cras in the eu October 21, 2009
Posted by Bradley in : financial regulation , comments closedThe CRA regulation is dated 16 September 2009 and should be published in the Official Journal soon. CESR is now providing feedback on its consultation on a central repositary (15 responses all from the CRA and banking sectors) and a new consultation (deadline for comments 30 November, 2009) with a really catchy title: “Guidance on Registration Process, Functioning of Colleges, Mediation Protocol, Information set out in Annex II, Information set for the application for Certification and for the assessment of CRAs systemic importance”.
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.
fsa mortgage discussion paper 2 October 19, 2009
Posted by Bradley in : consultation , comments closedThe industry is reacting to the FSA’s DP in the usual ways, and some in the press are characterizing the DP as an over-reaction (although the FT says the proposals are “crude. But .. should …be welcomed”). The British Bankers Association responds to the DP with the rhetoric which was used to justify the relatively unregulated sub-prime lending market before the crisis:
It should be a firm principle of mortgage regulation that higher-risk borrowers such as self-employed people and first-time buyers are not effectively cut out of the market. The issue that faces all of us – lenders, borrowers and regulators – is ensuring the risk of taking out a mortgage can be shared effectively. Any new rules must not serve to create unreasonable obstacles either for lenders or for borrowers.
And the Council of Mortgage Lenders bangs the consumer responsibility drums:
It is important that the principle of consumer responsibility is not lost in such a regulatory environment, as it is a basic tenet upon which transactions of all kinds between firms and consumers rely.
Seems like the beginning of a lively debate.
fsa mortgage discussion paper October 19, 2009
Posted by Bradley in : consultation , comments closedThe FSA published its Mortgage Market Review Discussion Paper today. In keeping with the subject matter the FSA seems to be planning to do more to generate interest in this DP than in some of its other initiatives:
The discussion period ends on 30 January 2010. We intend to run roadshows and set up industry and consumer groups during the discussion period to share views and promote discussion of the main areas for debate.
The issues raised are somewhat complex and described with some complexity (I think the discussion of whether it might be a good idea to adjust prudential rules to protect consumers (the FSA concludes not) requires more than one reading). The FSA does propose to require income verification for all mortgage applicants and to make lenders responsible for verifying affordability. And the discussion paper also raises other questions for consideration, such as whether to prohibit mortgage loans to customers with “low borrowing capacity”. The DP suggests that the FSA wants to do more in future to protect borrowers not just from lenders but also from themselves:
overall, we think that our regulatory strategy needs to change to one that relies less on disclosure as a regulatory tool and looks to influence consumer behaviour in a more sophisticated way.
We signal here a greater realism about the behavioural biases that drive excess borrowing and a willingness to be more interventionist to help protect consumers from themselves (for example, through banning products or prohibiting sales to those consumers exhibiting multiple high-risk characteristics or limiting the amount of equity that can be withdrawn)…
We have also considered how financial capability initiatives may help (for example, by re-educating consumers away from the idea that renting is bad and home ownership good, and away from seeing property as an investment).
But if the roadshows generate consumer interest and consumers say they don’t want to be nannied, what does the FSA do then?
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.
international law lecture, um law school, october 13th 2009 October 5, 2009
Posted by Bradley in : events , comments closedEduardo Apio, Brazilian Federal Judge, and Professor Keith Rosenn of the University of Miami School of Law will speak on Judicial Activism and Health Rights in Brazil in D 201, the Reading Room in the Law Library from 12:30-1:50p.m.