Swiss Banks, EU Ratings, Fund Reform, U.K. Tax: Compliance

Patrick Odier, chairman of the Swiss Bankers Association, said an agreement between Switzerland and the U.S. to resolve a dispute over tax evasion by Americans with Swiss banks should be reached “as soon as possible”.

U.S. and Swiss officials are concluding talks on a civil settlement amid U.S. criminal probes of 11 companies, including Credit Suisse Group AG, suspected of helping American clients hide money from the Internal Revenue Service, five people with knowledge of the matter said last month.

Switzerland is aiming for an all-encompassing solution that will apply to all banks, Finance Minister Eveline Widmer-Schlumpf said in an interview last month.

Compliance Policy

Moody’s Has ‘Deep Concerns’ Over Draft EU Ratings Regulations

Michel Madelain, president of Moody’s Investors Service, said the company has “deep concerns” over draft measures being considered by the European Union to regulate credit ratings.

The possible rules would “disrupt access to capital markets for European sovereign and corporate issuers” and “increase volatility in the European credit markets,” he said in a letter to Poland, which holds the EU’s rotating presidency. A copy of the letter was published in an e-mailed statement yesterday.

Moody’s criticized possible plans to rotate the credit-ratings companies that businesses use to rate their bonds and also possible controls on “issuance and availability” of ratings on sovereign debt.

SEC’s Schapiro Seeking ‘Structural Reform’ of Money Market Funds

The U.S. Securities and Exchange Commission will soon propose revamping money market fund practices, pushing the options of a floating net asset value or capital buffers, SEC Chairman Mary Schapiro said yesterday.

“Money market funds, while perhaps not the cause of the downward spiral of events, certainly exacerbated the financial breakdown,” Schapiro said in remarks prepared for a Securities Industry and Financial Markets Association conference in New York. The SEC is pursuing “further structural reform” in the $2.6 trillion industry, she said.

Departing from the stable $1 share price for such funds would require “dramatic” industry changes, Schapiro said. A capital buffer “could mitigate the incentive for investors to run since there would be dedicated resources to address any losses,” she said.

The run on funds, started by the failure of the Reserve Primary Fund in September 2008, was halted by government intervention and guarantees, and the SEC has since been looking into how to make the industry safer.

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EU Reaches Deal on Supervision of Bancassurance Companies

European Union government agreed to amend rules for supervisors of so-called bancassurance companies, firms that have both insurance and banking arms.

Existing legislation in the 27-nation EU should be adjusted to ensure that authorities can apply both banking and insurance regulation to such firms, the region’s finance ministers agreed today in Brussels. The clarification was proposed last year by the European Commission, the EU’s executive arm.

Compliance Action

Basel Taps Banks With Assets of $49 Trillion: Chart of the Day

The 29 global banks facing additional oversight and capital requirements range from State Street Corp., with almost $209 billion in assets, to Deutsche Bank AG, with more than $3 trillion, this CHART OF THE DAY shows.

The banks, classified last week by the Financial Stability Board in Basel, Switzerland, as systemically important, will be required to hold a capital buffer ranging from 1 to 2.5 percentage points in common equity capital. That is on top of the 7 percent in common equity capital required under the global standards known as Basel III.

The 29 banks, deemed large enough that their failure could disrupt the global economy, had $48.7 trillion in total assets as of their most recent quarterly reports, according to data compiled by Bloomberg Government.

The list includes eight U.S. banks: Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, State Street and Wells Fargo & Co.

U.K. Overhauls Tax Collection After Goldman Sachs ‘Mistake’

The U.K. tax office added extra checks on negotiations with large companies over their tax bills after forgiving Goldman Sachs Group Inc. as much as 10 million pounds ($16 billion) of interest on unpaid tax.

Tax settlements with companies now have to be endorsed by senior managers at Her Majesty’s Revenue and Customs rather than leaving the approval to those who negotiated the deals, the office’s permanent secretary, David Hartnett told a committee of lawmakers in Parliament in London yesterday.

Hartnett described the process as “complete separation between those who negotiate and those who approve.”

He reached the agreement with Goldman Sachs and approved it, prompting criticism from lawmakers and calls for his resignation. He said the deal with the New York-based investment bank was a “mistake” in previous testimony to the Public Accounts Committee last month.

The deal resulted in Goldman Sachs paying back taxes it owed on National Insurance payments for bankers’ bonuses while forgoing interest payments.

ICE Applies to Register Trade Vault Service for Swaps With CFTC

Intercontinental Exchange Inc., which operates exchanges and clearinghouses, said it applied to register its “ICE Trade Vault” service as a swap data repository with the U.S. Commodity Futures Trading Commission.

The service will provide reporting compliance for its global customers, the Atlanta-based company said in a statement yesterday.

RBS’s Coutts Fined $10.1 Million Over Sale of AIG-Linked Fund

Royal Bank of Scotland Group Plc’s Coutts & Co. unit was fined 6.3 million pounds ($10.1 million) for not warning clients about the risks of investing in a bond fund overseen by American International Group Inc.

Coutts marketed the AIG Enhanced Variable Rate Fund as a standard money market fund and didn’t tell clients that it invested “a material proportion” of clients’ money in asset-backed securities and floating-rate notes, the Financial Services Authority, the U.K.’s finance regulator, said in a statement today.

The fund, which saw some of its assets fall below their book values, was suspended as a large number of customers tried to withdraw their investments after Lehman Brothers Holdings Inc.’s collapse, the FSA said. Coutts received the FSA’s standard 30 percent discount on the fine for settling early.

The regulator found that Coutts failed to give its staff adequate training about the risks of the fund and didn’t adequately describe the fund and its risk in marketing documents, among other findings, the FSA said.

Coutts has implemented “enhancements to our investment advice procedures” so that “the past failings identified by the FSA will not be repeated,” Rory Tapner, the chief executive officer of Coutts, said in an e-mailed statement.

The bank, based in London, said it will also hire an independent third party to conduct a review and may offer redress to customers who lost money.

MF Global Didn’t Get Preferential Treatment, CFTC’s Gensler Says

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission who has recused himself from the agency’s investigation of MF Global Holdings Ltd., said the firm didn’t get preferential treatment because of his ties to Jon S. Corzine, the failed broker’s former chairman.

Corzine, who stepped down as MF Global’s chairman and CEO on Nov. 4, worked with Gensler at Goldman Sachs Group Inc. and during his term in the U.S. Senate, where Gensler served as an aide.

Gensler, in response to questions from reporters after an appearance yesterday at a Securities Industry and Financial Markets Association conference in New York, said the CFTC’s delay of rules governing how brokers can manage client money didn’t show favoritism to MF Global.

MF Global, the holding company for the broker-dealer run by Corzine, a former New Jersey governor and former Goldman Sachs co-Chief Executive Officer, filed for bankruptcy protection on Oct. 31 after making a $6.3 billion bet with the firm’s money on European sovereign debt. The bankruptcy trustee and regulators are investigating possible missing funds in customer accounts, and the FBI has joined the probe, according to a person familiar with the matter.

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Olympus Said to Be Investigated by Japan’s Securities Watchdog

Japan’s Securities and Exchange Surveillance Commission is investigating Olympus Corp., the camera maker that said it hid losses by paying inflated fees to advisers, according to a person with knowledge of the situation.

The commission may wait until a probe set up by the company publishes its findings before determining whether to deepen the investigation, the person said on condition of anonymity as the matter is confidential. Kyodo News reported the SESC investigation earlier today.

Olympus said it also used three other acquisitions to help hide losses on investments from the 1990s. The Tokyo-based company has set up a six-person team of outsiders, including two former judges and a retired prosecutor, to probe the $1.4 billion of writedowns and fees related to acquisitions.

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Ex-New Star Manager Sues Over Bullying, Being Called Moron

Patrick Evershed, a former New Star Asset Management Holdings Inc. fund manager, was bullied by company founder John Duffield and called a “criminal” and a “moron,” Evershed’s lawyer said, Daphne Romney, said.

She made the remarks at the first day of the trial in the case yesterday at a London employment tribunal, where Evershed is suing New Star for unfair dismissal. Romney said that Evershed was subjected to “a very unpleasant environment.”

He was suspended by the fund’s chief executive officer, Howard Covington, in 2008, shortly after writing a letter to New Star’s human resources department complaining about Duffield’s conduct.

A request for comment to New Star’s law firm, Olswang LLP, wasn’t immediately returned.

The case is Patrick Evershed v. New Star Asset Management, case no. 2203495/2008, Central London Employment Tribunal.

Citigroup Settlement for $285 Million Is ‘Fair,’ SEC Says

Citigroup Inc. and the U.S. Securities and Exchange Commission defended their $285 million settlement of claims the bank misled investors in collateralized debt obligations.

The SEC, responding to questions raised last month by U.S. District Judge Jed Rakoff in Manhattan, yesterday called the settlement with Citigroup “fair, adequate and reasonable,” and said it should be approved by the court. Rakoff scheduled a hearing on the settlement to take place tomorrow.

“The proposed settlement reasonably reflects the scope of relief likely to be obtained by the commission under the applicable law if successful at a trial on the merits,” the SEC said in a brief. “The settlement allows the commission to devote resources that may have been required for this matter to investigate other fraud and misconduct.”

Rakoff asked Citigroup and the SEC to address nine questions about the proposed settlement, including “Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?”

Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, the third-biggest U.S. bank, didn’t immediately return a voice-mail message seeking comment on the SEC filing.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).

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KEB Workers File Injunction Against FSC’s Lone Star Sell Order

Korea Exchange Bank’s unionized workers filed an injunction in South Korea’s constitutional court to stop a regulator’s order to U.S.-based Lone Star Funds to sell its stake in the bank, the union said in an e-mailed statement.

The workers, who are also shareholders of the bank, said South Korea’s Financial Services Commission should make a judgment on Lone Star’s qualification as a major shareholder under South Korean law before ordering the fund to divest its 41 percent stake in Seoul-based Korea Exchange, according to today’s statement.

The injunction is expected to delay Lone Star’s sale of Korea Exchange Bank to Hana Financial Group Inc., the union said.

Cigarette Warnings Blocked by Court on Free-Speech Grounds

A federal judge blocked new U.S. rules from taking effect that would put graphic health warnings on cigarette packaging, saying the required images may violate tobacco companies’ rights to free speech.

U.S. District Judge Richard Leon in Washington ruled yesterday that ordering tobacco companies, including Lorillard and R.J. Reynolds Tobacco Co., to display images of diseased lungs and a cadaver with chest staples on an autopsy table may “unconstitutionally compel speech.”

Leon postponed the Sept. 22 deadline for the regulations to take effect while he reviews the constitutionality of the Food and Drug Administration rule.

Lorillard, R.J. Reynolds, Commonwealth Brands Inc., Liggett Group LLC and Santa Fe Natural Tobacco Co. Inc. sued the FDA in August, claiming its mandates for cigarette packages, cartons and advertising violate the First Amendment. The companies said in court papers that it would cost them a total of about $20 million to meet the 2012 deadline.

Stephanie Yao, an FDA spokeswoman, said by e-mail that the agency “does not comment on proposed, pending or ongoing litigation.”

The case is R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Administration, 11-cv-1482, U.S. District Court, District of Columbia (Washington).

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Pandit Says Shadow Banking Needs More Regulation

Vikram Pandit, chief executive officer of Citigroup Inc., talked about financial regulation and the collapse of MF Global Holdings Ltd.

Pandit also discussed the outlook for Citigroup and the European sovereign debt crisis. He speaks with Charlie Rose at the Securities Industry and Financial Markets Association’s annual meeting in New York.

For the video, click here.

Comings and Goings

Daniel Gallagher Sworn Into Office to Serve as SEC Commissioner

Daniel M. Gallagher has been sworn into office as a member of the U.S. Securities and Exchange Commission, the agency said in a statement on its website yesterday. He was nominated by President Barack Obama.

The U.S. Senate confirmed Gallagher to the position on Oct. 21. Gallagher, a former deputy division chief of the Securities and Exchange Commission, returns to the agency as it works to implement more than 100 rules it was assigned to write under Dodd-Frank.

He previously worked for four years as a counsel to prior commissioners and Deputy Director of the Division of Trading and Markets, the agency said in the statement.

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