U.K. Client-Money, JPMorgan Probe, Sukuk: Compliance

U.K. regulators plan to improve how banks, brokerages and other companies protect clients’ funds, particularly when the investment firm fails.

The U.K. Financial Services Authority said yesterday it will incorporate “lessons learned from recent insolvencies such as Lehman Brothers International and MF Global, and is intended to assess the industry’s appetite for change.” It is seeking industry and customer input on how to amend the rules.

The plans include overhauling rules on the treatment of margin assets posted by failed companies on their derivatives trades and amount to “the most radical change in the client- assets regime in over 20 years,” the FSA said in an e-mailed statement. “Today’s proposals will go a long way to ensure confidence in U.K. markets is maintained.”

The FSA stepped up enforcement of client-money rules after the bankruptcy of Lehman Brothers Holdings Inc. in 2008. The New York-based bank’s former U.K. unit failed to segregate billions of dollars of client funds from its own accounts, leaving creditors with competing claims that resulted in years of litigation. The issue has resurfaced in the administration of MF Global Holding Ltd.’s U.K. unit.

The regulator levied its largest fine at the time, 33.3 million pounds ($53 million), in 2010 against JPMorgan Chase & Co. (JPM)’s London unit for not properly separating an average of $8.6 billion of client money over seven years. Last year, it fined Barclays Capital Securities Ltd. 1.12 million pounds for failing to put as much as 752 million pounds-a-day in client money into protected accounts.

The agency is seeking views on various ring-fenced money sub-pools. The plans are partly driven by changes to EU law, the FSA said.

Compliance Policy

EU’s Basel Implementation Criticized by Australian Regulator

Australian regulators have warned that the European Union may be failing to correctly implement Basel bank capital rules, as part of an international check into whether the EU is faithfully applying the standards.

The Australian Prudential Regulation Authority, or APRA, sent a note to international supervisors highlighting shortcomings with draft EU legislation to implement the so- called Basel III accord in the 27-nation bloc, said Othmar Karas, a member of the European Parliament responsible for bank capital rules. The note is a contribution to a peer-review process of how well the EU is introducing the measures, and was discussed at a Sept. 5 meeting in Brussels between EU officials and lawmakers, Karas said in an interview.

Global regulators agreed on the Basel measures in 2010 as part of their response to the financial turmoil of 2008. They would more than triple the core capital that lenders must hold to protect themselves from insolvency.

Basel Committee Chairman Stefan Ingves announced last year that the group would probe how nations applied the Basel III rules, scheduled to be phased in from 2012 to 2019, through a peer review process and on-site inspections.

APRA was among a group of regulators responsible for probing the EU, which has yet to adopt its final implementing rules for Basel III.

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Turkey Won’t Charge Withholding Tax on Sukuk, Treasury Says

Turkey won’t charge a withholding tax on the Islamic bonds, or sukuk, which it’s planning to sell to foreign investors this month, the Treasury said in an e-mailed response to questions.

Turkey has hired HSBC Holdings Plc (HSBA), Citigroup Inc. (C) and Liquidity House, a unit of Kuwait Finance House (KFIN), to help study options for the country’s first sale of Islamic sukuk bonds.

The Treasury in Ankara will hold meetings with investors in the Middle East and Asia between Sept. 10 and Sept. 13, it said in a statement on its website Sept. 5. The securities will be denominated in dollars, according to two bankers involved in the issue, who declined to be identified in advance of the sale.

Demand for the Turkish sukuk may be about $1 billion, Abdullah Celik, chief executive officer of Asya Katilim Bankasi AS (ASYAB), the country’s biggest bank complying with Islamic laws on interest, said in an interview with Bloomberg HT television in Istanbul Sept. 5. Bank Asya plans its own first sale of the bonds in a “short time,” he said.

The parliament in Ankara passed a law in February last year reducing the withholding tax on a sukuk to 10 percent and exempting the sales from value-added, stamp and corporate taxes, putting them on par with non-Islamic bonds.

Compliance Action

JPMorgan Said to Face Escalating Senate Probe of CIO Losses

JPMorgan Chase & Co.’s wrong-way bets on derivatives are the focus of an escalating probe by a U.S. Senate panel led by Carl Levin that has grilled executives from banks including Goldman Sachs Group Inc. (GS) and HSBC Holdings Plc, three people briefed on the inquiry said.

Levin’s Permanent Subcommittee on Investigations is seeking testimony from people who worked in or helped lead JPMorgan’s chief investment office, according to the people, who declined to be identified because the inquiry isn’t public. The unit’s London staff lost at least $5.8 billion this year on the botched bets, which were large enough to shift markets.

Tara Andringa, a spokeswoman for Levin, didn’t immediately respond to a message seeking comment, and Joe Evangelisti at JPMorgan declined to discuss the panel’s inquiry. “As always, the company has fully cooperated with all regulatory and governmental requests around this matter,” Evangelisti said.

JPMorgan, the nation’s largest bank by assets, has lost more than $22 billion in shareholder value since Bloomberg News first reported on April 5 that it amassed a large and illiquid position in credit derivatives in the unit’s London office. Chief Executive Officer Jamie Dimon, 56, has since overhauled the division.

The Senate panel is unencumbered by many of the political restraints faced by other congressional committees. As a permanent fixture in a chamber whose members only have to run for office every six years, the panel has more resources and can pursue longer inquiries in greater depth.

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Car Loan Rules Spur Indonesian Shariah Lending: Islamic Finance

Indonesian consumer-finance companies are turning to Shariah-compliant lending after regulators tightened rules on non-Islamic loans for buying cars and motorcycles.

PT Adira Dinamika Multi Finance (ADMF), the nation’s largest, started a business complying with the Muslim faith in July and expects it to eventually account for as much as 20 percent of operations, Sylvanus Gani Mendrofa, head of the corporate secretary division, said in an Aug. 28 interview in Jakarta. Shariah lenders PT Amanah Finance and PT Al Ijarah Indonesia Finance said loans will grow at least 30 percent per annum in the next few years, faster than the 23 percent growth for the whole industry during the past five years.

Lenders must receive deposits of at least 25 percent of the value of cars and 20 percent for motorcycles, the finance ministry said in March.

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Ambow Trading Halted on Company’s Probe Into Unit’s Schools

Trading in Ambow Education Holding Ltd. (AMBO) was halted after the private tutoring services provider said it will start a probe into its units following a report by China’s state television.

China’s Central Television said on Sept. 3 that Ambow’s one-on-one education unit exaggerated staff training results and that the schools’ registrations with industry regulators were incomplete, according to a statement by Ambow posted Sept. 5. Ambow said it will start an investigation into the issues “immediately,” discipline the persons involved and take corrective steps.

It’s not the company’s policy to encourage staff to exaggerate training results, Ambow Chief Strategy Officer Jenny Zhan said in a phone interview from Beijing. “The company’s investigation on the CCTV allegations is still ongoing, which doesn’t mean we admit everything the TV report said,” she said, adding the company will publish a statement after the investigation.

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Courts

Ex-UBS Trader Adoboli’s $2.3 Billion Trading-Loss Trial to Begin

Kweku Adoboli, accused of unauthorized trades that cost UBS AG (UBSN) $2.3 billion, will go on trial next week charged with fraud and false accounting in one of the highest-profile banking cases ever heard in London.

Since being released on bail three months ago, Adoboli, 32, has worked on his defense at the office of his law firm, Bark & Co. He is facing an eight-week trial in criminal court to decide whether he caused the largest unauthorized trading loss in British history at UBS’s investment bank a year ago.

He is charged with falsifying records on exchange-traded fund transactions and other documents needed for accounting purposes as early as October 2008, according to his indictment. Prosecutors also charged him with fraud for abusing his senior trader position “by causing or exposing UBS Bank to losses intending thereby to make a gain for himself.”

In the U.K., fraud charges carry a maximum sentence of 10 years in jail, and seven years for false accounting. Adoboli is facing two counts of each.

Tim Harris, Adoboli’s lawyer, said he was unable to comment on the case before trial, which is scheduled to start Sept. 10.

“The U.K. criminal process is ongoing and will run its course,” UBS spokesman Richard Morton said in an e-mailed statement. “UBS is not a party to the case and therefore has no further comment.”

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UBS Sued by U.S. Regulator for $1.1 Billion in Faulty MBS Sales

UBS AG (UBS) is being sued by the U.S. regulator of credit unions for improper sales of $1.1 billion in faulty securities that contributed to two firm failures, the National Credit Union Administration said.

The lawsuit accuses the UBS Securities LLC unit of the Zurich-based bank with selling residential mortgage-backed securities that were “all but certain to become delinquent or default” soon after the sale, according to NCUA’s complaint dated Sept. 6. Two wholesale credit unions -- U.S. Central Federal Credit Union and Western Corporate Federal Credit Union

To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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