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eu commission and a code of conduct for lobbyists May 28, 2008

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Yesterday the Commission published, as a Communication (a formally non-binding document), a voluntary register and a Code of Conduct for Interest Representatives. Interest representation is braodly lobbying, although there are some activities which one might consider to be lobbying which are excluded. The Commission states that:

Registrants agree to abide by this Code or declare that they already abide by a professional code that has comparable rules.

Non-compliance with the Code can lead to removal from the register. As some of those who commented on the earlier proposal noted, the Code is not very ambitious.

self-regulation May 24, 2008

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The last few weeks I have been spending a lot of time in meetings, participating in law school/university self-regulation. Meanwhile I have been working on a paper with the title Reconfigured Selves in Self-Regulation, which I am going to talk about at the Law and Society Association conference next week in Montreal. The aim of the paper is to look at who the selves are in financial self-regulation and to argue that they are much more complicated than we typically think they are.

transatlantic financial regulation May 14, 2008

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From the Transatlantic Economic Council:

The European Commission will propose a positive decision on the equivalence of US accounting standards (GAAP) to EU rules in the course of 2008;
Work on mutual recognition in securities regulation has intensified and the EU and SEC will define a process for carrying out comparability assessments of their securities regimes later this year. The TEC also encourages the implementation of other approaches to facilitate cross-border financial services, such as providing relief from local licensing requirements for securities firms engaging in cross-border business with certain sophisticated investors;
We have urged our financial markets regulators to make significant strides by the end of 2008 to identify the steps that need to be taken to create a true level playing-field for EU and US insurance companies in each other’s jurisdiction

SIFMA took the opportunity to urge the SEC to work harder on achieving part of this agenda:

SIFMA is extremely disappointed to note that the SEC has been letting valuable time pass without proposing anticipated changes to the 19 year-old Securities Exchange Act Rule 15a-6. Reforming this rule would implement one of the TEC’s stated commitments and would eliminate existing inefficiencies, increase investment opportunities, improve competition, without damaging investor protection,” said David Strongin, managing director of SIFMA.

call for experts in financial education May 14, 2008

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The EU Commission today published a call for applications for membership of its Expert Group on Financial Education, established by a Commission Decision of 30 April. Applications are due by June 13, 2008 and the call states:

The Commission will take the following criteria into account when assessing applications:
1) Proven knowledge and expertise in current financial literacy issues;
2) Recent practical experience, including at European or international level, in the area of financial education;
3) The ability of the individual expert to define and shape the views of various stakeholder communities in respect of the matters covered by the mandate;
4) The need to strike a balance within the group of experts in terms of representativeness of applicants, gender and geographical origin
Members of the group of experts must be nationals of a Member State of the European Union.

risk-based loan pricing May 12, 2008

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What could be complicated about ensuring that borrowers are provided with a notice when the pricing of their loans is less favorable than the pricing of loans to other borrowers (a requirement in the FACT Act amendments to the Fair Credit Reporting Act) ? Well, Calculated Risk explains here how complicated risk-based pricing is. And the FTC and Federal Reserve have just published proposed rules to implement the statutory requirement. When they began looking into this issue by conducting outreach with various stakeholders, the agencies found that:

it may not be operationally feasible in many cases for creditors to compare the terms offered to each consumer with the terms offered to other consumers to whom the creditor has extended credit. After considering several approaches, the Agencies concluded that the most effective way to implement the statute was to develop certain tests that could serve as proxies for comparing the terms offered to different consumers. These tests could be used by creditors for which making direct comparisons among consumers would be difficult or infeasible.”

There is some recognition in the proposal that definitions may need to change if creditors’ practices change – the definition of material terms refers to the APR on the basis that risk-based pricing affects the APR (and partly because that is what consumers look to). If risk were reflected in other terms, the definition would need to change. The agencies seek input on the definition of material terms and on how to deal with the problem of comparing credits with multiple variables.

In a long and complex document, the FTC and Fed seem to have ducked some of the issues in ways that may not make the notice requirement very meaningful. For example:

The proposed rules do not define what constitutes “a substantial proportion” of consumers, even though that concept is integrally linked to the concept of “materially less favorable” terms under the statute. The Agencies have not identified a definition of “a substantial proportion” that could reflect the widely varying pricing practices of creditors generally.

The definition of what is “materially less favorable” is a bit fuzzy and involves consideration of factors including:

the type of credit product, the term of the credit extension, if any, and the extent of the difference between the material terms granted or extended to the two consumers.

Creditors can choose among different methods for comparing customers, and for providing the disclosures, including something that sounds a lot like a rather generic description of the creditor’s risk-based pricing systems. And the “notice” may be oral. The obligation applies only to the creditor, rather than to an intermediary, so if a mortgage broker uses a borrower’s credit score in determining where to look for credit, the borrower won’t receive a notice with respect to this.

Last week the Shadow Financial Regulatory Committee (see Statement No. 260) argued for removing responsibilities for consumer protection from the Fed, because these responsibilities make the Fed more “enmeshed in politics ” than it should be.

consumer financial decision-making May 11, 2008

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As the Florida lottery invites its customers to pay out even more money (in a recession) for a very very tiny chance of a bigger jackpot, Capital One wants its customers to get very friendly with their credit cards by putting their own pictures on the cards. Probably they don’t want consumers to decorate their cards with warnings to spend less money – it seems they want pictures which will give customers warm and fuzzy feelings every time they take out the cards.

happy europe day May 9, 2008

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May 9 is Europe day commemorating the Schuman declaration.