Bloomberg News

U.S. Swaps ‘Reach,’ Iosco Proposal, SEC Fee: Compliance

April 22, 2013

Nine overseas finance officials urged U.S. Treasury Secretary Jacob J. Lew to limit the cross- border reach of Dodd-Frank Act swaps rules that they say are fragmenting the $639 trillion global market.

Seven finance ministers joined Michel Barnier, the European Union financial services chief, and George Osborne, U.K. chancellor of the exchequer, to tell U.S. officials to allow for broader recognition of overseas swaps rules. Their letter to Lew follows complaints by JPMorgan Chase & Co. (JPM:US), Goldman Sachs Group Inc. (GS:US) and overseas officials about the planned reach of U.S. Commodity Futures Trading Commission rules.

“We are concerned that, without clear direction from global policy makers and regulators, derivatives markets will recede into localized and less efficient structures, impairing the ability of business across the globe to manage risk,” the nine officials wrote in the letter sent to Lew April 18.

The CFTC, led by Chairman Gary Gensler, has pushed for cross-border swaps rules that cover transactions involving overseas offices of U.S. banks and hedge funds incorporated offshore. The conflict over the international reach of the CFTC’s swaps rules has led U.S. lawmakers to introduce legislation that would restrict the agency.

Steve Adamske, CFTC spokesman, didn’t respond to a request for comment about the letter.

The overseas officials said U.S. and other regulators need to allow for greater use of substituted compliance, in which one jurisdiction allows another’s to satisfy goals to curb risk in the market. Individual companies shouldn’t need to apply for substituted compliance, and jurisdictions shouldn’t seek a precise rule-by-rule test of comparability, they said.

Compliance Policy

Investment Adviser Fees Would Fund SEC Oversight in Waters’ Bill

Representative Maxine Waters, a Democrat from California, introduced a bill to allow the U.S. Securities and Exchange Commission to impose and collect user fees on investment advisers, her office said in e-mailed statement.

The Investment Adviser Examination Improvement Act of 2013 (H.R. 1627) would provide the SEC with a dedicated funding source for an investment adviser oversight program, the statement said.

Waters is the ranking member of House Financial Services Committee.

Iosco Proposes Structured Product Rules Amid Mis-Selling Concern

A global group of regulators is proposing new rules on how sales of structured products to individual investors should be governed, amid concern buyers of the securities that combine debt with derivatives are vulnerable to mis-selling.

The International Organization of Securities Commissions, which brings together market regulators from more than 100 countries, is seeking feedback on a consultation report published April 18 on the regulation of retail structured products.

Iosco’s proposals aim to improve sales practices and disclosure for the securities, which have been criticized for being too opaque and complex. National regulators in Asia, Europe and the U.S. have been seeking to tighten rules governing structured notes since the 2008 collapse of Lehman Brothers Holdings Inc., which was a major issuer.

Madrid-based Iosco is asking members to consider coordinating and aligning their regulations on structured notes, as well as the amount of information that should be disclosed to investors.

Compliance Action

China CBRC Says Banks Face Severe Risk, Rising Bad Loans

The China Banking Regulatory Commission will proactively control the nation’s new amount of bad loans and orderly reorganize the current debt of China’s banks, according to a statement posted to the commission’s website.

The CBRC also will strictly implement differentiated housing credit policies, the statement said. The commission encourages commercial banks to innovate fundraising channel tools domestically and overseas, according to the statement.

The CBRC asked banks to improve their accuracy in the way they classify loans and monitor non-performing loans. The commission also will regulate wealth management by banks, the statement said.


Ex-Siemens Executive Sharef Settles SEC Action for $275,000

A former manager of Siemens AG (SIE), Europe’s largest engineering company, agreed to pay $275,000 to settle a lawsuit brought by the U.S. Securities and Exchange Commission over a bribery scheme in Argentina.

Uriel Sharef and six other defendants allegedly paid bribes to Argentine government officials in connection with a contract for identity cards, the SEC said April 18 in a statement.

Sharef consented to the judgment “without admitting or denying” the allegations and waived the right to appeal, according to an April 15 filing in federal court in Manhattan.

Siemens, based in Munich, pleaded guilty in 2008 to violating U.S. anti-corruption laws and agreed to pay $1.6 billion to settle bribery probes in the U.S. and Germany.

Heiko Lesch, Sharef’s German lawyer in Bonn, declined to comment on the settlement. Sharef’s U.S. lawyer, Richard Grime in Washington, didn’t immediately respond to a voice-mail message seeking comment on it.

Alexander Becker, a Siemens spokesman, declined to comment on the settlement.

The case is U.S. Securities and Exchange Commission v. Sharef, 11-cv-09073, U.S. District Court, Southern District of New York (Manhattan).


IIF’s Adams Urges ‘Holistic’ Approach to Bank Oversight

Institute of International Finance President and Chief Executive Officer Tim Adams talked about financial regulation and the global banking system.

Adams spoke with Sara Eisen on the sidelines of the IMF and World Bank meetings in Washington on Bloomberg Television’s “Market Makers.”

For the video, click here.

Fed’s Stein Says Liquidity Regulation Has Key Role for Stability

Federal Reserve Governor Jeremy Stein said liquidity regulation is essential to financial stability, while noting a need for a more moderate approach to such oversight compared with supervision of capital.

“Liquidity regulation involves more uncertainty about costs than capital regulation,” Stein said in remarks prepared for a speech April 19 in Charlotte, North Carolina. “Even a policy maker with a very strict attitude toward capital might find it sensible to be somewhat more moderate and flexible with respect to liquidity.”

The Fed is enacting new powers setting capital, liquidity and risk management standards under the 2010 Dodd-Frank Act overhauling financial regulation. Central bank officials aim to prevent a repeat of the financial crisis in which liquidity vanished for many firms, contributing to the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc.

Too much demand for liquidity, particularly during a financial crisis, could lead to a shortage of liquid assets, Stein said. Though the Fed can act as a lender of last resort, this may induce financial institutions to be less prudent.

Regulators should aim to “strike a balance” between reducing reliance on the Fed as a lender and “moderating the costs created by liquidity shortages on the other hand -- especially those shortages that crop up in times of severe market strain,” Stein said at the 2013 Credit Markets Symposium, sponsored by the Richmond Fed.

Before joining the Fed in May, Stein, 52, was an economics professor at Harvard University in Cambridge, Massachusetts.

Comings and Goings

Volcker Recusal Vowed by OCC’s Top Lawyer Who Left Promontory

The top lawyer at the U.S. regulator of national banks left a consulting job where she was paid $1.2 million and advised some of the biggest firms now overseen by her agency, her financial disclosures show.

Amy Friend was managing director at Promontory Financial Group LLC before rejoining the Office of Comptroller of the Currency as chief counsel in February. She will recuse herself for a year from discussions of the so-called Volcker rule to ban proprietary trading at banks and from matters affecting Promontory or six former clients, according to an OCC memo.

Friend arrived at the OCC as Promontory was drawing attention for its influence as a middleman between banks and regulators and for its hiring of ex-officials including Julie Williams, Friend’s predecessor as OCC chief counsel, and Mary Schapiro, ex-chairman of the Securities and Exchange Commission. Promontory also was a subject of a Senate hearing earlier this month into a failed $2 billion review of U.S. foreclosure missteps.

Promontory clients listed in Friend’s filing include three of the top six U.S. banks by assets -- Citigroup Inc. (C:US), Wells Fargo & Co. (WFC:US) and Morgan Stanley. (MS:US) Friend spent a decade as an OCC lawyer until 2008 and was later the Senate Banking Committee’s chief counsel under former Senator Chris Dodd, a Connecticut Democrat, helping craft the Dodd-Frank Act of 2010.

Debra Cope, a spokeswoman for Promontory, declined to comment on the disclosures.

“We support her commitment to honoring both the letter and the spirit of the law,” Paul Nash, the OCC’s chief of staff, said in an interview.

Top Lawyers Leave CFTC as Agency Tries to Finish Dodd-Frank Act

The main U.S. derivatives regulator is losing three of its top lawyers as it tries to finish Dodd-Frank Act rules designed to curb risk in the $639 trillion global swaps market.

Terry Arbit, a Commodity Futures Trading Commission lawyer since 1996 and currently a deputy general counsel, and Harold Hardman, also a deputy general counsel who spent more than 30 years at the agency, are leaving, according to Steve Adamske, the commission’s spokesman. Dan Berkovitz stepped down as general counsel last month.

Obama Said Near Decision on Leader for Fannie Mae Regulator

White House plans to nominate a replacement for Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, are now accelerating, according to two people familiar with the discussions who asked to remain anonymous because the process isn’t public.

The plans to replace DeMarco, who has served since 2009, had long been stalled.

President Barack Obama’s administration is vetting a short list of candidates including Mel Watt, a Democratic congressman from North Carolina, and Mark Zandi, chief economist at Moody’s Corp. (MCO:US) subsidiary Moody’s Analytics, among others, the people said. Both Zandi and Watt have declined to comment.

Lawmakers created FHFA in 2008, shortly before regulators seized Fannie Mae and Freddie Mac as they neared bankruptcy.

The position requires Senate confirmation and it’s unclear whether any candidate named by Obama can win enough Republican votes to get the job.

For more, click here.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this story: Michael Hytha at

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