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Hedge Registry, FSA Bribe Scrutiny, U.A.E. Repo: Compliance

June 23 (Bloomberg) -- The U.S. Securities and Exchange Commission will require private-fund advisers to register with the agency, opening hedge funds and private-equity funds to unprecedented scrutiny.

SEC commissioners voted 3-2 yesterday to approve a Dodd-Frank Act measure calling for about 750 advisers to disclose “census-like data” about their investors and employees, the assets they manage, potential conflicts of interest and their activities outside of fund advising. The advisers must register by March 30, and all of the information they disclose will be public.

“Many of these private fund advisers will now not only register with the commission, but be subject to its rules, its regulatory oversight and its examination program,” SEC Chairman Mary Schapiro said before the vote in Washington. “Today’s rules will fill a key gap in the regulatory landscape.”

The registration system exempts as many as 2,000 venture capital fund advisers, foreign advisers without a U.S. business and advisers with less than $150 million in assets under management. Those exempted are still obliged to file a portion of the information required of the registered advisers.

The SEC is seeking data “that would aid investors and assist our regulatory and examination efforts without requiring any disclosure that could inadvertently harm the interests of private fund investors,” Schapiro said.

Private-fund registration was included in the Dodd-Frank Act after hedge funds pushed for the requirement, which was seen as less burdensome than the regulations being imposed on banks. In lobbying Congress, representatives of the private pools of capital argued that they shouldn’t be heavily regulated because they didn’t cause the financial crisis.

“We are optimistic that the Commission’s actions today will provide greater clarity and sufficient time for our members as they work to fully comply with these rules,” said Richard Baker, president and chief executive officer of Washington-based lobbying group Managed Funds Association, in a statement.

For more, click here.

Compliance Policy

British Investment Banks to Face Bribery Scrutiny From FSA

The U.K.’s finance regulator will examine whether investment banks have systems and controls in place to prevent their employees from paying bribes to win business.

Investment banks will be the subject of a future review, Tracey McDermott, the acting head of enforcement for the Financial Services Authority, said yesterday at a financial-crime conference in London.

The Financial Conduct Authority, one of the agencies that will take on the FSA’s duties when it is broken up, will continue to focus on “the use of firms as a conduit for financial crime,” McDermott said.

The U.K. Bribery Act, considered by some lawyers to be the strictest anti-corruption laws in the world, will take effect July 1. Under the law, U.K. companies without adequate controls to prevent corruption may be prosecuted if a bribe is paid by third parties on their behalf anywhere in the world, even if company officials didn’t know. The Serious Fraud Office, which will be responsible for enforcing the law, has never prosecuted an investment bank for overseas corruption.

Firebreaks May Cost $16 Billion for U.K. Banks, Analysts Say

Firebreaks to protect U.K. depositors at Royal Bank of Scotland Group Plc, Barclays Plc and Lloyds Banking Group Plc may cost the banks as much as 10 billion pounds ($16 billion), according to analysts at HSBC Holdings Plc.

The costs would be caused by a combination of “multiple-notch ratings” downgrades for the three banks, which will push up funding costs, and lost profit as units outside the firebreak require more capital support, analysts led by Peter Toeman wrote in a note to clients yesterday. The estimate didn’t include the costs to HSBC or other British banks.

The analysts’ total contrasts with that of the British-government appointed Independent Commission on Banking, which said in its April interim report that the annual cost of what it termed retail ring-fencing would be “significantly” lower than 12 billion pounds for all the affected banks.

The commission’s interim report offered proposals to increase the stability of the banking system and to lessen the support required from taxpayers in a crisis. The final report is scheduled to be published on Sept. 12. Chancellor of the Exchequer George Osborne said last week he would support ring-fencing.

The isolation of retail banks will mean ratings companies will likely cut the credit ratings of U.K. banks by between two and five grades, HSBC estimated, once the assumption of government support is removed from units outside the firebreak.

Basel Levy for Big Banks Is ‘Major Step,’ FSA’s Turner Says

Global plans to force the biggest banks to hold more capital are “a major step forward” in protecting the financial system from another crisis, a top U.K banking regulator said today.

Adair Turner, chairman of the U.K.’s Financial Services Authority, welcomed efforts by the Basel Committee on Banking Supervision to rein in risk at lenders whose failure could endanger the world economy. He said his own agency had devoted “insufficient resources to large, systemically important banks,” referring to a report on the near-collapse of Royal Bank of Scotland Group Plc.

The Basel committee meets in the Swiss city today to discuss how much extra capital the world’s largest and most systemically important banks will be forced to hold to avert another financial crisis. About 25 banks may have to hold more than the 7 percent core Tier 1 capital required by the Basel rules, according to Morgan Stanley analysts.

The Basel group is yet to agree on all the outstanding issues of the capital surcharge plans, Turner said.

For more, click here.

Trichet Says Risk Signals ‘Red’ as Crisis Threatens Banks

European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks.

He made the remarks late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned “dashboard” to monitor risks. “The message of the board is that” the link between debt problems and banks “is the most serious threat to financial stability in the European Union.”

Trichet, who chairs the ESRB, spoke about the topic as European leaders meet in Brussels to discuss how to stave off a Greek default, while preparing a second bailout. The EU is trying to avoid a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. and resulted in European governments setting aside more than $5 trillion to support banks.

While Greek Prime Minister George Papandreou earlier this week won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further financial aid, European finance ministers said earlier this week they would hold off on approving a 12 billion-euro ($17 billion) payment to the country promised for July until passage of the plans to cut the budget deficit and sell state assets.

For more, click here.

Compliance Action

Regions Explores Morgan Keegan ‘Alternatives’ After Settlement

Regions Financial Corp. said it will consider “strategic alternatives” for its Morgan Keegan division after the unit resolved claims by federal, state and industry regulators over subprime mortgage-backed securities.

The bank, based in Birmingham, Alabama, hired Goldman Sachs Group Inc. to evaluate options for Morgan Keegan, ways to manage capital and increase shareholder value, it said yesterday in a statement. Two Morgan Keegan units reached a package of settlements with regulators that may total $210 million in payments, the company said.

The strategic review doesn’t include Morgan Asset Management and Regions Morgan Keegan Trust, the firm said.

The accord resolves claims brought last year by the U.S. Securities and Exchange Commission, Financial Industry Regulatory Authority and state regulators, the SEC said yesterday in a separate statement. Regulators last year said the firm misled clients about asset values and risks of bond funds that caused investor losses during the mortgage crisis.

The SEC and Finra said the settlement amounts to $200 million. Regions, Alabama’s biggest bank, said it may also have to pay as much as $10 million to states that join the accord. Five states involved in the case initially included Alabama, Kentucky, Mississippi, South Carolina and Tennessee, according to the company.

The company said it already set aside funds to cover the settlement payments.

For more, see Interviews section, below.

U.A.E. Central Bank to Offer Repo Facility for Islamic Banks

The United Arab Emirates central bank will begin offering an Islamic facility today that accepts Islamic certificates of deposit as collateral, according to a circular sent to banks yesterday.

The facility is being offered “to provide a source of liquidity to banks,” according to the bank’s circular. Banks wishing to participate will be asked to sign a “collateralized murabahah facility agreement,” the bank said. A murabahah transaction is a sale and deferred-payment agreement based on an asset in which the cost and profit margin are agreed in advance between a bank and its customer.

Short-term liquidity management at Islamic banks and other financial institutions is a challenge, central bank Governor Sultan bin Nasser al-Suwaidi said at an Islamic-banking conference in Singapore last year. With the new facility, banks will be able to use their excessive liquidity to invest in dirham instruments, Saif al-Shamsi, senior executive director at the U.A.E. central bank’s treasury department, said Nov. 8.

Shaw Urges CRTC to Reject Blanket Ban on Exclusive Media Deals

Canada’s broadcast regulator should reject proposals for a blanket ban on telecommunications companies exclusively distributing the media content they own over their own networks, Shaw Communications Inc. said.

Shaw, which acquired the television assets of Canwest Global Communications Corp. last year and which plans an announcement during the next month about starting wireless service, allied itself with BCE Inc. in arguing that new rules on exclusive content will restrict consumer choice.

The CRTC is examining if new rules are needed to rein in companies that both produce and distribute broadcasting content. BCE, which offers wireless services under the Bell brand, acquired CTVglobemedia Inc. in April.

The regulator is holding four days of hearings into whether “vertically integrated” companies should be allowed to restrict distribution of their TV programming to their own mobile customers.

Telus Corp., the only company among Canada’s four biggest telecom companies by market value not to own a broadcaster, urged the CRTC June 21 to require all telecom companies to make their broadcasting content available to competitors.

The hearings have pitted integrated companies such as BCE and Shaw against Telus and a host of smaller Internet service providers, wireless companies and broadcasters.


Schapiro Tells Investors to Aid Credit-Rating Competition

As regulators remove references to credit-rating firms from federal rules, institutional investors should also rethink how they use the ratings, U.S. Securities and Exchange Commission Chairman Mary Schapiro said.

“If your documents require a specific rating by a specific rating agency I urge you to revisit it,” Schapiro said yesterday at a meeting of the American Securitization Forum in Washington. If investors can’t buy securities rated by new firms, she said, “how will more competition that may improve the quality of ratings develop?”

Last year’s Dodd-Frank Act required government agencies to rid their regulations of references to credit raters after the firms were accused of contributing to the 2008 credit crisis by giving top ratings to mortgage-linked bonds that later collapsed in value.

Schapiro also said that investors are waiting for reforms in the securitization market “before they are willing to wade back in.”

Pozen Says U.S. Needs 2-Tier Taxation on Profits Abroad

Robert Pozen, chairman emeritus of MFS Investment Management, talked about the need to change the U.S. tax system relating to U.S. multinationals’ foreign profits.

Pozen, who spoke yesterday with Pimm Fox on Bloomberg Television’s “Taking Stock,” said corporations that do business in places such as Germany and Japan where they are taxed, “should be free to bring the money back” and invest it in the U.S. in plant facilities, stock dividends and other ways.

For the video, click here.

SEC’s Hicks Says Morgan Keegan Settles Fraud Allegations

William Hicks, associate regional director at the U.S. Securities and Exchange Commission, speaks on a teleconference about the agreement by Regions Financial Corp.’s Morgan Keegan unit to pay $200 million to settle fraud allegations related to subprime mortgage-backed securities.

Joseph Borg of Alabama’s Securities Commission, Barbara Doak of Tennessee’s Department of Commerce and Insurance, South Carolina Assistant Attorney General Tracy Meyers, Shonita Bossier of Kentucky’s Department of Financial Institutions and Gino Ercolino of the Financial Industry Regulatory Authority also speak.

For the audio, click here.

U.S. May Bar Foreign Banks Over Tax Violations, Prosecutor Says

The U.S. could try to bar certain foreign banks from the federal banking system for helping American citizens evade taxes through offshore accounts, a prosecutor said.

Kevin Downing, who led the prosecution of UBS AG in 2009, said the Justice Department’s tax division is reviewing correspondent accounts used by foreign banks without a presence in the U.S. Prosecutors could take action against some of those banks, Downing said yesterday at a New York City Bar Association event.

Downing, one of two speakers on offshore tax evasion, oversaw the case against UBS, the largest Swiss bank by assets. UBS was charged in February 2009 with helping U.S. citizens evade taxes. The bank avoided prosecution by paying $780 million, admitting that it fostered tax evasion, and agreeing to give data to the IRS on more than 250 accounts. UBS later handed over data on an additional 4,450 accounts to resolve an IRS lawsuit.

Prosecutors said UBS violated its so-called qualified intermediary agreement with the Internal Revenue Service after promising to give tax information to the IRS about American clients holding securities in Swiss accounts. UBS was supposed to withhold taxes at a 28 percent rate if clients didn’t declare their accounts to the IRS. Downing said UBS is not alone.

“A lot of these banks are in violation of those agreements with respect to their cross-border banking,” Downing said. “In such a case, the IRS is in a position where they could pull the QI agreement, which is financially devastating for a foreign financial institution.”

Foreign banks seeking to avoid indictment must disclose its own wrongdoing to the Justice Department, Downing said.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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