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ISDAfix Probe, In-Car Twitter, China Life: Compliance

April 24, 2013

The U.K. Financial Conduct Authority has started an inquiry into how the so-called ISDAfix rate is set in British pounds, widening a price-manipulation probe into benchmark interest-rate swaps that began in the U.S.

The FCA is working with the U.S. Commodity Futures Trading Commission and is in the early stages of its review, according to two people familiar with the matter, who asked not to be named because the inquiry is ongoing. The London-based regulator hasn’t opened a formal investigation, one of the people said.

The British regulator’s review comes after the CFTC issued subpoenas to current and former brokers at ICAP Plc (IAP) in Jersey City, New Jersey, the International Swaps & Derivatives Association and as many as 15 Wall Street dealers as part of its probe of the dollar-denominated rate, Bloomberg News first reported April 8. ISDAfix rates help determine everything from interest on annuities to borrowing costs on bonds linked to skyscrapers.

The FCA, previously known as the Financial Services Authority, began looking into manipulation of the London interbank offered rate in 2009 after the CFTC requested its assistance the prior year. The British agency opened a formal investigation of that rate in early 2010.

Chris Hamilton, a spokesman for the FCA, declined to comment as did Steve Adamske, a CFTC spokesman.

Compliance Policy

Carmakers Urged to Ban U.S. In-Car Facebook and Twitter Use

U.S. regulators yesterday issued guidelines for automakers intended to limit distractions from the use of Twitter Inc. and Facebook Inc. (FB:US) through in-vehicle infotainment systems.

The Transportation Department, in non-binding guidelines, asked automakers to bar the use of social media sites and Internet browsing when a vehicle is moving. Automakers are also urged to design navigation and other screen-based systems so that drivers don’t need to take their eyes off the road for more than two seconds to select an option, or for a total of 12 seconds to complete an entire task such as entering an address.

Automakers complained about the draft guidelines issued last year, saying limiting the use of in-vehicle technology would cause drivers to revert to using more dangerous handheld devices. The Alliance of Automobile Manufacturers, whose members include General Motors Co. (GM:US) and Toyota Motor Corp. (TM:US), said its own guidelines were less restrictive.

The alliance, based in Washington, said it’s concerned that the government is only addressing equipment installed in vehicles and that will lead to more use of handheld phones and other devices.

For more, click here.

EU Assembly Seeks Depositor Preference in Bail-In Law Deal

Uninsured depositors would be placed last in line for forced losses, or bail-ins, at failing banks under draft plans agreed on by the European Parliament, according to the assembly’s lead legislator on the measures.

Lawmakers from the “major political groups” included the change in a draft accord on legislation aimed at shielding taxpayers from having to rescue banks, Gunnar Hoekmark, a Swedish member of the EU parliament, told reporters in Brussels. Unsecured debt with a maturity of less than one month and deposits of as much as 100,000 euros ($130,000) would be exempted from losses, he said.

There is a “broad majority” in favor of the proposals, which must be negotiated with national governments, Hoekmark said. A vote in the assembly’s Economic and Monetary Affairs Committee will be scheduled “as soon as possible,” he said.

Michel Barnier, the EU’s financial services chief, proposed creditor writedowns last year as part of a package of measures to tackle too-big-to-fail lenders. National governments and the EU Parliament are considering the plans against the backdrop of last month’s rescue deal for Cyprus, in which the island nation bowed to demands from creditors to shrink its banking system and write down deposits of more than 100,000 euros.

Cyprus’s parliament voted against an earlier accord that would have also imposed losses on savers with less than 100,000 euros. Such so-called insured deposits are protected under EU law, which requires nations to make reimbursements.

Secured debt, such as covered bonds, would be protected from losses under the plans.

Once the parliament has voted on the plans, lawmakers will negotiate with national governments on the final version of the law.

Compliance Action

China Said to Plan Easing Life Insurance Rules to Aid Sales

China plans to allow life insurers to pay higher returns on some policies, a person with knowledge of the matter said. That may make them more attractive for investors stymied by government limits on bank deposit rates.

The China Insurance Regulatory Commission may scrap the 2.5 percent maximum rate on fixed-return policies in a trial starting as early as next month, said the person, who asked not to be identified because the matter isn’t public. To contain risks, rules on how much insurers need in reserves for payouts won’t change, which may prompt them to boost the amount prepared by about 20 billion yuan ($3.2 billion), the person said.

Premium growth has slowed as Chinese savers, seeking higher returns, turn to riskier investments such as wealth management products. Removing the cap on returns may revitalize revenue growth while also channeling savings away from less-regulated investments known as shadow banking.

The regulator’s Beijing-based press office didn’t immediately reply to faxed questions seeking comment.

One concern for the regulator is that allowing higher returns may cause more clients to end their current policies, the person said. The forecast for higher reserve needs is based on the regulator’s base-case scenario, which predicts redemptions will increase by less than 50 percent by value from the current level, according to the person.

That scenario estimates that returns on policies will rise to close to the five-year bank deposit rate of 4.75 percent, the person said.

Offering higher returns may also crimp profits. China Life reported a 40 percent slump in net income last year as it recognized losses on investments in stocks.

Insurers that offer returns on policies of more than 3.5 percent will need regulatory approval and must set aside additional reserves, the person said. Such reserves would be reflected in the companies’ solvency ratios, the person said.

For more, click here.


Credit Suisse Securities Sues to Block Arbitration by Finra

Credit Suisse Securities LLC sued to block a Financial Industry Regulatory Authority arbitration, arguing that the investors who initiated the claim don’t fit the Finra definition of “customer” required for the dispute-resolution process.

The investors named in the complaint bought exchange traded notes underwritten by Credit Suisse called TVIX, on the secondary market, “through accounts or advisers unaffiliated with Credit Suisse” Credit Suisse said in a complaint filed April 22 in federal court in Baltimore.

VLS Securities LLC, of Darien, Connecticut, a marketing agent for TVIX, also is a plaintiff in the suit and a respondent, with Credit Suisse, in the arbitration claim.

“The individual investors sued by Credit Suisse and VLS have already received a Finra ruling denying a motion to move their cases outside of Finra,” said Cynthia Moulton, of Moulton & Arney LLP, an attorney for the investors. “We intend to contest Credit Suisse and VLS’s efforts to obtain a different result in federal court.”

The case is Credit Suisse Securities LLC v. Fesenko, 13- cv-1187, U.S. District Court, District of Maryland (Baltimore).

Corzine Sued by MF Global Trustee for 8th Biggest Bankruptcy

Jon Corzine, the former head of MF Global Holdings Ltd., failed to oversee the futures broker, leading to the eighth- biggest bankruptcy in U.S. history, according to a lawsuit filed by Louis J. Freeh.

Corzine, a former governor and senator from New Jersey and once a co-chairman of Goldman Sachs Group Inc. (GS:US), was sued along with senior executives Bradley Abelow and Henri Steenkamp in U.S. Bankruptcy Court in Manhattan yesterday. Freeh, a trustee for the failed holding company of the brokerage, alleged that they failed to act in good faith and implemented strategies that caused the company to fail.

During their tenure, the three executives “dramatically changed the company’s business plan without addressing existing systemic weaknesses that ultimately caused the plan to fail,” Freeh said in the complaint.

The lawsuit seeks unspecified damages “to be determined at trial,” as well as legal fees, according to the 61-page filing. It follows a 124-page report published this month by Freeh which blamed Corzine and his management team for bungling an expansion of the company’s traditional business model while ignoring deficiencies in its risk controls.

The parent company of brokerage MF Global Inc. filed for bankruptcy on Oct. 31, 2011, after a wrong-way $6.3 billion trade on its own behalf on bonds of some of Europe’s most- indebted nations. The company listed assets of $41 billion and debts of $39.7 billion.

There is no basis to the claim that Corzine breached his fiduciary duties or was negligent, said Corzine spokesman Steve Goldberg in an e-mailed statement.

“To the contrary, Mr. Corzine was recruited to revitalize a troubled company, and during his entire tenure as CEO he worked tirelessly with the Board, firm management and world class consultants to improve MF Global’s operations and performance,” Goldberg said. Freeh’s lawsuit ignores the failure of counterparties to fulfill their obligations to MF Global, he said.

The holding company’s Chapter 11 case is In re MF Global Holdings Ltd. (MFGLQ:US), 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The liquidation of the broker is In re MF Global Inc., 11-bk-02790, in the same court.

For more, click here.


Cordray Defends U.S. Consumer Bureau’s Data Collections

U.S. Consumer Financial Protection Bureau Director Richard Cordray testified about the agency’s data collection and supervisory efforts.

He testified at a Senate Banking Committee hearing in Washington.

For the video, click here.

Comings and Goings

SEC Names Anne Small as General Counsel

The U.S. Securities and Exchange Commission named Anne Small as general counsel.

Small worked in the White House Counsel’s Office as special assistant, associate counsel to the president since October 2011, the SEC said in a statement. She has advised on legal policy questions with a focus on economic issues.

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

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

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