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.
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.
british cheese week October 2, 2009
Posted by Bradley in : britishness , comments closed
I just learned from Mark Easton’s blog that it is the middle of British cheese week.
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.”
not a surprise – evidence that bank financial statements are misleading September 28, 2009
Posted by Bradley in : disclosure , comments closedHarry Huizinga & Luc Laeven, Accounting Discretion of Banks During a Financial Crisis, IMF Working Paper 09/207 (Sep. 2009):
In the present crisis, the financial statements of banks appear to overstate the book value of assets to the point of becoming misleading guides to investors and regulators alike.. Thus, the present crisis can be seen as a ‘stress test’ of the accounting framework that reveals that book valuation need not always reflect the best estimate of asset value, especially at a time of sharp declines in market values. Accounting reforms announced so far and discussed in this paper, however, seem to go in the direction of increasing the gap between book and market values. This may be testimony that bank interests weigh heavily in this debate.
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.
g20 progress ? September 26, 2009
Posted by Bradley in : financial regulation , comments closedIt’s not entirely clear how meaningful any of this is yet, but there’s much more detail in the G20 leaders’ statement than in the crisis-related statements that came out of earlier meetings. There are some small commitments to the reform of governance of the IMF. And the statement links to the work of the Financial Stability Board, with approval of some of the details, for example with respect to compensation. The FSB published reports yesterday on improving financial regulation, improving stability, and on compensation.
The leaders’ statement claims that progress has been made in improving financial regulation:
Since the onset of the global crisis, we have developed and begun implementing sweeping reforms to tackle the root causes of the crisis and transform the system for global financial regulation. Substantial progress has been made in strengthening prudential oversight, improving risk management, strengthening transparency, promoting market integrity, establishing supervisory colleges, and reinforcing international cooperation. We have enhanced and expanded the scope of regulation and oversight, with tougher regulation of over-the-counter (OTC) derivatives, securitization markets, credit rating agencies, and hedge funds.
But the FSB suggests that it is nervous about some of the domestic developments in these areas. For example, with respect to CRAs the FSB notes:
Attention is needed to avoid requirements coming into place in different jurisdictions that have features that fragment rating markets or impose unnecessary burdens on CRAs.