Hedge ‘Passport,’ Basel Targets, EPA: Compliance

Hedge-fund and private-equity regulations that restrict bonuses and require increased disclosure at the firms were approved by the European Parliament in Brussels by a vote of 513 to 92 in favor of the rules.

Yesterday’s vote came after negotiators representing the parliament and 27 member states reached a preliminary deal last month.

Finance ministers from the European Union agreed on a compromise at a meeting in Luxembourg in October to give the European Securities and Markets Authority powers over a so- called passport system for non-EU hedge-fund managers. The Brussels-based European Commission proposed the rules last year.

The passport would give managers access to investors across the EU with a single registration, in return for complying with transparency rules. The rules stop short of preventing hedge funds based outside the EU without a passport from taking EU investors’ money.

As part of the law, private-equity managers will also face tougher rules on asset stripping, and private investors will be required to provide information on their strategic plans to employees of companies they control.

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Compliance Policy

Western Union, MoneyGram May Lose as Fed Sets Remittance Rules

The Federal Reserve may force money-transfer firms to more fully disclose fees and exchange rates, which may lower costs for customers and reduce earnings at Western Union Co. and MoneyGram International Inc.

The rules will be among the first changes in consumer finance to emerge from the Dodd-Frank regulatory overhaul law. The Fed has begun discussing the regulations with industry and advocacy groups because the Consumer Financial Protection Bureau is not yet in place, according to three people briefed on the matter.

Western Union and MoneyGram are the biggest players in cross-border remittances often used by foreign workers to send money home. Customers of money-transfer services sent $414 billion globally in 2009, the World Bank reported Nov. 8.

MoneyGram “supports the well-intentioned goals” of the law, Lynda Michielutti, spokeswoman for the Minneapolis-based company, said in an e-mail. She noted that MoneyGram believes the proposal will create “reduced competition, fewer consumer choices, increased costs and limited innovation, which will negatively impact our customers.”

Regulators have “a lot of a latitude here, so I can’t speculate on the impact on business,” said Tim Daly, senior vice president for government relations at Englewood, Colorado- based Western Union.

Smaller competitors could be more vulnerable than the international firms to higher operating costs, since new regulations may require technological upgrades, said Manuel Orozco director of the remittances program at Inter-American Dialogue, a nonprofit policy group in Washington.

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Insurers, Clearing Said to Be Target for Basel Rules

Insurers and companies that process financial trades may be considered too big to fail under rules being prepared by global regulators amid opposition from the insurance industry, two people close to the discussions said.

The Financial Stability Board and the Basel Committee on Banking Supervision are considering including insurers and clearing houses in measures to safeguard the world economy from crises at so-called systemically important financial institutions, said the people, who declined to be identified because the talks are private.

The FSB and Basel committee are seeking tougher rules for too-big-to-fail organizations to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. and the bailout of American International Group Inc.

Insurers argue it would be a mistake to classify them in the same way as banks.

The FSB is working on criteria to identify institutions that are systemically important at a global level, the FSB said in an e-mailed statement. It declined to comment on whether insurers or clearing houses would be included.

Leaders from the Group of 20 nations met yesterday and were scheduled to meet today in Seoul to review FSB and Basel proposals on the tougher requirements.

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Wall Street Banks May Add Emerging Market Holdings, Hintz Says

Trading desks of big Wall Street banks, grappling with higher capital requirements, may decide to boost their holdings of emerging market securities and sovereign debt, according to Brad Hintz at Sanford C. Bernstein & Co., a response to regulatory policy that carries its own risks.

The so-called Basel III capital requirements imposed by the Basel Committee on Banking Supervision as well as limits to proprietary trading and changes to derivatives rules in the U.S.’s Dodd-Frank law make it harder for trading desks to earn a sufficient return on equity, Hintz wrote in a note to investors yesterday titled “Is Trading, As We Know It, Dead?” One solution will be changing the types of assets held on trading desks, Hintz said in the note.

“Our belief is that the ‘new optimal’ balance sheet of Wall Street will include larger emerging market positions in equity and debt” because they are fast growing and earn a higher return, Hintz wrote. Banks will also emphasize “a large government and sovereign book” because such holdings require little capital even if they earn low returns, he wrote.

Hintz said there is a risk that too many market participants pile into the same types of assets, known as a crowded trade, inflating prices and then leading to losses when investors all try to sell at once.

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EPA Bid for Carbon Clarity Fails to Satisfy Business

The Environmental Protection Agency’s effort to give states a leading role in curbing pollution tied to global warming failed to satisfy the agency’s critics in business and the U.S. Congress.

The agency said Nov. 10 that states can determine what pollution-cutting technologies power plants and oil refineries should use when the first national carbon-dioxide emission rules take effect next year. Environmental activists praised EPA’s flexibility. Opponents said the rules were too vague and would damage the economy because businesses will be afraid to build for fear of violating rules.

President Barack Obama’s EPA is proceeding with rules to regulate carbon-dioxide pollution, a greenhouse gas blamed for climate change, after Congress failed to pass legislation. EPA Administrator Lisa Jackson has said she will pursue modest steps that will help reduce emissions over time. Critics said the Nov. 10 guidance for states and companies confused more than it clarified.

The EPA said complaints that the rules, which will be implemented through a permitting process, will halt the building of power plants are “simply wrong,” and denied there will be a moratorium and delay in obtaining building permits.

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Compliance Action

SEC Asked to End S&P’s ‘Burdensome’ Fees for ID Numbers

The U.S. Securities and Exchange Commission should limit fees that Standard & Poor’s charges for identification numbers for bonds and other instruments, three financial groups said Nov. 10 in a letter.

S&P, the credit-rating unit of McGraw-Hill Cos., charges from $10,000 to “hundreds of thousands” for so-called Cusip numbers, said the Bond Dealers of America, the Investment Adviser Association and the Government Finance Officers Association. They sent the letter to SEC Chairman Mary Schapiro saying the agency should “reduce burdens,” and issued a press release yesterday.

S&P runs the American Bankers Association’s Cusip Service Bureau, which assigns the numbers to securities and charges licensing fees for their use. Often those fees get passed to investors, according to the release.

Market regulators often require the numbers, which are used by bond dealers, investment advisers and municipal-bond issuers, the letter said. S&P has been setting fees for their use “without any publicly stated rationale,” according to the letter.

The letter is inaccurate and misleading, said Michael Privitera, a spokesman for S&P, which hadn’t seen the document. S&P’s licensing and charging practices “are transparent and in line with data provider industry norms and based on fair, reasonable and non-discriminatory terms,” he said in an e-mail.

John Heine, an SEC spokesman, declined to comment.

Italy Regulator Sets Unbundling Fees for Telecom Italia’s Grid

Italy’s communications regulator, Agcom, approved the unbundling fees that rivals have to pay Telecom Italia SpA to access its fixed-line network, it said in an e-mailed statement yesterday.

The unbundling tariffs will be increased to 8.70 euros a month in 2010, 9.02 euros a month in 2011 and 9.28 euros a month in 2012, it said. FastWeb SpA, Tiscali SpA and Vodafone Plc said in a statement that they were “disappointed” with the fees.

Venezuela Banks May Surrender 5% of Profits With Law

Venezuela could force banks to transfer 5 percent of their pretax profit to a social fund and declare the banking industry of social interest, making it easier to approve nationalizations, under terms of a bill that was approved in a first vote yesterday.

“Banking institutions will dedicate 5 percent of their total pretax profit for social responsibility to finance communal council projects and other forms of social organization stipulated in the law,” the bill, which is posted on the National Assembly’s website, says.

The bill still needs to be approved in a second vote before being signed into law by President Hugo Chavez.

According to Softline Consultores, 5 percent of Venezuelan bank profits amounted to 314 million bolivars ($73.1 million) in 2009 and to 168 million bolivars in the first half of this year.

Chavez has tightened his grip on financial institutions this year and closed 14 banks. The president accused them of swindling depositors, failing to comply with capital requirements and fueling capital flight. The government has seized assets of bank directors who fled the country.

Chavez says he won’t hesitate to seize institutions that fail to meet directed lending requirements.

New York-based Citigroup Inc., Bilbao, Spain-based Banco Bilbao Vizcaya Argentaria SA, and Toronto-based Bank of Nova Scotia all hold stakes in banking operations in Venezuela.

Spain’s Banco Santander SA sold its local bank to the government for $1.05 billion last year. The government now controls about 25 percent of the banking industry.


Mason Says Republicans to Focus on Credit Availability

Jeb Mason, managing director for financial services policy at Cypress Group, talked about the outlook for financial regulation under a Republican-controlled U.S. House of Representatives.

Mason spoke with Margaret Brennan on Bloomberg Television’s “InBusiness.”

For the video, click here.

To contact the reporters on this story: Carla Main in New Jersey at cmain2@bloomberg.net; Ellen Rosen in New York at erosen14@bloomberg.net.

To contact the editor responsible for this report: David E. Rovella at drovella@bloomberg.net.

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