Retirement Plans, Milan Probe, EU Cartel Fines: Compliance

The U.S. Treasury Department will help expand the availability of annuities and lifetime income choices in retirement plans, the agency said.

The department yesterday proposed two regulations to make it easier for those approaching retirement to buy an annuity through their company-funded pensions or 401(k) savings accounts.

U.S. savers held about $2.9 trillion in 401(k) accounts and a total $17 trillion in retirement savings as of Sept. 30, according to the Investment Company Institute, a Washington-based trade group for the mutual-fund industry.

Regulators and legislators have been looking at Americans’ retirement security because life expectancies are increasing and savings have shifted from traditional pension plans to defined-contribution plans such as 401(k)s. Participants in 401(k)-type plans increased to 67 million in 2007 from about 11 million in 1975, the Labor Department said at a hearing on lifetime income in September 2010.

Employers have been reluctant to adopt annuities in retirement plans they sponsor because of concern that fees are too high and that they would be held liable for their choice of insurers. Americans have resisted buying the insurance because they don’t want to lock up their assets.

The Treasury Department’s proposed regulation will make it simpler for traditional pension plans to let workers take part of their balances as lifetime income streams and take the rest as lump sums.

The other proposed rule would encourage 401(k) and IRA plans to offer participants the option of dedicating part of their savings to a so-called longevity annuity, which may not begin the guaranteed income payouts until age 80 or 85, the Treasury Department said. The agency said it would grant an exception to required minimum distributions from retirement accounts in certain cases.

Asset managers and insurers including BlackRock Inc., State Street Corp., Prudential Financial Inc., MetLife Inc. and ING Groep NV have been developing ways to add annuities and lifetime income to 401(k) investment choices.

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Compliance Policy

Europe Zero-Risk Capital Rule Should Be Ended, Lobby Group Says

The European Union should close a loophole in bank capital rules that rates sovereign debt as risk-free and allows lenders to escape holding reserves against possible losses, the Finance Watch lobby group said.

There are no “risk-free assets” and therefore the “existence of zero-risk weights is fundamentally flawed and misleading,” the group said in the published research.

Losses on European sovereign debt have grown since the onset of the Euro area financial crisis that may threaten the survival of the euro.

“Risk weights penalize non-rated exposures,” including some corporate and retail investments that have a 100 percent risk-weight attributed to them, Finance Watch said.

Geithner Says Systemically Risky Firms to Be Named This Year

U.S. Treasury Secretary Timothy F. Geithner said the first nonbank financial companies deemed systemically risky will be named this year, and the department will release more plans for an overhaul of housing finance.

Geithner said the plan is to wind down government sponsored enterprises, or GSEs, and reduce the government’s direct role in the housing market. The comments were part of prepared remarks by Geithner in Washington yesterday.

The secretary’s comments came as he praised the progress on the 2010 Dodd-Frank act and said regulators are “making considerable progress in implementing reform.” The law has come under attack from Republicans and presidential candidates.

CFTC, SEC Release Report on Global Regulations of Swaps Market

The Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission issued a joint Report to Congress on Jan. 31.

The report, which analyzes efforts to coordinate global regulations on the $708 trillion swaps market is required by the Dodd-Frank law.

The report will be “a useful guide to OTC derivatives regulation and markets inside and outside the United States, and a timely comparative tool in the ongoing effort to achieve consistency in regulation,” the commissions said in the report.

The 153-page study discusses the process used by the commissions in creating it, the regulatory framework for OTC derivatives in the Americas, European Union and Asia, and the commissions’ analysis of regulatory schemes among the jurisdictions, as well as recommendations “for next steps.”

The report includes appendices summarizing approaches in studied jurisdictions and listing international policy initiatives for OTC derivatives regulation.

Compliance Action

Banks’ U.K. Finance Regulation Fees to Rise on Reform Costs

The U.K. finance regulator, while pushing to limit pay and bonuses for London bankers, said it needs more money from firms it regulates to cover spending on information technology and implementing government reforms.

The Financial Services Authority’s annual spending for the year starting on April 1 will rise 15.6 percent to 578.4 million pounds ($913.9 million), which will be borne mostly by larger financial firms, the regulator said yesterday. Fees for medium-sized firms will rise proportionately depending on their business, and fees for the smallest firms will stay at a minimum of 1,000 pounds.

The funding requirements may be the regulator’s last before a government-imposed split into the Prudential Regulation Authority, which will become a unit of the Bank of England, and the independent Financial Conduct Authority, in 2013.

Barclays, UniCredit Bankers Should Face Trial, Prosecutor Says

Former UniCredit SpA Chief Executive Officer Alessandro Profumo is among 20 UniCredit and Barclays Plc executives facing fraud charges in a tax-evasion probe led by a Milan prosecutor, according to court documents.

Prosecutor Alfredo Robledo asked a court in the city to put the 20 individuals on trial for fraudulent representation in relation to an international investment plan known as Brontos, he said in a court filing yesterday. A judge will rule on the prosecutor’s request at a later date.

UniCredit, Italy’s largest bank, used the tax vehicle to increase the bank’s “economic benefits,” Profumo said at the company’s annual meeting in April 2010. Prosecutors have been investigating Brontos since last year when they seized 246 million euros ($321 million) in bank assets.

Profumo, 54, said in a statement yesterday that he welcomes the chance to be heard in court and he is convinced he acted correctly. He stepped down as UniCredit CEO in September 2010.

A spokesman for UniCredit declined to comment, as did a spokesman for Barclays in London.

Japan’s FSA Told Tokyo Exchange to Find Glitch Cause, Jimi Says

Japan’s Financial Services Agency ordered Tokyo Stock Exchange Chief Executive Officer Atsushi Saito to investigate the cause of yesterday’s trading glitch, Financial Services Minister Shozaburo Jimi said.

Jimi was speaking at a news conference in Tokyo today, referring to events at the Tokyo Exchange. Japan’s alternative trading platforms missed out on a potential payday yesterday as regulators stopped them from fielding orders when a computer error caused the biggest trading disruption in six years at the Tokyo Stock Exchange.

The glitch at TSE disabled trading of 241 companies including Sony Corp. for 2 1/2 hours. The malfunction in a server and its backups was Tokyo’s worst since 2006, a year before alternative venues started in Japan. The disruption came as the Fair Trade Commission reviews the effect on competition of a planned merger between the exchanges in Tokyo and Osaka, where transactions went on as normal.

UBS Unauthorized Trading Prompts Swiss, U.K. Enforcement Actions

U.K. and Swiss finance regulators have begun formal enforcement actions against UBS AG over a $2.3 billion trading loss allegedly caused by Kweku Adoboli, a former trader at its investment bank.

The U.K. Financial Services Authority and the Swiss Financial Market Supervisory Authority, known as Finma, are investigating the risk controls at UBS’s investment bank that didn’t prevent the unauthorized trades, the agencies said in statements today. The regulators hired the accounting firm KPMG in September to handle an independent investigation into events surrounding the losses.

The move to a formal enforcement proceeding typically indicates the regulators have found sufficient evidence of financial rule violations. UBS said the regulators told them of their decision and they are cooperating.

“Immediately after the unauthorized trading incident, the Group Executive Board thoroughly investigated the incident and implemented measures to better protect our firm from unauthorized activities,” UBS spokeswoman Jenna Ward said in an e-mailed statement.

Adoboli, 31, charged with fraud and false accounting, pleaded not guilty on Jan. 30 to fraud and false accounting in connection with the trading loss. He has been in custody since Sept. 15. Adoboli’s request for bail was denied, prosecutor David Williams said after a court hearing today.

UBS, Credit Suisse Among Banks in Swiss Libor-Fixing Probe

UBS AG and Credit Suisse Group AG are among 12 banks facing a Swiss inquest into possible manipulation of the London interbank offered rate, the latest probe into how the benchmark for $350 trillion of financial products is set.

“Collusion between derivative traders might have influenced” Libor and its Japanese equivalent, Tibor, the Swiss competition watchdog, Comco, said in an e-mailed statement today. “Market conditions regarding derivative products based on these reference rates might have been manipulated too.”

Comco said it opened the investigation after receiving an application for its “leniency program,” which indicated that traders from various banks might have influenced the rate. Libor is set daily by the British Bankers’ Association based on data from banks, which report how much it would cost them to borrow from each other for various periods of time. Regulators in the U.S., U.K. and European Union have been examining how Libor is set, while Japan’s securities watchdog has probed Tibor.

“We are taking these investigations very seriously and are fully cooperating with the authorities,” said Yves Kaufmann, a spokesman for UBS in Zurich. UBS, the biggest Swiss bank, said in July that it was granted conditional immunity from some agencies, including the U.S. Justice Department.

A spokesman for Credit Suisse said the bank is “not in the position” to comment at the moment.

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Dow, DuPont, Denki Lose EU Appeal to Cut Rubber Cartel Fines

DuPont Co., Dow Chemical Co., and Denki Kagaku Kogyo KK lost bids to overturn antitrust fines by the European Union for claims they colluded to fix prices in the rubber chemical industry.

The European Commission was right in the findings and fines it imposed for the cartel, the EU’s General Court said in three separate rulings for the companies. The EU’s antitrust regulator has “wide discretion as regards the methods of calculating fines” and didn’t err in the amounts or the fines themselves, the Luxembourg-based tribunal said yesterday.

Five companies were fined a total of 247.6 million euros ($325 million) in 2007 by the commission, the European Union’s antitrust regulator, for colluding on prices for chloroprene rubber, used to make latex rubber, from at least 1993 to 2002, the commission said.

Bayer AG, Germany’s largest drugmaker and another repeat offender, escaped a 201 million euro fine, as it had told the regulator about the cartel. An appeal by Eni SpA, which received the heaviest fine, is pending.

“DuPont is disappointed with the decision” and is considering whether to appeal, Eduardo Menchaca, a spokesman for the company, said yesterday. Dow will appeal the ruling “as we continue to remain convinced of the correctness of our position,” the company said in an e-mailed statement. Naoshi Fukawa, a spokesman for Denki Kagaku in Tokyo, said the company can’t comment until it has read the ruling.

The cases are T-76/08 Pending Case, E.I. du Pont de Nemours and others v Commission; T-77/08 Pending Case, Dow Chemical v Commission; T-83/08 Pending Case, Denki Kagaku Kogyo and Denka Chemicals v Commission.

MF Global U.K. to Start Returning Funds as Soon as Next Week

MF Global Holding Ltd.’s U.K. administrators said they planned to start returning money to the failed broker’s clients as early as next week.

The interim distribution would be made “only to agreed claims” from customers with protected accounts, Martin Pascoe, a lawyer for the administrators, said at a London court hearing today.

KPMG LLP, which was appointed to wind up the broker’s U.K. unit, yesterday said it was planning to make its first payment to clients who had money locked in customer accounts. The interim distribution will return 26 cents for every dollar claimed.

The U.S. brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more, see Interviews, below.


Pitt Sees Criminal Charges After MF Global Inquiry

Former Securities and Exchange Commission Chairman Harvey Pitt talked about MF Global Holding Ltd. and the need for commodities investors to be protected by a SIPC-like agency. The Securities Investor Protection Corp. is a nonprofit membership corporation, funded by its members.

Pitt, chief executive officer of Kalorama Partners LLC, spoke on Bloomberg Television’s “InBusiness With Margaret Brennan.”

For the video, click here.

Bafin’s Koenig Doesn’t Expect Basel III to Cut German Lending

Elke Koenig, president of German financial regulator Bafin, said she doesn’t expect Basel III capital rules or the European Banking Authority’s initiatives to reduce lending by German banks. Koenig made the remarks to reporters in Frankfurt yesterday.

Germany’s banks are set to reach the European Banking Authority’s capital requirements on their “own strength,”, according to Koenig.

The EBA’s new capital rules require euro-area banks to achieve a 9 percent core Tier 1 capital ratio by the middle of this year.

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