Bloomberg News

Islamic Scholars, ICE Futures Switch, RBS: Compliance

October 16, 2012

After at least five years of delays, Islamic finance experts in Saudi Arabia and Malaysia are renewing efforts to create common regulations for scholars.

Malaysia’s International Shariah Research Academy for Islamic Finance is working with its Middle Eastern counterpart on guidelines that will address the number of boards on which scholars can sit to reduce conflicts of interest, according to Executive Director Mohamad Akram Laldin in Kuala Lumpur. An institution will also be established to provide global accreditation, said Akram, who helped set up a body last year to oversee advisers’ activities in the Southeast Asian nation.

The industry needs such measures to boost confidence and improve transparency, Abas A. Jalil, Kuala Lumpur-based chief executive officer of Amanah Capital Group Ltd., said in an interview Oct. 14. Discussions have faltered in the past because of Persian Gulf experts’ more stringent interpretations of Shariah law, which could still hinder progress, he said.

In most countries there’s no limit to the number of entities to which a scholar can advise on Shariah compliance, Akram at Malaysia’s academy, said in an Oct. 10 interview. To avoid conflict of interest in the Southeast Asian nation, the central bank doesn’t allow Islamic experts to sit on more than one board involved in the same business.

The new rules being worked on in conjunction with the Islamic Research & Training Institute in Jeddah, Saudi Arabia, will also determine if religious scholars can own shares in companies they advise and govern the disclosure of information relating to products they help structure, Akram said.

The $1.3 trillion global Islamic finance industry is seeing annual average growth rates of 15 percent, Malaysia’s Securities Commission said in a June 27 statement. The proposed regulations from the two academies come as sales of Shariah-compliant debt, which pays returns on assets to comply with Islam’s ban on interest, climbed to a record in the six-member Gulf Cooperation Council, which includes Saudi Arabia.

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Japan Considers Cutting Loan Size Limits, Nikkei Says

Japan’s Financial Services Agency proposes cutting the financial group loan limit to 25 percent of equity capital from the current 40 percent, Nikkei newspaper reported, citing an unidentified FSA official.

Banks can now lend 25 percent as a single entity, and 40 percent as a financial group, Nikkei said. The rule would apply the 25 percent limit to groups, according to Nikkei. The legal provisions would be revised in 2013.

The Basel Committee is preparing new regulations for larger loans. The International Monetary Fund urged Japan to revise the rules, Nikkei said.

Compliance Action

ICE Switches More Than 900 Swaps to Futures on Dodd-Frank Rules

Intercontinental Exchange Inc. (ICE:US), the second-largest U.S. futures market, has converted more than 900 over-the-counter energy contracts to regulated futures in response to rules meant to prevent another financial crisis.

The Commodity Futures Trading Commission guidelines that went into effect Oct. 12 require firms holding $8 billion of bilateral derivatives to register as swaps dealers and meet new performance standards. The CFTC granted a reprieve to the CME Group Inc. (CME:US), owner of the world’s largest future exchange, on Oct. 12 by saying the trading of its swaps won’t be counted toward the dealer minimum until Dec. 31.

The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 gave the CFTC, which regulates futures contracts, jurisdiction over the swaps markets with the aim of increasing transparency.

Commodity futures are traded on exchanges that follow rules imposed by the CFTC, while swaps are negotiated directly between counterparties and until now lacked many of the same restrictions, including limits on the number of contracts one trader could hold.

Swaps and futures are used by speculators and hedgers to place bets on oil, natural gas and power prices. Swap dealers will face capital, collateral, record-keeping and business conduct standards under Dodd-Frank. The rules force traders to report over-the-counter transactions to regulators and process them through third-party clearinghouses.

Atlanta-based ICE, which owns the largest European energy market, has converted all cleared energy contracts starting Oct. 14.

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Polish Regulator to Lift Loan Cap for Individuals to Help Growth

Poland’s financial markets regulator plans to lift a debt- to-income limit on loans to individual clients as it eases rules to help boost credit growth.

Banks meeting criteria for Tier 1 capital ratio and solvency ratio will be allowed to apply simplified rules when making consumer loans, the head of the regulator said yesterday. The watchdog will no longer cap clients’ payments at 50 percent of monthly income.

The regulator is seeking to ease the rules starting in 2013 after cash loans, lending for cars and home appliances and debt on credit cards fell 3.5 percent to 125.9 billion zloty ($40 billion) in July from the end of last year. It will also seek to soften regulations for mortgages.

Banks controlling more than 90 percent of Polish banking assets fulfill the regulator’s criteria for simplified lending, Wojciech Kwasniak, the deputy head of the regulator said yesterday.

Societe Generale Ordered to Suspend Some Operations in Japan

Societe Generale SA (GLE)’s Japan trust-banking unit was ordered to suspend some operations after the country’s financial regulator found its pension-money management business had breached rules.

The regulator ordered Societe Generale Private Banking Japan to suspend new trust-banking business at its corporate client division for three months from Oct. 23 until Jan. 22, the Financial Services Agency said in a statement in Tokyo today. The French bank was also ordered to review its corporate governance framework and strengthen internal controls.

The unit failed to conduct proper due diligence on asset management firms it invested money with on behalf of a local pension fund, according to the statement. The unit has already taken corrective action and is working with the FSA to finalize a business improvement plan in response to the regulator’s findings, Societe Generale’s local unit in a statement on statement on its website.

Colombian Tax Changes Would Lure Foreign Investors, Suarez Says

Colombian tax legislation presented to lawmakers this month aims to cut the yields on peso bonds by luring foreign investors to the local debt market, Public Credit Director Maria Fernanda Suarez said.

By cutting the tax rate and simplifying “almost impossible to understand” rules, Colombia hopes to cut the spreads between the local peso bonds, known as TES, and peso-linked bonds sold abroad, called Global TES, Suarez said Oct. 14 in an interview in Tokyo, where she was attending annual meetings of the International Monetary Fund.

The legislation would allow the government to levy a tax of either 12.5 percent or 25 percent on TES and corporate debt compared with the current 33 percent, Suarez said.

Speculation that Colombia plans to issue Samurai bonds this year is unfounded, Suarez said, reiterating that the government won’t sell any more debt this year. The country will probably return to international credit markets in the first half of 2013 and will conduct either one or two international debt sales next year, Suarez said.

Watson, Actavis Agree to Sell Drug Rights in Accord With FTC

Watson Pharmaceuticals Inc. (WPI:US), maker of the generic version of Lipitor cholesterol pills, agreed to sell rights to 18 drugs to win approval from the U.S. Federal Trade Commission for its purchase of Actavis Inc.

Watson and Actavis will sell the rights to Sandoz International GmbH and Par Pharmaceuticals Inc. and give up manufacturing and marketing rights to three other medicines to resolve competition concerns, the FTC said in a statement yesterday.

Watson, based in Parsippany, New Jersey, said on April 25 that it was buying closely held Actavis for 4.25 billion euros ($5.5 billion) to create the third-largest global generic-drug maker. Revenue for 2012 was anticipated at $8 billion, the company said. According to the FTC’s administrative complaint, the acquisition would have hurt competition in 21 generic-drug markets.

FTC commissioners voted 5-0 in favor of the complaint and proposed settlement order, the agency said.

Courts

Gupta Admirers Gates, Annan Urge Mercy as Insider Sentence Nears

Microsoft Corp. (MSFT:US) Chairman Bill Gates and former United Nations Secretary-General Kofi Annan were among supporters of ex-Goldman Sachs Group Inc. (GS:US) director Rajat Gupta who urged mercy at his sentencing next week for his part in the biggest hedge fund insider trading scheme in U.S. history.

Gupta is to be sentenced Oct. 24 for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam, who masterminded the conspiracy. In letters to U.S. District Judge Jed Rakoff in Manhattan, Gates, Annan and at least 200 others wrote on behalf of Gupta, who faces as many as 20 years in prison on the most serious of the four counts of which he was convicted.

Gupta is the most prominent of the 69 people convicted since a nationwide insider trading crackdown by U.S. prosecutors and the FBI began in 2009. Besides his tenure at New York-based Goldman Sachs, Gupta served as managing partner of McKinsey & Co. from 1994 to 2003 and on the boards of Procter & Gamble Co. (PG:US), the Rockefeller Foundation and the Bill & Melinda Gates Foundation.

Gupta, 63, was found guilty in June of three counts of securities fraud and one count of conspiracy, following a four- week federal jury trial. Gupta left Goldman Sachs’s board in 2010.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).

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Banks Sued by U.S. Homeowners Over Rigging of Libor Benchmark

U.S. homeowners filed a lawsuit against 12 banks, including Barclays Bank Plc (BARC) and JPMorgan Chase & Co. (JPM:US), claiming that manipulation of the benchmark Libor lending rate made their mortgage repayments more expensive.

Traders at banks in Europe and North America such as UBS AG, Bank of America Corp. (BAC:US) and Royal Bank of Scotland Group Plc (RBS), “unjustly enriched themselves” by manipulating the rate, according to the complaint. That allowed them to increase the payments by homeowners on adjustable rate loans, boosting profit, according to the lawsuit.

Libor, or the London interbank offered rate, is the benchmark for more than $300 trillion of securities and loans. The rate is calculated from a daily poll carried out by Thomson Reuters Corp. on behalf of the British Bankers’ Association, a London-based lobby group. Lenders are asked to estimate how much it would cost to borrow from each other for different periods and in different currencies.

The other banks being sued in the U.S. District Court in New York are Citigroup Inc., Rabobank International Holdings BV,Credit Suisse Group AG (CS:US), HSBC Holdings Plc, Lloyds Banking Group Plc, Deutsche Bank AG and Royal Bank of Canada, according to the filing.

The plaintiffs asked for class-action status, a jury trial, cash compensation and an order permanently blocking the banks from rigging Libor.

It is the first lawsuit filed by homeowners, the Financial Times reported earlier today without saying where it got the information. The five lead plaintiffs include Annie Bell Adams, a pensioner whose home was repossessed, the FT reported.

The case is Adams v. Bank of America Corp. (BAC:US), 12-cv-07461, U.S. District Court for the Southern District of New York (Manhattan).

Interviews/Speeches

Wheatley Says U.K. Regulator to Study Consumer Behavior

Martin Wheatley, a managing director at the U.K.’s Financial Services Authority, spoke at an event in London about the new Financial Conduct Authority, of which he will be chief executive officer. He discussed FSA’s plans to study consumer behavior and adapt its rules accordingly.

For the video, click here and for more, click here.

Levitt Says There Is Little Chance Banks Will Be Capped

Former U.S. Securities and Exchange Commission Chairman Arthur Levitt, who is a senior adviser to the Carlyle Group (CG:US), said capping the size of banks is neither practical nor politically feasible.

Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Basel III Rules May Go Easier on Smaller Banks, OCC’s Curry Says

Smaller U.S. banks may get longer transition periods and so-called grandfather clauses to help ease them into compliance with proposed Basel III capital rules, Comptroller of the Currency Thomas Curry said yesterday.

“We will be thinking broadly about ways to reduce regulatory burden,” he said in remarks prepared for delivery at an American Bankers Association convention in San Diego.

U.S. regulators in June proposed a tighter capital regime to bring lenders into compliance with rules based on an international agreement drawn up by the Basel Committee on Banking Supervision in 2010. Curry said the Office of the Comptroller of the Currency will take another look at how so- called “accumulated other comprehensive income” is treated for smaller banks, because the proposal would be “expensive and difficult to manage” for them.

Comings and Goings

RBS Said to Suspend European Rates Trading Head in Libor Probe

Royal Bank of Scotland Group Plc suspended its head of rates trading for Europe and the Asia-Pacific region, the first senior manager to be put on leave as part of the lender’s probe into allegations of Libor-rigging, two people with knowledge of the move said.

Jezri Mohideen was suspended on Oct. 12 after Bloomberg News reported he instructed colleagues to lower the British lender’s submission to the London interbank offered rate in 2007, said the people, who asked not to be identified because the matter is private. Mohideen, who didn’t respond to e-mail and telephone messages today, has previously denied he pressured anyone to submit false rates.

The suspension is a sign the bank’s two-year-old investigation into its role in the Libor-rigging scandal is widening. Edinburgh-based RBS fired four traders last year for attempted rate rigging. The bank also suspended three more, two of whom have since been reinstated.

RBS, the biggest publicly owned bank in the U.K., is one of at least a dozen firms being investigated over allegations they colluded to influence Libor and other rates so they could profit from derivatives bets or to appear healthier than they were.

Mohideen, who joined RBS in 2006, denied he pressured colleagues.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.


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