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Regulating Pot, Splitting RBS, Payday Loans: Compliance

Colorado and Washington are racing to meet deadlines for setting up a framework to regulate the sale of marijuana for recreational use, even as federal authorities weigh the future of the new industry.

Colorado has given its Revenue Department until July 1 to draft rules for pot farming, distribution and retailing after voters legalized possession by adults and sales in stores. Washington has set Dec. 1 as its deadline to have regulations in place.

Both states are proceeding knowing they could be stopped at any point by the federal government, which deems marijuana a controlled substance and cracked down on state-sanctioned medical-marijuana operations in California in 2011.

U.S. Attorney General Eric Holder said at a Senate Judiciary Committee hearing yesterday that the department is “considering what the federal response to those new statutes will be.”

In a letter to the committee, nine former Drug Enforcement Administration chiefs urged “federal intervention and preemption” to stop legalization in Colorado and Washington to protect the nation’s health and safety.

The question of whether the federal government will prevent implementation of the new laws is creating uncertainty for state regulators.

Estimates for the market, if legalized nationwide, vary from $10 billion to $120 billion a year, with $35 billion to $45 billion being likely, according to data compiled by Bloomberg. Tax collections from such sales could reach $9 billion to as much as $20 billion, according to Brad Barker, a Bloomberg Industries analyst, who cited projections by the Cato Institute, a nonprofit research group, and the Congressional Research Service in a March 1 report.

For more, click here and see Interviews, below.

Compliance Policy

Japan FSA Considers Short-Selling Rule Changes, Regulator Says

Japan’s Financial Services Agency is considering making the naked short selling ban permanent, the regulator said in a statement on its website.

The FSA is considering changing the uptick rule to automatically halt short selling on stocks that have fallen 10 percent from the preceding day’s closing price, according to the statement.

The FSA will take public comment on the matter until April 8. It plans to carry out the new rule around November.

The naked short selling ban was set temporarily in Oct. 2008. Japan brought forward restrictions on short selling of shares after stocks in Tokyo extended declines to the lowest levels since October 1982.

Portugal Approves Proposal on Legal Framework for Regulators

Portugal has approved a proposal on a legal framework for regulators that follows a plan established in a government program and in a memorandum of understanding signed with the European Union and the International Monetary Fund, the government said in a statement following the weekly cabinet meeting.

Regulators will comply with requirements of administrative and financial autonomy and independence, it said in the statement.

Compliance Action

EU Says Libor, Euribor Antitrust Probes at an ‘Advanced Stage’

European Union antitrust investigations into possible fixing of the Libor and Euribor benchmark lending rates are “at an advanced stage,” an EU official said today.

Eric van Ginderachter, the European Commission’s director of cartels, said regulators’ probes into major banks and brokers’ suspected manipulation of benchmark rates to their benefit is a top priority for the EU antitrust agency.

BOE’s King Says Government Should Split Up RBS, Accept Loss

Bank of England Governor Mervyn King urged the government to split up Royal Bank of Scotland Group Plc (RBS) and speed up the return of Britain’s biggest publicly owned lender to private ownership following its bailout in 2008.

King made the remarks to the Parliamentary Commission on Banking Standards at a hearing in London yesterday.

RBS should be split into a so-called good bank that could fund itself and a bad bank, where loss-making assets would be transferred, King told lawmakers yesterday. That would require the lender to accept losses on some assets, he said.

The government is pressing Edinburgh-based RBS to sell assets and bolster capital as it tries to recoup some of the 45.5 billion pounds ($69 billion) it pumped into the lender in the biggest bank bailout in the world. Chief Executive Officer Stephen Hester has cut assets by 907 billion pounds, eliminated 36,000 jobs and scaled back the securities unit. The stock still trades for less than the price the government paid for it.

RBS has been criticized by lawmakers for failing to boost lending to the economy, even though the taxpayer owns more than 80 percent of the lender. Lawmakers have said the government should have fully nationalized the lender, a move opposed by Chancellor of the Exchequer George Osborne, who said last month taking full ownership would require as much as 10 billion pounds of public money.

U.K. Prime Minister David Cameron said yesterday that he agreed with Osborne’s approach to returning RBS to private hands, Jean-Christophe Gray, the premier’s spokesman, said in London yesterday.

For more, click here.

Google, IBM, Nasdaq, Finra Plan Bids to Build SEC Audit Trail

Google Inc. (GOOG), Infosys Ltd. (INFY), International Business Machines Corp. (IBM) and the Financial Industry Regulatory Authority are among the organizations that said they plan to bid on a proposal to build a comprehensive market oversight system for U.S. securities.

Exchange operators NYSE Euronext, Nasdaq OMX Group Inc. (NDAQ) and Bats Global Markets Inc. also said they would submit proposals, as did high-frequency trading technology provider Tradeworx Inc., which provides a system to the Securities and Exchange Commission that compiles information from private data streams about quotations and trades. The list of 31 candidates was published on the website for the so-called consolidated audit trail that the exchanges and Finra are building.

The audit trail, one of former SEC Chairman Mary Schapiro’s projects, will track all securities orders and trades in the U.S. from start to completion and give the agency and other regulators a powerful system to monitor the markets.

Additional companies from Europe and the U.S. also plan to bid for the project, according to the list.

U.K. Tells Payday Lenders to Follow Rules or Lose License

U.K. regulators told 50 sub-prime lenders they have 12 weeks to change business practices described as causing “misery and hardship” for borrowers too poor to afford short-term loans.

Companies that offer so-called payday loans risk losing their licenses if they don’t meet regulators’ expectations, the Office of Fair Trading said yesterday on its website. It may also refer the industry to the British antitrust regulator after finding lenders competed on speed and easy access, rather than price. The OFT didn’t name any individual companies.

The offending firms didn’t check whether customers could afford the loans before making them or rolling them over, didn’t explain how payments would be collected and used “aggressive” debt collection methods, the OFT said. Payday lenders such as London-based Wonga.com Ltd. charge high interest rates for small cash sums over shorter periods than a bank loan. The industry’s loans cost an average of 25 pounds ($37.70) per 100 pounds for 30 days, the OFT said.

Customers are often those whose credit rating bars them from using banks or mutual lenders and are “frequently in a vulnerable financial position,” the OFT said yesterday. The market has more than doubled since 2009 to as much as 2.2 billion pounds, it said.

“We are digesting the full import of the report at the moment and will await more specific information,” Patrick Barrow, a spokesman for PaydayUK, a unit of Berwyn, Pennsylvania-based DFC Global Corp. (DLLR), said by phone.

Brian Corke, a spokesman for the British Cheque Cashers Association, declined to comment on the OFT report and said the trade group provides no public data on the names or size of its members. A Wonga.com spokeswoman declined to comment.

“This is the end of a yearlong review, and we will take time to review the issues that have been raised,” Russell Hamblin-Boone, CEO of the Consumer Finance Association, said in a statement. “We recognize there are concerns about the industry. However, these reports are a snapshot in time and work is already under way.”

Requests for comment from the Consumer Credit Trade Association and the Finance & Leasing Association weren’t returned. The three groups also represent payday lenders.

The industry has come under fire from bankruptcy professionals and consumer groups, which say the firms grant loans to people who can’t afford them.

RBS Suffers Second Computer Glitch Leaving Clients Without Cash

Royal Bank of Scotland Group Plc has been hit by a second computer failure that has left some of its 17 million customers unable to withdraw cash.

The fault, which affected its NatWest, Ulster Bank and RBS clients, occurred last night and has since been fixed, the 81 percent government-owned lender said in a statement today.

“We are disappointed that our customers have faced disruption to banking services for a period yesterday evening, and apologize for that,” Edinburgh-based RBS said. “All services are now running as normal again.”

RBS, Britain’s biggest taxpayer-owned lender, was hit by a computer failure at its consumer bank in June that left many of its customers unable to access their accounts for days. The bank set aside 125 million pounds ($187 million) to cover the costs of the June computer failure. Chief Executive Officer Stephen Hester said on June 29 that he would forgo his bonus for 2012 following the incident.

Dollar Investors Coveted in Denmark as Swaps Expand Funding Base

Denmark plans to make more regular use of currency swaps to expand its funding base and target dollar investors in a strategy the debt office bets will save it money.

Denmark, which pegs the krone to the euro, is now taking a more “neutral” position on its foreign borrowing after previously relying on Europe’s single currency, said Ove Sten Jensen, head of the government’s debt management office at the central bank in Copenhagen.

The debt office is targeting a broader currency base after the global financial crisis showed that reliance on a single market can prove costly, even for AAA rated issuers like Denmark. The Scandinavian country isn’t alone in targeting the dollar market, the world’s most liquid, as borrowing costs drop from January’s 19-month high.

Denmark is planning as much as 2 billion euros ($2.6 billion) in foreign borrowing this year, either in euros or dollars. That’s a 33 percent increase on its maximum target for 2012.

Currency market developments have helped push Denmark’s short-term borrowing costs below zero. A capital influx last year, as investors fled the euro zone, strengthened the krone and forced the central bank to resort to a negative deposit rate.

For more, click here.

Courts

ITV Can Block Internet Streaming of Its Shows, EU Top Court Says

ITV Plc (ITV), owner of the U.K.’s most-watched commercial TV station, won the backing of the European Union’s highest court to block the unauthorized retransmission of its programs via the Internet.

Television broadcasters have the right to prohibit the retransmission of their shows by another company over the Internet, the EU Court of Justice said today.

The case, which was triggered by a dispute pending at a London court, establishes the scope of broadcasters’ rights under EU copyright rules and whether these include the right to prohibit broadcasts by a service such as online streaming service TVCatchup. The English tribunal sought the EU court’s advice in 2011 and will be bound to give a ruling in the case in line with today’s decision.

ITV’s press office and TVCatchup didn’t immediately return e-mails seeking comment.

The case is: C-607/11, ITV Broadcasting Limited e.a. v. TVCatchup Limited.

Interviews/Hearings

Seattle Mayor Imagines Shoppers Choosing Pot Like Wine

Seattle Mayor Mike McGinn talked with Bloomberg’s Alison Vekshin about the city’s preparations for the legal sale of marijuana.

In November Washington voters approved a ballot initiative making it legal for those 21 and older to have marijuana, allowing commercial storefronts to sell it.

For the video, click here.

Fannie, Freddie Revival Would Trigger New Crisis, Garrett Says

Fannie Mae and Freddie Mac are the essence of crony-capitalism,” and recreating them would mean the U.S. is “doomed to repeat the same terrible outcomes that our nation has experienced over the last four years,” House Financial Services’ Capital Markets and Government Sponsored Enterprises Subcommittee Chairman Scott Garrett, a Republican from New Jersey, said.

Garrett’s comments were part of his opening remarks prepared for the panel’s hearing on the role of Fannie and Freddie in the financial crisis.

The combination of government using Fannie and Freddie as tools of social policy and declining interest rates “built the foundation of the housing bubble,” Joshua Rosner, an analyst at Graham Fisher, said in prepared testimony.

The growth of “private label” residential mortgage securitization was “at least as important in helping stoke the boom” in the housing market as government sponsored enterprises, or GSEs, Lawrence White, a New York University economics professor, said in prepared testimony.

Fannie Mae and Freddie Mac will create a common platform for issuing mortgage-backed securities as they wind down operations and plan for a future in which the two companies no longer exist, their regulator said.

Too-Big-to-Fail Banks Limit Prosecutor Options, Holder Testifies

The size of the largest financial institutions has made it difficult for the U.S. Justice Department to bring criminal charges, Attorney General Eric Holder said.

Criminal charges against a bank -- something that could threaten its existence -- may also endanger the national or global economies in the case of the largest ones, because of their size and interconnectedness. That has “made it difficult for us to prosecute” some of those institutions, Holder said yesterday at a Senate Judiciary Committee hearing.

U.S. lawmakers, including Massachusetts Senator Elizabeth Warren, have raised concerns that the largest institutions haven’t been held accountable for their actions that played a role in the worst financial crisis since the Great Depression.

Comings and Goings

Bank of England Names Three Non-Executive Directors to PRA Board

The Bank of England named former Yorkshire Building Society Chief Executive Officer Iain Cornish, to the board of the Prudential Regulatory Authority, along with former Treasury official Rosalind Gilmore and Charles Randell, a lawyer at Slaughter and May.

They will earn 77,500 pounds ($117,000) per year in the role, according to an e-mailed statement from the U.K. central bank.

Better Markets Urges Gary Gensler to Remain CFTC Chairman

The Commodity Futures Trading Commission still has “hard work” ahead and the leadership of its Chairman Gary Gensler is needed, Better Markets President Dennis Kelleher said in a statement.

If Gensler doesn’t stay at the agency, President Barack Obama “must only consider candidates to lead the CFTC who have similar superior qualifications, experiences, skills and commitment to financial reform,” Kelleher said in the statement.

The Obama administration has opened talks with Gensler about serving a possible second term as head of the CFTC, an unidentified person briefed on the matter told Bloomberg’s Silla Brush.

Gensler also has discussed other economic, financial jobs in the administration. He hasn’t been told he will be nominated for a second CFTC term or to different job, the person said.

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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