Bloomberg News

U.K. Bank Shortfalls, Hedge Fund Ads, SEC ‘Shift’: Compliance

April 29, 2013

Britain’s new banking regulator has rattled lenders by holding off disclosing how much capital each firm will have to raise after ordering the industry to plug a 25 billion-pound ($38 billion) shortfall by the end of the year, three people with knowledge of the discussions said.

The Prudential Regulation Authority, the unit of the Bank of England that took over supervision of the industry from the Financial Services Authority this month, isn’t expected to detail the steps all banks need to take to bolster their balance sheets until mid-May at the earliest, said two of the people who asked not to be identified because the talks are private. Banks had expected to be told in March, one of the people said.

That delay could leave banks less than seven months to plug the gap identified by the Bank of England. The regulator is recommending the firms raise capital to cover bigger potential losses, possible fines for mis-selling and stricter risk models.

The banks will hold within three weeks their first formal meetings with the PRA since the central bank published its report on March 27, the people said. They will discuss the assessment by the Bank of England’s Financial Policy Committee and the capital plans the banks have already outlined, the people said.

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Compliance Policy

SEC’s White Said to Push to Lift Ban on Hedge-Fund Advertising

U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.

White, who became SEC chairman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012.

Approving the regulation would allow White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation. At the same time, it could anger advocates for small investors and at least one Democratic commissioner.

The SEC’s five-member commission has been divided on the rule since last year.

John Nester, an SEC spokesman, declined to comment on White’s plans.

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U.S. Regulators Say Libor Needs Shift to Market-Pricing System

Interest-rate benchmarks must be tied to market transactions instead of estimates to protect the global financial system against mis-allocation of capital and mismanagement of risk, according to a panel of U.S. regulators.

U.S. and overseas agencies must identify alternatives to the London interbank offered rate “that are anchored in observable transactions and are supported by appropriate governance structures,” the Financial Stability Oversight Council said in a report released April 25.

FSOC, a council of regulators created by the Dodd-Frank Act to monitor financial-system risk, made the recommendations after three banks paid $2.5 billion in fines in a global manipulation probe. The council, led by Treasury Secretary Jacob J. Lew, also includes Federal Reserve Chairman Ben S. Bernanke and heads of agencies such as the Securities and Exchange Commission, the Federal Deposit Insurance Corp. and the Commodity Futures Trading Commission.

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Scottish Independence May Cause Pensions ‘Timebomb,’ Herald Says

Scottish independence could prompt a multibillion pound pensions “timebomb” as companies are forced to plug the shortfall in under-funded cross-border pension plans, the Herald newspaper said, citing a report by the Institute of Chartered Accountants of Scotland.

The requirement under European Union regulations could bankrupt some companies leaving hundreds of thousands of past and present workers seeking backing from state-backed protection funds, the Glasgow-based newspaper said.

ICAS urged the Scottish and U.K. governments to begin talks to resolve potential pension difficulties in the event of Scotland becoming independent after next year’s referendum, the Herald said.

The Scottish government said there was no reason why an independent Scotland could not reach the same sort of agreement the U.K. has with Ireland to allow cross-border funding shortfalls, the newspaper said.

Compliance Action

CFTC Certifies ICE’s Routing Plan Over DTCC Objections

The U.S. Commodities and Futures Trading Commission certified Intercontinental Exchange’s plan to route data on cleared swaps to its own data repository, the agency said on its website.

The Depository Trust and Clearing Corp. opposed the plan and urged the CFTC to reject it, arguing it is anti-competitive.

Databases are required under Dodd-Frank to hold information about swap prices and volume.


SEC Foreign Payment Rule Challenge Declined by Appeals Court

A challenge to a U.S. Securities and Exchange Commission rule requiring some companies to disclose payments to foreign governments must first be handled by a lower court, the U.S. Court of Appeals in Washington said.

The SEC disclosure regulation comes under a section of law requiring review by the U.S. District Court, not the appeals court, which has jurisdiction over many other commission rules, the court said in a ruling April 26. The regulation, issued under the 2010 Dodd-Frank financial reform law, covers companies engaged in oil, natural gas or mineral extraction.

Anticipating the dispute over venue, the American Petroleum Institute, the U.S. Chamber of Commerce and two other trade groups that sued in the appeals court lodged a similar, pending complaint in district court in Washington.

The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-1398, U.S. Court of Appeals for the District of Columbia (Washington).

The district court case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).

Widow Gets Less Than Minute of Probation in U.S. Tax Case

A 79-year-old widow who pleaded guilty in the largest individual case since a U.S. crackdown on offshore tax evasion began received less than a minute of probation from a judge who scolded prosecutors.

U.S. District Judge Kenneth Ryskamp April 25 sentenced Mary Estelle Curran, who had an account at UBS AG (UBSN), to one year of probation before immediately revoking it in federal court in West Palm Beach, Florida. Curran’s attorney Roy Black told the judge that she was “unsophisticated” about financial matters.

Curran, of Palm Beach, faced as long as 37 months in prison for failing to disclose to the Internal Revenue Service that she had more than $43 million in Swiss bank accounts. Curran pleaded guilty to two counts of tax evasion in January. She paid a $21.6 million penalty as well as back taxes.

Ryskamp described the situation as “tragic,” and said the government “should have used a little more discretion.” He urged Black to appeal to the president to pardon Curran, saying it would be “just spiteful” if the government didn’t join in.

Mark Daly, a Justice Department trial attorney, declined to comment after the hearing. Daly didn’t oppose Black’s request for probation.

Since 2008, U.S. prosecutors have charged almost 90 people in a crackdown on offshore tax evasion, including more than two dozen bankers, lawyers and advisers.

Zurich-based UBS, the largest Swiss bank, was charged with conspiracy in February 2009 and avoided prosecution by admitting it aided tax evasion, paying $780 million and handing over account data on 250 clients, including Curran. It later disclosed information on about 4,450 more accounts.

Curran, who has a high school education, contacted a lawyer who advised her to declare the accounts she had inherited from her husband. The lawyer didn’t file the paperwork until after Curran had been named and federal investigators deemed her ineligible for an amnesty program.

The case is U.S. v. Curran, 12-cr-80206, U.S. District Court, Southern District of Florida (West Palm Beach).

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Yoder Says Donation Oversight Goes Beyond SEC’s Scope

U.S. Representative Kevin Yoder, a Kansas Republican, talked about the Securities and Exchange Commission’s plan to consider requiring public companies to disclose political spending.

Yoder coordinated a letter from 66 House Republicans urging the SEC not to move forward with a rule. He spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers.”

For the video, click here.

Dimon Losing Chairmanship Would Be ‘Nuts,’ Langone Says

Kenneth Langone, founder and chief executive officer of Invemed Associates Inc., and Richard Farley, a partner at Paul Hastings LLP, talked about the possibility that JPMorgan Chase & Co. (JPM:US) CEO Jamie Dimon will be stripped of his chairman role.

Langone also discussed proposed legislation to increase capital requirements on “too-big-to-fail” banks while easing requirements on smaller, regional banks.

He and Farley spoke with Erik Schatzker and Sara Eisen on Bloomberg Television’s “Market Makers.”

For the video, click here.

SEC’s Canellos Says Enforcers Shifting to Dodd-Frank Compliance

George Canellos, co-chief of the U.S. Securities and Exchange Commission’s enforcement division, said investigators are turning their focus to enforcing new regulations from the 2010 Dodd Frank Act.

Canellos made the remarks April 26 while speaking on a panel at a Practising Law Institute event in New York. Enforcers play a “critically important” role in shaping new rules, he said.

While highlighting new regulations aimed to bring transparency to the derivatives market, he said investigators are pursuing issues such as the role of fiduciaries who are responsible for setting up internal safeguards against fraud and improper risk taking. The shift in focus comes as the agency wraps up cases linked to the credit market turmoil of 2008, Canellos said.

Investigators are also trying to harness technology to drive more data-driven cases, according to Canellos. The agency is looking for evidence of companies distorting their earnings reports by comparing past performance records against analyst estimates. A consistently close correlation could indicate fraud, he said.

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

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

The Aging of Abercrombie & Fitch
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