new eu financial regulation proposals October 21, 2009
Posted by Bradley in : financial regulation , comments closedThe EU Commission has published a Communication on derivatives regulation (the link is to the draft version). And there’s a new Communication on Cross-Border Crisis Management in the Banking Sector, focusing on early intervention, resolution and insolvency, which raises a number of interesting questions, for example about how to address issues of the rights of shareholders in failing banks and how to ensure integrated treatment of multinational corporate banking groups in insolvency. Views are sought by January 20, 2010. The Communication is 18 pages long, and there’s a 53 page working document and a 74 page impact assessment. These 140 or so pages are distilled into a 2 page citizens’ summary which seems to be more about PR (we’re doing something) than about trying to solicit meaningful comments from the public.
financial inclusion October 20, 2009
Posted by Bradley in : financial regulation , comments closedThe UK Government is congratulating itself on having reduced the numbers of the unbanked (although the report points out that some of the “improvement” results from recharacterizing the status of some survey respondents (people who did not state whether they had a bank account had been treated as being unbanked and are now not so treated)). The press release makes it sound as though people who open a bank account get a whole range of automatic benefits. But that isn’t exactly what the report says. Poorer people who need to control carefully the expenditure of small amounts of money may not have access to some of the ways in which wealthier people save money (such as by using direct debit). This is sort of obvious. For example:
In December 2008 the Taskforce published a report on direct debit energy payments. We found significant risks to promoting monthly direct debit payments to low-income households, which often manage their money on a weekly basis. Our report also noted that direct payments do not provide households with the same control over their energy consumption and payments as pre-payment meters. Since then, a report by the Creative Environments Network found that “[fuel]rationing behaviour and being in debt with fuel suppliers were closely related to a household’s financial behaviour”.. This work suggests that it may be unrealistic to expect low income households to take advantage of discounts available for monthly direct payments. Government and service providers may therefore need to consider new ways to reduce transaction charges for more frequent bill payments by poorer households.
It’s not just about the bank account.
money in europe: crime, religion, gender October 15, 2009
Posted by Bradley in : financial regulation , comments closedMoney laundering: The Court of Appeal held that the UK’s Financial Services Authority has the power to bring private criminal prosecutions in circumstances where it does not have statutory powers of prosecution; the EU’s financial committees (CEBS, CESR and CEIOPS) published a report on the EU Member States’ implementation of EU money laundering rules; the UK’s Treasury began a consultation on UK money laundering regulations in two parts: one directed to “professionals familiar with the Regulations and their implementation including policy makers and commentators, Regulated Firms, Supervisors and academics”, and the other directed to customers (it should be noted that the Treasury kindly concedes that mere consumers are allowed to respond to the more technical questions in the first document as well as those in the document addressed to them).
Sukuk: As Luxembourg, France and the UK vie to be attractive European locations for Islamic finance, and in particular for the establishment of sukuk, the FSA published its feedback document on its consultation on how to regulate sukuk in the UK, noting that it proposes to exempt alternative finance investment bonds from treatment as collective investment schemes and regulate them as debt securities (this treatment is not to apply to sukuk that have equity type features.
Women and money: the House of Commons Treasury Committee held a hearing yesterday on women in the city; there’s some interesting material in the written evidence, but the oral evidence session was apparently more lively.
sec proposes to expose rating agencies to liability October 8, 2009
Posted by Bradley in : financial regulation , comments closedYesterday the SEC published proposals to require the inclusion of information about credit ratings in registration statements, together with a concept release in which it proposes to subject rating agencies to a risk of liability under section 11 of the Securities Act (removing the protection currently given to such opinions when given by NRSROs). There are a number of reasons for the rather elegant proposal, but I like this one a lot:
… we believe that when credit ratings are used to sell securities, investors rely on NRSROs and other credit rating agencies as experts and that it may be appropriate for our liability scheme for experts to apply to them. In our view, NRSROs represent themselves to registrants and investors as experts at analyzing credit and risk. Investors rely on the information provided by credit rating agencies for a key part of their investment decision. NRSROs describe the credit ratings that they provide as opinions with respect to the registrant or security of the registrant, and the Commission notes that other professionals provide opinions upon which investors rely, such as legal opinions, valuation opinions, fairness opinions and audit reports, and we treat these opinions as subject to the Securities Act’s provisions for experts, including our requirements that registrants include the consents of such professionals if their reports are referenced in registration statements. It appears to us that NRSROs and other credit rating agencies are experts similar to other parties subject to liability under Section 11 and that it may no longer be consistent with investor protection to exempt NRSROs from the provisions of the Securities Act applicable to experts.
market abuse and the new tough fsa October 8, 2009
Posted by Bradley in : financial regulation , comments closedThe FSA yesterday censured two Dresdner traders (Darren Morton and Christopher Parry) who sold Barclays frns with inside information that Barclays was about to issue new frns on better terms (having been sounded out about the new issue). The traders said they believed that their acts were consistent with market practice, but the FSA said that their belief was “not reasonable” and that they were “cheating”. The decision to censure in this case reflects in part that the traders made no personal profit on the trades. But the FSA suggests that it may act more forcefully in such cases in the future.
The Telegraph suggests that the decision to censure the traders actions resulted from the moderating influence of the FSA’s Regulatory Decisions Committee, and the Independent suggests others who are subjected to enforcement action in future may decide to take their cases to the committee rather than settling with the FSA. CityWire’s Morning Line calls this:
a new low – an almost laughable riposte to Hector Sants’ warning in March this year that the City should be ‘very afraid’ of the regulator.
The Times comments:
Not only is it very embarrassing for the FSA, it sends precisely the wrong message about the City’s ethics and regulation at precisely the wrong time. With the City under attack from all sides, and the FSA threatened with extinction by the Tories, the last thing they need is to provide more ammunition to those who say they learnt nothing from the financial crisis and are determined to return to business as usual.
This case illustrates something that seems to be being lost in all of the debates over financial regulation – setting up regulators who can be effective involves complex questions of institutional design and about the people who are made responsible for running the system.
(Meanwhile, the SEC, also under some threat because of past regulatory failures, is aggressively pursuing its case against Mark Cuban, appealing to the 5th Circuit).
details of sec rules and proposals on credit rating agencies October 6, 2009
Posted by Bradley in : financial regulation , comments closedThe SEC published yesterday the details of the rules (together with proposals) on credit rating agencies it announced on September 17 to reduce reliance on ratings.
fsa on competitiveness October 5, 2009
Posted by Bradley in : financial regulation , comments closedPublishing new standards for liquidity, the FSA (pursuing its agenda of reinventing itself as a tough regulator) responds to those who argue that if the UK imposes more stringent regulation, firms subject to regulation in the UK will find it harder to compete with other, less strictly regulated firms as follows:
We maintain that, even though our new regime will require a considerable change to firms’ liquidity risk-management practices, strengthened liquidity requirements can bring substantial long-term benefits to the competitiveness of the UK financial services sector. London’s competitive position depends importantly on counterparties’ perception of the financial soundness of the firms that operate here. Low levels of financial soundness cannot provide sustainable long-term competitive advantage. It is in every firm’s interest to demand strong liquidity standards for its competitors, as the current crisis has shown that the weakest firm can precipitate a market-wide crisis of confidence affecting all firms.
fsa on responses to short selling consultation October 1, 2009
Posted by Bradley in : financial regulation , comments closedPublished today. This document doesn’t say that responses were of a high level:
There were 54 responses to DP9/01, including 17 from trade associations (or trade association coalitions) representing the views of their members. Most of the other responses came from authorised firms, but there were several responses both from non-authorised firms and individuals.We thank respondents for their comments.
fsa on responses to turner review September 30, 2009
Posted by Bradley in : financial regulation , comments closedThe FSA has published its report on reactions to the Turner Review (and accompanying discussion paper). The FSA reports that it received 81 responses (which it characterises as being “of a high standard”!) and states that:
… London’s reputation as a financial centre will be enhanced by a strong and effective regulatory framework, implemented robustly by FSA supervisors. Some have argued that the FSA should be very sensitive to the impact of any new regulatory proposals on London’s attractiveness as an international financial centre. While the FSA is certainly required (and will continue) to have regard to ‘the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom’, this is only one of a number of considerations that the FSA is required to take into account…More importantly, the FSA’s overriding concern is to achieve its statutory objectives, in particular maintaining market confidence and protecting consumers. An effective regulatory regime that delivers those objectives is the FSA’s highest priority.”
bank of england payment systems consultation September 28, 2009
Posted by Bradley in : financial regulation , comments closedThe Bank of England, exercising its functions with respect to payment systems under the Banking Act 2009, seeks comments (by October 30th) on its draft principles for recognised payment systems. The principles are pretty broadly drafted so it’s not very clear what they require. The Bank proposes to let system operators know what is required of them and to engage in regular risk reviews of payment systems. I’m not sure how reassured (or otherwise) to be about the statement that:
The Bank aims to follow a fair, reasonable and transparent process in the exercise of its powers, taking account of all relevant considerations.