the sec and regulation of credit rating agencies September 18, 2009
Posted by Bradley in : financial regulation , comments closedThe SEC announced a bunch of new rules on rating agencies (details to be provided later). And the SEC will be seeking views on further de-emphasis of ratings in regulations and on the liability issue. Meanwhile, in the EU, Charlie McCreevy, discussing the reform of financial regulation notes the EU’s actions in this area and claims that the G20 is “broadly on the same line” as the EU on a range of matters, including CRAs. Of course, the EU’s role in regulating CRAs is a bit odd given that the dominant agencies are based in the US. On the other hand, the SEC’s Inspector General’s report on the SEC’s feeble oversight of NRSROs may suggest that a bit of a push from elsewhere, as well as some domestic political attention, is necessary to encourage the SEC not only to focus on developing appropriate rules, but also to apply the rules it does adopt.
sec enforcement as seen by judge rakoff: not a pretty picture September 15, 2009
Posted by Bradley in : financial regulation , comments closedJudge Rakoff’s decision not to approve the proposed consent judgment in SEC v Bank of America takes the high road:
The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth.
transparency of results of consultation September 14, 2009
Posted by Bradley in : consultation , comments closedThe EU Commission today published results of consultations on out of court resolution of disputes about financial services and basic bank accounts. The Commission has produced summary documents reflecting the results of the consultation. These documents show that the Commission received 97 responses to the basic bank accounts consultation and 68 responses to the ADR consultation. The basic bank accounts summary document reveals a range of views about the issues among respondents. For example, the document suggests that industry and public authorities have much more faith than consumers and users of financial services and civil society organisations in the effectiveness of voluntary codes of conduct. Not a very surprising result. And although there’s a lot of academic support for self-regulation, the academic organisations and think tanks which responded to this consultation did not tend to think that voluntary codes were effective either.
iosco audit firm ownership consultation September 11, 2009
Posted by Bradley in : consultation , comments closedBeginning this week and until December IOSCO is seeking comments on the idea of non-professional ownership structures for audit firms. Although IOSCO doesn’t always publish the full text of responses to its consultations this is one of the times where it proposes to do so. There are other consultations on auditor communications and on transparency and responses to these documents are also to be published.
joining eu like getting married? September 9, 2009
Posted by Bradley in : eu , comments closedIceland didn’t yet manage to seal a union with the EU on this auspicious date, but the EU’s Commissioner for Enlargement, Ollie Rehn, was at least discussing the proposal for Iceland to join the EU, analogising the union between Member States and the EU to a marriage:
We can compare the commitment to EU membership to a commitment to marriage . The wedding normally takes place only after a longer or shorter courtship, during which the pros and cons of the union are thoroughly assessed… the European Union is not only a marriage of convenience. It is also a marriage of shared spirit and commitment to our common political endeavours, which aim at achieving peace through integration, and pooling our sovereignty for freedom and liberty, prosperity and solidarity, inside and outside Europe.
I’m not sure we should take this analogy much further….
credit rating agencies September 3, 2009
Posted by Bradley in : financial regulation , comments closedI just posted a paper on credit rating agencies to SSRN. Here is the abstract:
The market for credit ratings is a transnational market dominated by a small number of credit rating agencies (CRAs). The article examines how CRAs have used market protection rhetoric and harmonization rhetoric during the crisis in the financial markets. As criticisms of pre-crisis financial regulation proliferated one might have expected CRAs to be less forceful in their resort to market protection rhetoric. CRAs’ lobbying strategies have evolved as discussions about the broader future of financial regulation have evolved, and they have conceded a greater role for regulation in 2009 than they had before the crisis, but they continue to emphasize, with some success, that as a global business they should not be subjected to different rules in different jurisdictions, and to insist that the core of their methodological approaches to rating should be unregulated.
ethics and finance September 3, 2009
Posted by Bradley in : ethics , comments closedDr Duvvuri Subbarao, Governor of the Reserve Bank of India, gave a speech the other day which included the following passage.
John Stuart Mill said that if we make men honest, good and decent, then they will make themselves honest, good and decent engineers, doctors and teachers, and may I add, financial sector professionals. The financial sector is, after all, a reflection of the society in which it operates. So, the approach to bringing ethical values into finance has to begin not by special efforts to enforce or regulate ethical standards in finance, but by fostering a value system in society at large.
I think he is absolutely right on this one, but approaching the issue from this perspective makes it even more difficult a problem to solve than if we could just change a few rules here and there.
fsa develops eyebrows? September 1, 2009
Posted by Bradley in : financial regulation , comments closedIt used to be said that the UK financial markets were controlled by the Governor of the Bank of England’s eyebrows. It seems that interviews with the FSA have resulted in 10 per cent of candidates for senior management positions at UK financial institutions withdrawing before hearing whether the FSA would approve of them or not.
protection, not protectionism September 1, 2009
Posted by Bradley in : financial regulation , comments closedIn today’s New York Times, Daniel Price writes about an increase in protectionism, focusing in particular on protectionism in the financial markets. The specific examples he gives seem to be all about EU rules (although there is a reference to “several countries” (not named) having taken steps to “increase domestic lending at the expense of cross-border lending”). Now, in the context of a global crisis where defects in US policy and regulation were significant causal factors I have some sympathy for protective, if not protectionist, impulses.
But I think the EU examples don’t reflect so much European protectionism as a European negotiation with the market. Before the crisis, Commissioner McCreevy was a noted proponent of better regulation. The crisis changed the world, but perhaps not really so much in the context of technical rules of financial regulation. Rather than European clearing of credit default swaps just being a matter of European rules imposed on the markets by protectionist regulators, the new clearing system reflects a negotiation between the Commission and market participants:
In response to the Commission’s call for central clearing of credit default swaps (CDS), ten major dealers committed to clear CDS on European reference entities, and indices based on these entities, through one or more central counterparties (CCPs) established and regulated in the European Union by 31 July 2009. The Commission has set up a working group, involving dealers, the buy-side (e.g. banks, insurance companies and funds), CCPs and supervisors, to monitor the orderly roll-out of this commitment.
Market participants responded to an invitation by the Commissioner. OK, there was a big stick in the background, but the result was not just a matter of protectionism.
The EU’s proposals to regulate credit rating agencies, also referred to in the article, developed over time, and as the result of energetic lobbying about the ratings business being a global business (in fact dominated by three large US raters) and the need for the EU to back off its original position. The requirement for ratings developed by non-EU raters to be endorsed by EU-based entities doesn’t apply to smaller non-EU firms ( a certification system will apply to such firms instead). The details are still being worked out, but the story is at least as much an example of a victory for harmonization rhetoric, as it is an example of protectionism.
a supreme court for the uk August 29, 2009
Posted by Bradley in : dispute resolution , comments closedIn just over a month’s time the UK’s new Supreme Court will start work in a new building (well, a repurposed older building), and it has a new website. In a very British sort of a way, the new website emphasises both continuity and change:
1 October 2009 marks a defining moment in the constitutional history of the United Kingdom: transferring judicial authority away from the House of Lords, and creating a Supreme Court for the United Kingdom in the historic setting of the former Middlesex Guildhall on Parliament Square.
The old Law Lords will move to the new building, becoming the first Justices of the Supreme Court, and they will also sometimes be operating as the Judicial Committee of the Privy Council. But whereas there was just one House of Lords they will now be among a number of Justices of different Supreme Courts around the world.
The aims of the website seem a bit confused. Bits of it seem to be designed to attract attention rather than to assume that people will pay attention because the court is important. The US Supreme Court’s website makes this assumption, and seems more serious by doing so. In contrast, I find the UK Supreme Court page about the significance of the court to the UK to be a bit weird:
The Supreme Court has been established to achieve a complete separation between the United Kingdom’s senior Judges and the Upper House of Parliament, emphasising the independence of the Law Lords and increasing the transparency between Parliament and the courts….
For instance, in their previous role as the Appellate Committee of the House of Lords, the Justices gave landmark rulings on the legality of the Hunting Act 2004 under European law, and whether or not a schoolgirl could be prevented from wearing traditional cultural dress.
The House of Lords never seemed to have much of a problem with independence (although the Law Lords did sometimes interfere a bit in the legislative process and then of course they would have to interpret the results of the legislative process…) but what does this “increasing the transparency between Parliament and the courts” language mean? And doesn’t the reference to just two high profile cases make it seem like what the court will do is just more reality tv (proceedings will be filmed)?
The UK Supreme Court’s website is also very corporate, telling us about the Court’s Executive Team and providing an organisational chart. I care much more about the substance of what the new court does than about who its administrators are.