Regulatory Capital and Liquidity Committee will be developing a comment letter to the U.S. proposed net stable funding ratio (“NSFR”) requirements. The committee also recently submitted a response to Basel’s Consultative Document regarding Capital Treatment for STC Securitisations and will be addressing industry concerns related to the Federal Reserve Board’s Final Rule on the Liquidity Coverage Ratio (“LCR”). SFIG recently testified before Congress, focusing on global regulatory issues, including LCR, that affect lending across all asset classes.

To become involved in SFIG’s advocacy on the final LCR or NSFR rules, please contact

The Derivatives in Securitization Task Force obtained no-action relief from the CFTC giving swap dealers comfort that the CFTC would not take enforcement action against swap dealers that did not comply with certain CFTC Regulations when taking actions in response to the credit ratings downgrade of a counterparty to a legacy swap. The relief applies to swaps with SPVs that were in existence prior to October 10, 2013. The task force also commented on the CFTC’s proposal on margin requirements for uncleared swaps, as well as the prudential regulators’ proposal regarding margin and capital requirements for covered swap entities. In October 2015, the prudential regulators approved a Joint Final Rule on Swap Margin Requirements. In November 2015, the CFTC issued their final rule regarding margin requirements for uncleared swaps for swap dealers and major swap participants.

The High Quality Securitization ("HQS”) Task Force recently submitted a response to Basel’s Consultative Document regarding Capital Treatment for STC Securitisations. The task force previously responded to the European Commission’s consultation on an EU framework for simple, transparent and standardized securitization on May 12, 2015. The task force also previously responded to the BCBS-IOSCO consultation on its criteria for identifying simple, transparent and comparable securitizations. SFIG’s comments were built off of those sent to the European Banking Authority on January 14th (available here) regarding its proposed criteria and to the European Central Bank and Bank of England last summer (available here) regarding the development of a sustainable securitization market in Europe. SFIG recently testified before Congress, focusing on global regulatory issues, including HQS, that affect lending across all asset classes.

To join the HQS Task Force, please contact Alyssa.Acevedo@sfindustry.

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The Bank of China recently announced that it is actively preparing for China’s relaunch of a pilot program on non-performing loan (“NPL”) securitization, according to a China Daily article.

The People’s Bank of China and the China Banking Regulatory Commission named six Chinese banks as the first participants to explore NPL securitization with $50 billion yuan ($7.7 billion) set as the initial quota.

Zuji Wang, President of the China Construction Bank Corporation explained, "The China Banking Regulatory Commission is doing research on NPL securitization. Once the policy framework comes out, each bank will start selling its own NPL securities at roughly the same time. Like other banks, we're also conducting studies on this type of products."

A recent Fitch Ratings report stated, “Prospective Chinese NPL securitization transactions will be challenging for investors due to hard-to-predict cash-flows and an uncertain judicial process. These factors may make such transactions difficult to rate at an investment grade level on an international rating scale."

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According to research by S&P Global Ratings, so far in 2016 there has been a significant increase in the percentage of Collateralized Loan Obligation (“CLO”) transactions issued that are “structured with the intent to comply with risk retention regulations” that go into effect on December 24th of this year. Of U.S. CLOs issued in 2016, “over half (56%) of deals priced year to date were structured to comply with U.S. retention, European retention, or both” whereas in 2015 “just over 20 U.S. CLO transactions (representing 10-15% of total new CLOs by count) were structured with the intent to comply”.   

This is in contrast with the path to implementation seen in the CMBS market. According to the piece, “CMBS issuers' and originators' designs regarding risk retention compliance are more opaque.” For CMBS, the “B-piece option allows the CMBS sponsor to sell a horizontal strip to one or two third parties.” But due to risk retention requirements, “the size of the B-piece will increase substantially over what we currently observe in the CMBS market, in order to reach the necessary 5% of fair market value.” In addition, there is a 5 year holding period for the retained risk for CMBS. These factors contribute to lack of clarity in the market for determining “who could provide the additional capital necessary for B-piece investments when the risk retention rules become effective for CMBS transactions in December 2016.”

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According to a recent article in National Mortgage News, the growing popularity of Fannie Mae and Freddie Mac’s (the “GSE's”) credit risk sharing deals is now raising questions about how such transactions should be accounted for in financial statements. Credit risk sharing transactions (“CRT”) are generally considered as an innovative way for the GSEs to off load to the capital markets some of their residential mortgage loan credit exposure and have been an important way to bring private capital back to the residential mortgage market. As the article explains, CRT costs are currently taken into account in calculating the GSEs in net interest income, which is defined by generally accepted accounting principles (“GAAP”). Up to this point, CRT deals have not been designated material enough to appear as a standalone item in the GSE’s non-GAAP financial details, “but if these activities become a more significant component of the GSEs’ businesses, it’s unclear at this point how they would be reported.”

According to Freddie Mac CEO Donald Layton, “[W]e don't issue specific measures because there are no standards out there as exactly how to measure this.” Freddie is allegedly considering reclassifying CRT deals as part of revenue from G-fees because they result in a reduction to G-fee income. As Andy Davidson, President of Andrew Davidson & Co. and consultant who helped develop the structure for some of the GSEs’ risk-sharing products, explains, “Instead of them earning that guarantee fee, someone else is earning at least a portion of the guarantee fee."

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SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please email us for more information, including how to join.

SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community. To ensure that you receive future editions of the newsletter, please visit our website or email us to learn more about membership opportunities.

Contact Information

Richard Johns Executive Director

Kristi Leo Investor Relations

Sairah Burki Senior Director, ABS Policy

Dan Goodwin Director, Mortgage Policy

Thomas McCrocklin Director, Advocacy

Jennifer Wolfe Manager, ABS Policy

Hua Liu Communications & Social Media Manager

Alyssa Acevedo Senior Analyst, ABS Policy

Amanda Bateman Senior Analyst, MBS Policy

Jennifer Serpas Office Manager

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