MVA White Collar Defense, Investigations, and Regulatory Advice Blog

Executive Summary

The Consumer Financial Protection Bureau (the “CFPB”) has published a final rule implementing the requirements of Section 1071 of the Dodd-Frank Act (the “Final Rule”), which mandated data collection on certain credit applications to facilitate enforcement of fair lending laws and the identification of business and community development needs and opportunities for women-owned, minority-owned, and Small Businesses. Section 1071 directed the CFPB to implement rules necessary to carry out, enforce, and compile these data collection ...

The Federal Reserve Board (“FRB”) rarely issues denials for applicants to become members of the Federal Reserve System. Senator Elizabeth Warren has even criticized the FRB for their number of approvals – although in the context of bank mergers. Last Friday Custodia Bank (state chartered in Wyoming) received such a denial. Custodia Bank was formed to be “a compliant bridge between digital assets and the U.S. dollar payments system” and a digital asset custodian.

One of the difficulties digital asset companies, like Custodia Bank, have faced is being able to access the ...

In a prior post, we discussed the recent proposed rules from the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) regarding certain non-public information reported to the SEC and the CFTC in the Form PF. Most of the rule is discussing information and requirements that are not related to or focused on digital assets. However, in one part, there is a proposal to request information from private funds about their “digital assets”.

The definition from the SEC and CFTC for “digital assets” is broad and all encompassing. As a ...

The Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) (collectively, the “Agencies”) jointly proposed a rule (the “Proposed Rule”) that would impact existing confidential reporting obligations of private equity funds and other collective investment vehicles not registered as an “investment company” (referred to as, “Private Funds”). The rule proposes changes to the Form PF, a non-public report for certain SEC-registered investment advisers to Private Funds, which get submitted to the SEC (and CFTC ...

A Bloomberg article last week suggests potentially more bad news is on the way for Coinbase Global Inc. (“Coinbase”). Coinbase is reportedly facing an investigation by the U.S. Securities and Exchange Commission (“SEC”) into whether it let customers trade digital assets that the SEC believes should have been registered as securities. Rumors of investigations by the SEC do not necessarily suggest problems for the company at the center of those rumors, but the timing of a recent SEC complaint (SEC v. Wahi) may explain why this report had such a negative effect on Coinbase’s ...

On June 8, 2022, the New York State Department of Financial Services (“NYDFS”) released industry guidance applicable to U.S. dollar-backed stablecoins issued by NYDFS-regulated entities (the “Guidance”). The Guidance focuses on NYDFS requirements relating to the redeemability of these stablecoins, the asset reserves that back them (the “Reserves”), and auditor examination and attestations regarding management’s assertions concerning the sufficiency of the Reserves.  

By way of background, a stablecoin is a type of digital asset that is intended to ...

It may not be the next Taylor Swift song, but a prepayment changes the Lender-Borrower relationship. In a swap, we all know there are consequences. Rather than a “breakage cost”, the swap market just calls it an early termination payment. In loans, traditionally, there was less time/energy spent to negotiate the provisions requiring the borrower to indemnify a lender for breakage costs. Today, however, it is a hot topic. Specifically, in the context of SOFR-loan prepayments where the concept of “Breakage Costs” is a nebulous/unclear concept, leaving some market ...

On December 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) published its final rule (“Rule”) facilitating the transition away from LIBOR for open-end and closed-end consumer financial products. The Rule amends provisions of Regulation Z, which implements the Truth in Lending Act to allow for the transition from U.S. dollar LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other alternative reference rates. SOFR is deemed compliant as a replacement index whereas other alternative reference rates must pass the “comparability” or ...

The global standardization of ESG and, more broadly, sustainability related disclosure requirements may arrive sooner than anyone could have expected. A recent Financial Times article entitled “New Body to Oversee Global Sustainability Disclosure Standards” (paywall) announces that, in response to investors increasing focus on sustainability and the growing need for clearer standardized company disclosures, the IFRS Foundation, the current administrators of the International Accounting Standards Board, are in the process of forming their newest brainchild: the ...

This is an update to a previous post. This update highlights the formal endorsement of Term SOFR by the ARRC, expands the discussion to include Ameribor and dives more deeply into the issues associated with Term SOFR swaps resulting in a mismatch with any related hedge by the Lender.

The ARRC has endorsed (HERE) CME’s Term SOFR. One of the bigger pieces to this announcement and earlier related announcements (Scope of Use Cases), is that U.S. regulators will also permit Term SOFR Swaps, when one of the parties is an “end-user”. When looking only at the loan market, what new reference ...

Wednesday, the ARRC announced (HERE) the expectation to endorse CME’s Term SOFR in late July or early August. One of the bigger pieces to this announcement is the announcement that U.S. regulators will also permit Term SOFR Swaps, when one of the parties is an “end-user”. When looking only at the loan market, what new reference rate will be the most common? Term SOFR, BSBY or one of the other SOFR rates? A few thoughts below, but at this point I think Lenders need to begin considering how rate options will be discussed with Borrowers. We have worked with clients to develop guidance on ...

Last month marked the tenth anniversary of the United Nations’ Human Rights Council adoption of the Guiding Principles on Business and Human Rights (“UNGPs”), setting forth the internationally-accepted framework for the role of businesses in promoting and protecting human rights. These principles highlight the risks businesses face in their activities that may be linked to human rights violations. According to the UNGPs, “[b]usiness enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address ...

In a recent speech, the new SEC Chairman, Gary Gensler, came out questioning the use of BSBY as a replacement to LIBOR, by highlighting a number of “concerns” he has with BSBY and why SOFR is preferable.

HERE is the speech. The last half focuses on BSBY.

Gensler focused largely on the transaction data which underpins BSBY versus the transaction data which underpins SOFR. Here, SOFR has not only a clear advantage, but Gensler also notes weakness in BSBY in the 6- and 12-month tenors. However, there is an important difference between SOFR and BSBY that should have been noted by Gensler ...

In a press release (HERE) on June 8th, the Commodity Futures Trading Commission (the “CFTC”) published its first release in a series called the “SOFR First Transition Initiative” as a best practice. One goal for this sort of “best practice” is to impact the liquidity in LIBOR and SOFR swaps, thereby slowly (a) increasing the spread on LIBOR swaps and (b) tightening the spread on SOFR swaps. In other words, make LIBOR swaps more expensive and SOFR swaps less expensive. Even for non-dealers, this announcement is important as it is not only a major step in such non-dealers’ ...

Summary

Last Friday, the IBA published its Feedback Statement on Consultation on Potential Cessation.

The relevant dates regarding cessation are the same in the November request for comment – i.e., all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

• immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and,
• immediately after 30 June 2023, in the case of the remaining US dollar settings.

MVA Financial Services Counsel Ed Ivey‘s article titled “Election Season Special: 2021 Candidates for LIBOR Replacement” was recently published in the Futures & Derivatives Law Report, a Thomson Reuters publication. The article provides an overview and analysis regarding the various non-SOFR alternative reference rates, such as Ameribor, and issues related to the chances such rates have at being adopted and widely used in the market.
 
The article
Get excited. The next big election season is about to kick-off. The London Inter- bank Offered Rate (“LIBOR”) is ...