China Rules, Print-Room Tips, Credit Suisse: Compliance

China’s banking regulator plans to implement more stringent capital adequacy ratios in the second half of the year, giving lenders time to prepare, said China Banking Regulatory Commission Assistant Chairman Yan Qingmin.

Yan made the remarks to reporters during meetings of the National People’s Congress.

The regulator is seeking industry feedback and approval from the State Council on the Basel III rules, which give the world’s largest lenders, including Industrial and Commercial Bank of China Ltd., until 2019 to increase core capital ratios to as much as 9.5 percent of risk-weighted assets, Yan said.

China should move faster to liberalize interest rates to encourage competition, even though the change may reduce lenders’ profitability, Yan said. It’s not sustainable for banks to make more than 60 percent of profit from the difference between borrowing and lending rates, he said.

The country will gradually eliminate negative real interest rates, Yan said. He said China has no plans to reduce the required 75 percent loan-to-deposit ratio.

Separately, China may allow companies to sell high-yield bonds on a trial basis as soon as the first half as the government seeks to aid businesses struggling for funding, the head of the nation’s securities regulator said.

The China Securities Regulatory Commission (CSRZ) hopes to allow sales as early as possible and may be able to start trials in the first six months of this year, Chairman Guo Shuqing told reporters after attending legislative meetings held in Beijing yesterday.

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Compliance Policy

Swiss Lawmakers Approve U.S. Tax-Treaty Amendment, Aiding Talks

Switzerland’s lower house approved an amendment to a double-taxation agreement with the U.S., allowing so-called group requests in cases of suspected tax evasion or tax fraud.

The amendment to the 2009 tax treaty will enable U.S. authorities to obtain data on groups of American clients holding Swiss bank accounts without knowing their identities. Yesterday’s vote in parliament in the Swiss capital Bern was 110 to 56, with 14 abstentions.

Switzerland and the U.S. are holding talks to resolve an investigation involving 11 Swiss financial firms after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service. The amendment would “significantly increase” the amount of client data eligible for administrative assistance, the Swiss government said last month.

The amendment clarifies a September 2009 tax accord, which Switzerland signed after agreeing six months earlier to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. While a 1996 agreement already allows the transfer of dossiers in cases of tax fraud, the new accord will extend group requests to tax evasion.

The Swiss government must ratify the modified 2009 double- taxation agreement, covering cases starting in September of that year. The U.S. Senate also needs to approve it.

Separately, the U.K. and Germany must modify their tax arrangements with Switzerland so they don’t interfere with broader savings-income tax accords, said European Union Tax Commissioner Algirdas Semeta.

EU’s Barnier Said to Offer Draft Shadow-Banking Rules Next Week

European Union regulators, concerned about attempts to evade a clamp-down on excessive risk taking, will weigh tougher rules for money market funds and other so-called shadow banks, according to an EU official familiar with the proposal.

Michel Barnier, the region’s financial services chief, will publish draft plans for regulating shadow banks next week and may seek to have new rules in place by the start of 2013, according to the official who declined to be identified because the talks are private.

Options being considered by the EU include extending capital requirements for lenders and insurers to shadow banks, or forcing them to comply with oversight rules that were originally intended for hedge funds, the person said.

The Group of 20 nations has urged regulators to rein in lenders that minimize the capital requirements by using shadow banks to shift risks off their balance sheets.

Barnier will seek views on the proposals, which are set to be adopted on March 13, before deciding how to proceed, according to the official.

Sommers Says CFTC Will Publish Guidance on International Reach

The U.S. Commodity Futures Trading Commission may publish guidelines within weeks on the international reach of Dodd-Frank Act derivatives rules, said Jill E. Sommers, a Republican commissioner.

The guidelines will cover when institutions would be required to register with the CFTC, Sommers said yesterday in a speech at a bankers’ conference in Washington. The agency may consider other guidelines or rules governing the international reach of new clearing and market-infrastructure rules, she said.

Banks Should Tell Customers How to Recover PPI Money, FSA Says

Banks should contact customers who were wrongly sold loan coverage known as payment protection insurance and explain how to apply for compensation, the U.K.’s Financial Services Authority said today.

Banks that mis-sold insurance on credit-card and mortgage payments should write to customers to warn them of the deadline for making claims, the London-based FSA said in a statement on its website.

Lloyds Banking Group Plc, Britain’s largest mortgage lender, posted a wider-than-estimated full-year loss last month due to reimbursing customers for improperly-sold payment protection insurance, or PPI. The British Bankers’ Association, an industry group, lost a court challenge last year to stop the regulator from ordering them to pay compensation.

Compliance Action

UBS, JPMorgan Print-Room Data Used in U.K. Insider-Trading Ring

Seven people made more than 1 million pounds ($1.5 million) profit by trading on information taken from the print rooms for UBS AG and JP Morgan Chase & Co. (JPM), a lawyer for the Financial Services Authority said yesterday.

Inside information obtained by brothers Ersin Mustafa and Ali Mustafa who worked at the firms’ print rooms was used by five others to place trades through Mitesh Shah, who was a broker at Finspreads, now called City Index Ltd., said Michael Bowes, a lawyer for the prosecution. The men bet on six companies, including Biffa Group Ltd. and Premier Oil Plc. (PMO), between May 2006 and 2008.

The FSA filed charges in the case, known as Saturn, in 2010 after a 21-month investigation, which employed around 25 lawyers and investigators probing 130 trading accounts. The defendants in the Saturn case were either family members or friends, and were able to coordinate their actions, said Michael Bowes, a lawyer for the prosecution. Executives at the banks weren’t involved in the ring.

There is “no allegation whatsoever that anyone” at JPMorgan or UBS did anything wrong, Bowes said.

Credit Suisse Offers to Buy Back $4.4 Billion in Hybrid Bonds

Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, offered to repurchase 4 billion Swiss francs ($4.4 billion)in outstanding tier 1 and tier 2 securities as it prepares to replace them with capital instruments that satisfy new Swiss and Basel III rules.

Financial Officer David Mathers said in an e-mailed statement yesterday that Credit Suisse plans to change “its capital structure well in advance of the required implementation dates.”

Credit Suisse is selling contingent capital bonds to replace so-called hybrid debt, which will no longer count as the highest-quality capital under rules approved by the Basel Committee on Banking Supervision in 2010. The bank met yesterday and will meet again today with investors before a possible sale of contingent capital notes, a banker with knowledge of the plans, who declined to be identified because the information is private, said last week.

Credit Suisse agreed in February of last year to sell $3.5 billion and 2.5 billion francs of contingent convertible bonds, known as CoCos, to existing shareholders in Qatar and Saudi Arabia in exchange for tier 1 capital notes sold in 2008. Under current rules, banks can count hybrid debt --perpetual securities that can only be redeemed with regulatory approval -- as tier 1 capital. Rule-makers decided in 2010 to phase out most hybrid debt as capital starting in 2013 because it failed to provide a buffer for losses in the financial meltdown.

FSA Orders Co-Op Overhaul Before Lloyds Deal, Telegraph Says

Britain’s Financial Services Authority has ordered Co- Operative Group Ltd. to overhaul its structure as it prepares to take over Lloyds Banking Group Plc (LLOY)’s Verde branches, the Sunday Telegraph reported.

Co-Op may have to provide an additional 3 billion-pounds ($4.8 billion) of capital and add members to the board with FSA- approved experience to get consent for the 1.5 billion- pound deal, the newspaper reported, without saying where it got the information.

British Regulators Meet With Banks to Discuss Future of Libor

U.K. regulators and banks met to discuss revisions to the setting of global interest rates after lenders faced allegations that they manipulated the benchmark for about $360 trillion of securities.

The meeting was held yesterday to “consider future regulatory and market developments” for the London interbank offered rate, the British Bankers’ Association said in a statement today. Regulators and banks now plan to initiate a “technical discussion” about “likely future developments” with market participants who rely on Libor, the BBA said.

U.K., U.S., Canadian and Japanese regulators have been investigating whether banks misstated Libor submissions to hide their difficulty raising funds or to benefit trading positions in interest rate derivatives tied to the benchmark. The probes have called into question whether lenders can be trusted to set, with no regulatory oversight, a rate that is linked to everything from floating-rate mortgages to commercial loans.

The BBA says on its website that typically a bank’s treasurer or other nominated individual is the only person at a lender responsible for making Libor submissions.

Courts

New York Money Manager Raised $75 Million in Fraud, SEC Says

A money manager from Old Westbury, New York, was accused of running a scheme in which he lied to 24 investors who gave him $74.9 million from 2005 to 2012, telling them the money would be put into hedge funds, including those run by Morgan Stanley. (MS)

Brian Raymond Callahan used the money to pay back other investors and for personal expenses such as a “multimillion- dollar cooperative unit on Long Island,” the U.S. Securities and Exchange Commission said yesterday in a civil complaint filed in federal court in New York.

Callahan didn’t tell his clients he was barred in 2009 from associating with any member of the Financial Industry Regulatory Authority, according to the SEC. The agency asked for an immediate freeze on his assets. It said Callahan refused to appear for sworn testimony pursuant to a subpoena.

Robert Knuts, a lawyer for Callahan, didn’t immediately return a call seeking comment on the lawsuit.

The case is Securities and Exchange Commission v. Callahan, 12-cv-01065, U.S. District Court, Eastern District of New York (Central Islip).

Interviews/Speeches

SEC’s Gallagher Calls for Re-Proposing Volcker Trading Ban

U.S. regulators should “go back to the drawing board” and make extensive revisions to their proposed ban on banks’ proprietary trading, Securities and Exchange Commission member Daniel Gallagher said in a speech.

The SEC and other agencies have received more than 17,000 public comments about the rule named for former Federal Reserve Chairman Paul Volcker, who championed the ban as an adviser to President Barack Obama. Among those expressing concern are regulators from Japan, the U.K. and Canada, Gallagher said.

“Even a quick review of the many substantial comment letters the commission received reveals widespread fears regarding the effect of the proposed rules on the proper functioning of global markets and the competitiveness of the U.S. financial industry,” Gallagher said yesterday in Washington. “These are fears that I share.”

Lawmakers included the Volcker rule in the Dodd-Frank Act to limit risky trading by banks that benefit from federal deposit insurance and other government protections. The 298-page proposal released by the SEC and other agencies in October sought feedback on some 1,300 questions, fueling criticism that the rule is too complex.

“Regulators must be willing to re-examine our initial efforts and, if necessary, go back to the drawing board to make sure we regulate wisely, rather than just quickly,” Gallagher said at an Institute of International Bankers conference. Separately, said Jill E. Sommers, a Republican member of the Commodity Futures Trading Commission, spoke at the conference about the inability of U.S. regulators to agree on guidelines for the international reach of the Dodd-Frank Act.

She expressed concern about possible disruption of the $708 trillion global swaps market.

“I’m deeply concerned that there has not been adequate coordination” with the U.S. Securities and Exchange Commission and non-U.S. regulators, she said yesterday in a speech at an Institute of International Bankers conference in Washington. “Of even greater concern to me is that the commission appears to be considering a piecemeal approach,” she said of the CFTC.

The CFTC may publish guidelines within weeks on the international reach of the rules, Sommers said. The guidelines will cover when institutions would be required to register with the CFTC as swap dealers. The agency may consider other guidelines or rules governing the international reach of new clearing and market-infrastructure rules. The guidelines would be open to public comment, Sommers told reporters after the speech.

The agencies should publish a joint or coordinated rule, Sommers said.

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Comings and Goings

London City Job Openings Fell 38% Last Month, Recruiter Says

Job vacancies at London’s financial-services companies fell 38 percent last month as the euro region’s sovereign debt crisis hampered confidence, recruitment firm Astbury Marsden said.

New vacancies in the British capital’s City and Canary Wharf financial districts fell to 3,585 last month from 5,800 a year ago, the recruiter said in a statement yesterday.

Royal Bank of Scotland Group Plc, Britain’s largest government-owned lender, announced cuts of 4,800 jobs in January, blaming volatile markets and increasing U.K. regulation. HSBC Holdings Plc (HSBA), Britain’s biggest bank, said last year that it’s removing 30,000 positions.

Mark Cameron, chief operating officer at Astbury Marsden, said in the statement that while February has been “more subdued,” now that fears of a double dip are receding, demand has become more consistent the last couple of weeks.

King Overhauls Staff in BOE’s ‘Fishing Ground’ for Policy Makers

The Bank of England is overhauling the leadership of its economics division as Governor Mervyn King and Chief Economist Spencer Dale put in place a new crop of officials who may be picked for future policy roles.

The revamp that began yesterday is focused on managers in Dale’s department, which produces forecasts, statistics and economic analysis, according to the central bank’s website. The officials changing position or assuming new roles are Robert Woods, James Bell, Neal Hatch, Phil Evans and Chris Young.

The staff changes come as King and Deputy Governor Charles Bean approach the final year of their terms, and the central bank prepares to take on new regulatory powers over financial institutions.

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Bank of England’s Tucker Named Chairman of BIS Committee

Paul Tucker, a deputy governor of the Bank of England, was named chairman of the Committee on Payment and Settlement Systems, a group at the Bank for International Settlements bringing together global regulators to coordinate rules for clearinghouses.

He was appointed for a three-year term, according to a statement from the BIS yesterday.

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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