bba libor announcement September 25, 2012
Posted by Bradley in : financial regulation , add a commentToday the BBA announced:
The BBA seeks to work with the Wheatley review team as they complete their consultation on the future of LIBOR. If Mr Wheatley’s recommendations include a change of responsibility for LIBOR, the BBA will support that.
Press stories seem to assume that the BBA will be walking away. I am not sure what this would do for all of the transactions where the documentation refers to “BBA Libor” or “British Bankers Association Libor” (such as this one).
financial regulation developments September 19, 2012
Posted by Bradley in : financial regulation , add a commentThe UK Treasury is now consulting on the financial policy committee.
Today, Andrea Enria, Chair of the EBA, speaking to the EU Parliament’s Committee on Economic and Monetary Affairs, commented on the Banking Union proposals, saying the they will require a single rulebook for the EU and “a leap towards truly unified supervisory methodologies” to avoid a polarisation between the euro area and the rest. She also promised that the EBA will be working on consumer issues. Steven Maijur of ESMA also updated the Committee on ESMA’s work. EIOPA does not yet seem to have published its submission on its web page.
Next Monday the Committee on Economic and Monetary Affairs will hold a hearing with the title: “Tackling the culture of market manipulation – Global action post Libor/Euribor” (Gary Gensler will participate).
Update: here is the EIOPA statement.
hector sants letter about fsa, diamond and barclays September 19, 2012
Posted by Bradley in : financial regulation , add a commentWhen the Treasury Select Committee published its preliminary report into Libor last month, Hector Sants wrote a letter to Andrew Tyrie stating that when the FSA approved Diamond’s appointment it did so having considered the fact and implications of the Libor investigation. Today, about a month after the letter was written, the Committee published the letter, a file note supporting the contents of the letter, and Andrew Tyrie’s response. As the Telegraph notes, Tyrie’s response points out that the Sants letter, supported by the file note, contrasts with statements Marcus Agius made to the Committee.
questions about ensuring financial stability September 15, 2012
Posted by Bradley in : financial regulation , add a commentThe GAO raises a number of questions about the effectiveness and accountability of the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) in a report published this week. The report makes a number of observations about transparency gaps in this structure. Financial stability is a context in which the relationship between transparency and policy seems to me to be complicated. The GAO would like to see more transparency, noting in its conslusions:
both FSOC and OFR could be more transparent. For example, FSOC’s minutes contain limited details about the council’s discussion and the amount of detail included in the minutes has declined over time. While some information discussed must remain confidential given potential market sensitivities, legal restrictions on sharing certain information, and the need for members to deliberate, striving to be as transparent as possible given the potential impact of some of its decisions on institutions and markets is important for FSOC. FSOC’s and OFR’s limited transparency has caused some former government officials, industry representatives, and academics to question whether they are making progress. Continued efforts to increase transparency will allow the public and Congress to better understand FSOC’s and OFR’s decision making, activities, and progress.
The report does suggest that the US arrangements for financial stability may be less skewed towards the views of central bankers than those in the EU:
although the United Kingdom (UK) and the European Union (EU) have established or are in the process of establishing councils to oversee systemic risk, in the UK and the EU the central bank has more members or more votes than other entities on these councils. In contrast, in the United States, the central bank—the Federal Reserve—has one member on FSOC and one vote among the 10 voting members. FSOC policy staff and staff at member agencies noted that the diverse perspectives of FSOC members enrich FSOC deliberations.
Whether or not bodies with responsibilities for financial stability would be better served by more or fewer central bankers is an interesting question. But it’s worth noticing in this context that some central bankers are thinking in complicated ways about regulation – and not just focusing on banks. I’m thinking about Andy Haldane in particular (for example this recent speech about the downsides to complexity in financial regulation – titled The Dog and the Frisbee).
iosco on libor September 14, 2012
Posted by Bradley in : financial regulation , add a commentIOSCO has announced the establishment of a “Board Level Task Force on Financial Market Benchmarks” to be co-chaired by Martin Wheatley of the FSA (responsible for the UK’s Wheatley Review) and Gary Gensler of the CFTC. You can tell this is an important (Board Level) Task Force because all of its members are men.
The press notice states that:
Other international organizations and national regulators, such as the European Commission, UK Treasury, (Wheatley Review), Central Bank Governors of the Bank for International Settlement and the Global Financial Market Association, are also undertaking work on the benchmark issue.
The inclusion of the GFMA in this list of “international organizations and national regulators” seems a bit odd to me even though GFMA published a set of principles for financial market benchmarks a week ago. Much of the GFMA principles document is rather content free – a lot of high-minded language but not much apparent bite. The possible exception to this is the combination of record-keeping and independent review requirements for, among other matters, the calculation of the benchmark. If proper records were kept, and were discoverable in litigation, it would make it easier to figure out where any liability for rigging might lie. And this fact might discourage rigging. But although there’s not a whole lot of detailed substance to the principles there isn’t any less than you find in most transnational standards documents. The oddity is really in including the GFMA in this list as it’s not a national regulator, or an international organization in the same way that IOSCO and the Basel Committee are. It’s a private sector group. And given the failures in Libor etc seem to me mostly to have been failures of the private sector, including failures of governance at the BBA and in banks, that is a bit strange. On the other hand, given the recent focus on the culture of financial firms, the GFMA has a real incentive to be seen to care about standards.
the summer is over – financial regulation just gets more complex September 13, 2012
Posted by Bradley in : financial regulation , add a commentMore complex in terms of figuring out the costs of failures of financial regulation. Better Markets says the financial and economic crisis cost more than $12.8 trillion in GDP loss and GDP loss avoided because of emergency spending and actions by the Federal Reserve Board. And there’s more:
Then there are the enormous unquantifiable costs from the economic wreckage Wall Street caused from one end of our country to the other. For example, unemployment, bankruptcies, foreclosures, and underwater homes have destroyed many neighborhoods and communities across the country, while decimating the tax base of cities, towns, counties, and states. Added to that are the demoralizing and gnawing invisible costs of anguish, anger, depression, and often humiliation from losing a job and failing to provide for a family; being forced to move out of a home, often to move in with relatives or friends, but sometimes to move into a car or homeless shelter; watching your children get sick with no ability to go to a doctor or pay for a prescription; signing up for food stamps and having your children get free school lunches that you can no longer afford; having to break it to your children, who have worked so hard in school, that college is no longer affordable and they have to get a job, any job, as soon as possible; or your spouse finding out that you aren’t retired but working at a low paying, often minimum wage, job because you need the money. This list sadly goes on and on, including spouse, child, alcohol, and, too often, drug abuse.
More complex in terms of the development of transnational financial regulation. The EU Commission published proposals for the European Banking Union: a proposed regulation giving regulatory powers to the ECB, a proposed regulation amending the regulation establishing the European Banking Authority, and a Communication setting out a roadmap. And the Bundesverfassungsgericht is allowing Germany to ratify the ESM Treaty, subject to limitations with respect to the amount of the German contribution and requirements for the German Parliament to be informed.
And more complex in terms of assigning blame and sanctions. The FSA made an example of Peter Cummings, formerly of HBOS, fining him half a million pounds and banning him from holding any senior position in a UK bank, building society, investment or insurance firm “on the grounds that he lacks competence and capability” to act in such a role. The 92 page final notice notes a number of other factors in HBOS’ problems which it says mitigated the sanction imposed, including Mr Cummings’ giving up of a bonus. But the FSA says he should have improved controls, and notes a number of issues with the culture at the bank, including a “culture of optimism” and the fact that staff were encouraged “to focus on revenue rather than risk.” A full report into HBOS is to come out in due course (the notice says that work on the report had to follow enforcement proceedings, suggesting that no-one else at HBOS will be sanctioned). Mr Cummings criticizes the FSA for taking action against him alone at HBOS, saying the action “is tokenism at its most sinister.” Nils Pratley asks why the other directors are “off the hook.”
libor: commission consultation September 5, 2012
Posted by Bradley in : consultation, financial regulation , add a commentThe Commission has published a consultation document on the regulation of “indices”, with comments due by November 15th. The “target group” for the consultation is “[c]ontributors to, providers of and users of indices and benchmarks.” The document suggests that recent proposed changes to the market manipulation regime may not be sufficient to address the problems the libor/euribor scandal identified:
changing the sanctioning regime alone may not be sufficient to improve the way in which benchmarks are produced and used. Sanctioning does not remove the risks of manipulation arising from the inherent conflicts of interest linked to the production and governance of benchmarks in their current form. This consultation seeks to assess how to improve the production and governance of benchmarks. Benchmarks should accurately reflect the economic realities that they are intended to measure and should be used appropriately.
sec: final rules on conflict minerals and payments by resource extraction issuers August 23, 2012
Posted by Bradley in : financial regulation , add a commentThe SEC adopted two final rules yesterday, on disclosures with respect to conflict minerals (proposed in December 2010) and on disclosures of payments resource extraction issuers make to governments (also proposed in December 2010). Statements by the Commissioners raised questions about whether the SEC should be involved in requiring disclosures about either of these matters, given that the purpose of the disclosures is not primarily about informing investors but is about illuminating the actions of governments and achieving humanitarian objectives. Daniel Gallagher said (with respect to the resource extraction rules (he also critiqued the conflict minerals rules)):
As an independent agency, the SEC should have played a significant role in informing Congress about the pitfalls of mandating rulemakings that are not germane to our mission….In any event, even if I had no objection in principle to efforts to achieve social and foreign policy objectives through the disclosure requirements of the securities laws, I am not able to support this rule today, because the analysis is incomplete. The costs this rule will impose are clear enough. Its intended benefits, by contrast, are socio-political and aspirational in nature, worthy but indeterminate — although they are presumed to justify all costs. And certain key discretionary choices made by the Commission’s rule will have the effect of increasing the rule’s burdens….we have no reason to think the SEC will succeed in achieving complex social and foreign policy objectives as to which the policymaking entities that do have relevant expertise have, to date, largely failed.
With respect to the conflict minerals rules, Troy Paredes said:
We all want the violence in the DRC to end. Unfortunately, the adopting release does not offer a reasoned basis for concluding that the final rule will help bring this about, and there is cause for concern that the hardship and suffering could worsen if the outcome is a de facto embargo. Accordingly, I caution against any sense that the need for action to abate the humanitarian crisis is allayed because of the rule the Commission is adopting today.
Luis Aguilar took a very different view. For example (with respect to conflict minerals):
Today’s rulemaking is the culmination of a careful and comprehensive process and a clear Congressional directive. The Commission has faithfully administered its judgment and expertise, as the independent agency tasked by Congress to implement Section 13(p). The rule under consideration today is in the interest of investors and the public interest.
Looks like the set-up for the lawsuits.
fsa replacing mis-selling with no-selling August 22, 2012
Posted by Bradley in : consumers, financial regulation , add a commentIn a consultation paper published today (comments requested by November 14) the FSA states:
We have found that the majority of retail promotions and sales of unregulated collective investment schemes (UCIS) that we have reviewed fail to meet our requirements, exposing ordinary investors to significant potential for detriment. This demands action. We are proposing to intervene in the market by changing our rules to ban the promotion of UCIS and close substitutes to ordinary retail investors in the UK.
Many sellers of these funds are not ensuring suitability and do not understand the relevant rules, so the FSA proposes to ban sales of unregulated collective investment schemes and “close substitutes” (including traded life policy investments) to “ordinary retail investors” (sales will be possible to sophisticated investors) (including investment through Individual Savings Accounts, self-invested personal pension schemes, platform services etc) reflecting a change in approach to stop problems arising rather than dealing with problems after they have arisen (and this includes restricting possibilities for regulatory arbitrage). The FSA says:
We are making the judgement that the benefits of improving customer outcomes for most retail investors outweigh the costs to the minority for whom they may be suitable.
Retail investors who genuinely seek out the investments will be able to buy them – the FSA’s concern is with respect to problematic financial promotion.
Under the heading “Who Should Read this Consultation Paper?” the CP says it will be of interest to consumers and consumer organisations. In terms of its subject matter, that is clearly accurate, but the document is not drafted to be accessible to those who are not used to navigating the complexities of the FSA’s rules.
libor – treasury committee preliminary report August 18, 2012
Posted by Bradley in : financial regulation , add a commentIs here. The report notes a “naivety” on the part of the Bank of England and a “dysfunctional relationship between the Bank of England and the FSA… to the detriment of the public interest” and adds to recent debates about whether the UK is behind the US in dealing with issues of financial regulation (an issue also raised by the Standard Chartered Affair):
The Committee is concerned that the FSA was two years behind the US regulatory authorities in initiating its formal LIBOR investigations and that this delay has contributed to the perceived weakness of London in regulating financial markets.
And the committee suggests it may have been misled:
It remains possible that the entire Tucker-Diamond dialogue may have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal.
(Update: Here is the link to the volume reporting the oral evidence).