Virtual Currency, EU Rulebook, U.K.-EU Clash: Compliance

Transactions within virtual economies or using virtual currencies may produce taxable income and the U.S. Internal Revenue Service should find low-cost ways to make taxpayers aware of compliance risks, according to a report by the Government Accountability Office.

The IRS has agreed with the recommendation, according to the GAO.

“Virtual economies and currencies pose various tax compliance risks, but the extent of actual tax noncompliance is unknown,” the GAO said in its report.

Compliance Policy

EU Nations Clinch Deal on Markets Law, Irish EU Presidency Says

European Union nations brokered a deal on a wide-ranging overhaul of the bloc’s financial market rulebook that seeks to prevent flash crashes and stop banks building up huge hidden risks.

Ambassadors from the EU’s 27 nations reached an agreement on the more-than 300-page rulebook at a meeting yesterday in Brussels, according to an e-mailed statement by Ireland, which holds the EU’s rotating presidency.

The plans, which must be agreed on with the European Parliament to take effect, would also toughen oversight of high-frequency trading, curb speculation with commodity derivatives, and push more transactions onto regulated platforms.

Separately, the U.K. said that giving a European Union agency emergency powers to ban some securities trades may be illegal -- in the country’s latest clash over EU decision-making after failing to derail curbs on banker bonuses.

Britain said draft EU rules that were endorsed by governments yesterday may cede too many powers to the European Securities and Markets Authority, according to a document setting out the U.K.’s stance, obtained by Bloomberg News.

Britain, which lacks a veto on financial laws, has often found itself on the defensive in EU discussions on financial regulation.

The latest clash concerns plans to revamp the EU’s Markets in Financial Instruments Directive, or Mifid. While the overhaul foresees giving broader powers to ESMA, the Paris-based agency could only use them as a last resort if there was a threat to the EU’s financial stability, and if national regulators were unwilling or unable to act.

Ambassadors for the EU’s 27 nations reached a deal on the Mifid law yesterday, setting up negotiations with the European Parliament on the final version of the text. Under yesterday’s deal, exchanges will be obliged to share their trade data with clearinghouses owned by other operators. The accord allows this access to be refused if there are signals that it could pose a threat to financial stability.

Lawmakers at the European Parliament must agree on the draft Mifid law before it can take effect.

EU Banks Face Targets for Loss-Absorbing Debt in U.K.-Dutch Plan

Large European Union banks would be forced to meet minimum targets for issuing debt and other liabilities that could be written down by regulators in a crisis, under a proposal by the U.K., Netherlands and Finland.

The three countries are urging other EU states to insert the minimum-target levels into draft rules for imposing losses on failing lenders’ creditors, according to a document obtained by Bloomberg News. The targets would apply to banks identified by regulators as systemically important, while minimum rules for smaller banks would be drawn up by national regulators.

Systemic banks should be forced to issue loss-absorbing securities whose value is either equivalent to 15 percent of their risk-weighted assets or 10 percent of their total capital and liabilities, according to the document, dated June 17. Regulators could choose which number to apply.

The EU’s 27 governments are racing to meet an end-June deadline to agree on the bank-failure plans, which leaders have said will be a first step toward more ambitious moves to centralize bank interventions in the 17-nation euro area.

Nations have clashed over key aspects of the law. Finance ministers will meet in Luxembourg on June 21 in a bid to thrash out a deal.

For more, click here.

Compliance Action

Ex-UBS Trader Hayes Said to Face U.K. Libor Charge This Week

Tom Hayes, the former UBS (UBSN) AG derivatives trader at the center of a global investigation into manipulation of benchmark interest rates, may face criminal charges in the U.K. as soon as this week, two people familiar with the investigation said.

Hayes may be charged by the U.K. Serious Fraud Office with conspiring to rig the London interbank offered rate, said the people, who requested anonymity because the probe isn’t public. Hayes has already been charged in the U.S., which is running a parallel criminal probe.

Hayes was arrested in a U.K. criminal investigation on Dec. 11 and charged by the U.S. Justice Department the following day. The U.S. charge was made public on Dec. 19, the same day UBS was fined a record $1.5 billion by U.S., British and Swiss regulators for trying to rig Libor and similar benchmarks.

Hayes joined UBS in 2006 and worked at the Swiss lender until 2009, when he joined Citigroup Inc. (C) He was dismissed by Citigroup less than a year later for involvement in suspected rate-rigging, a person with knowledge of the matter said in October. He worked at Edinburgh-based Royal Bank of Scotland Group Plc from 2001 to 2003.

One of the highest-earning traders at UBS, Hayes generated about $40 million in revenue for the bank in 2007, $80 million in 2008 and $116 million in 2009 before he left to join Citigroup, according to the on derivatives, according to the U.S. Commodity Futures Trading Commission, one of the regulators that have levied Libor fines. The CFTC didn’t identify Hayes by name.

David Green, the director of the SFO, said June 5 that “significant developments” in the case are coming by the end of the quarter.

UBS spokesman Richard Morton and SFO spokesman David Jones declined to comment. Hayes’s London lawyer, Lydia Jonson, didn’t immediately respond to a phone message and e-mail requesting comment. The Wall Street Journal reported the possible charges earlier yesterday.

Global regulators have fined UBS, Barclays Plc (BARC) and RBS about $2.5 billion in the past year for distorting Libor and similar benchmarks. At least a dozen firms remain under investigation around the world. Last week, Singapore’s monetary authority censured 20 banks for attempting to fix interest rate levels and ordered them to set aside as much as $9.6 billion.

For more, click here.

Interviews

Levitt Says SEC Money Market Plan to ‘Scare Investors’

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, said the agency’s plan to regulate money market funds will see investors “rush to the doors.” Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Comings and Goings

Liberty Mutual Hires Citigroup’s Dowling for Public Affairs

Liberty Mutual Holding Co., the third-largest seller of property-casualty coverage in the U.S., hired Colin Dowling to lead its public-affairs office in Washington as policymakers weigh capital standards and laws on terrorism protection.

Dowling joins from Citigroup Inc., where he was a managing director running state and local government-affairs programs, according to a Business Wire statement yesterday from Boston-based Liberty Mutual.

U.S. and international lawmakers are scrutinizing the balance sheets of the largest financial companies as they seek to avoid a repeat of the 2008 rescues required of banks and insurers. Policyholder-owned Liberty Mutual, which didn’t take a bailout from the U.S. Treasury Department, said its government-relations group is also evaluating possible changes in laws about taxes, trade and terrorism.

Mark Costiglio, a spokesman for New York-based Citigroup, declined to comment on the move.

Murton to Take Role of New FDIC Director of Complex Institutions

Arthur J. Murton will take over as director of the Office of Complex Financial Institutions at the Federal Deposit Insurance Corp. on July 28, the office said in the e-mailed statement.

Murton will replace James Wigand, who plans to retire, according to the statement. Wigand will serve in the office of the chairman as a senior adviser until Sept. 30.

The FDIC also appointed Diane Ellis as director of the Division of Insurance and Research. Her appointment also will become effective July 28. She’s currently deputy director for financial risk management and research in the Division of Insurance and Research.

Top Finra Regulator Resigns After Word of Bingo Fraud Is Leaked

A top official for the Financial Industry Regulatory Authority resigned after the agency was informed he was indicted for felony theft and charitable bingo fraud in 1993, the year he joined the agency.

Mitchell C. Atkins, a senior vice president who managed Finra’s work in 11 states, quit after spending 20 years with the brokerage industry self-regulator and its predecessor. A Wisconsin broker who was the target of enforcement actions overseen by Atkins wrote Finra about the indictment on May 21.

Nancy Condon, a Finra spokeswoman, confirmed that Atkins, 42, resigned. She declined to answer other questions, including when he resigned and whether the regulator knew about his indictment before he was hired. Atkins didn’t return a phone message seeking comment.

Atkins joined the National Association of Securities Dealers, Finra’s predecessor, in 1993, according to a statement released when he took over the organization’s Florida office. He oversaw a staff of 160 people regulating 850 brokerages, according to his Finra biography.

David Evansen, a Wisconsin-based broker who is appealing a Finra decision to bar him from the industry, said Atkins’s past probably would disqualify him from working in the brokerage industry.

Atkins and his father, Wilbur D. Atkins Jr., were indicted and charged with felony theft and charitable bingo fraud in March 1993 for misusing the proceeds of bingo games, according to a copy of the indictment obtained from the Supreme Court of Louisiana. He eventually pleaded guilty to a misdemeanor and did community service. His father was disbarred for his role in the matter, according to the Louisiana Attorney Disciplinary Board.

Evansen said he looked into Atkins’s past after he decided Atkins and his staff weren’t adequately considering a case against him. Finra banned Evansen from the industry, according to a record available on its website. Evansen, who was based in South Florida at the time, contends that the discipline was retaliation for a whistle-blower complaint he made about a large brokerage and clearing firm.

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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