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Dodd-Frank ‘Lull,’ Banker Bonuses, FCC Mergers: Compliance

Less than halfway through the process of implementing the 2010 Dodd-Frank Act, the pace of rule-writing by the U.S. Securities and Exchange Commission has slowed by about half.

The agency’s five commissioners haven’t met once in the past four months to approve or propose regulations required under Dodd-Frank, designed to curb the kind of risky practices that fueled the 2008 financial crisis.

SEC Chairman Mary Schapiro acknowledged the slowdown, describing it as a “natural lull” after an initial gush of proposals.

The rule-making holdup is extending a period of uncertainty for affected firms -- some welcome the delay of unwelcome regulations, others would prefer clarity. Among the rules in limbo are the so-called Volcker rule to ban banks’ proprietary trading, restrictions on asset-backed securities deals, and forcing firms to disclose whether manufacturing metals were mined in war-ravaged parts of Africa.

Enacted in 2010, Dodd-Frank requires U.S. regulators to write hundreds of new rules to revamp how the financial sector does business, and more of those rules were assigned to the SEC than any other agency.

In the first year after the law’s passage, the agency voted to approve 108 proposals, adoptions and rule concept releases, according to data compiled by Bloomberg, most of them related to Dodd-Frank. That’s an average of nine per month.

Since the law’s one-year anniversary July 21, the register has recorded only 39 rulemaking SEC votes, or about 5.3 a month, the data show.

Much of the recent activity has taken place behind closed doors, adding to the appearance of a slowdown. Since Oct. 26, the agency has adopted only nine rules and did so without holding a single public meeting, conducting the votes by paper ballot.

Schapiro offered several explanations for the SEC’s slower pace, including the complexity and high volume of public comments on recent rules, and the fact that a new commissioner joined the five-person panel last November.

For more, click here, and see Interviews/Testimony section, below.

Compliance Policy

Banker Bonus Limits Sought by Lawmakers in EU’s Basel Plan

European Union lawmakers may introduce tougher curbs on banker pay, including a limit on the gap between lenders’ highest and lowest salaries, as part of an overhaul of financial regulation later this year.

Members of the European Parliament’s Socialist and Green parties have proposed that a draft EU law to bolster bank capital should include new pay rules, as well as stricter curbs on risk taking, according to two members of the institution’s financial affairs committee.

Labor leaders and politicians have criticized bank-bonus awards as out of touch with economic reality. Michel Barnier, the region’s financial services chief, has said he is considering proposing extra rules on bonuses in response to payouts he described as going beyond “morality.” Some lawmakers would like to move faster and include the measure in a bill set to become law on Jan. 1, 2013.

Barnier presented the draft law last year to implement an overhaul of bank rules agreed on by the Basel Committee on Banking Supervision. National governments and the EU Parliament lawmakers must agree on the final form of the measures before they can enter into force. The parliament’s financial affairs committee is scheduled to vote on the rules by May.

For more, click here.

House Panel Advances Bill to Curb FCC in Reviewing Mergers

A House committee voted to advance a Republican-sponsored bill to limit concessions the Federal Communications Commission can require of companies seeking approval to merge.

The 31-16 vote yesterday by the Energy and Commerce Committee sends the bill on for consideration by the full House. No action has been scheduled for a version introduced in the Senate.

The bill, H.R. 3309, would prevent the FCC from setting limits on a merging company’s behavior that aren’t related to the transaction. It also would require the FCC to identify a harm to be remedied before adopting rules, and to publish regulations before it votes upon them.

The bill was sponsored by Representative Greg Walden, an Oregon Republican, who said “we need to lock in reform.” Democrats criticized the bill, with Representative Henry Waxman of California saying it would “disable the FCC, not reform it.”

EU May Seek Tougher Collateral, Oversight Rules for Repos

European Union regulators may impose tougher collateral requirements on repurchase agreements on concerns that such trades might lead to unsustainable debt levels that threaten market stability.

The European Commission is weighing the measure as part of proposals to rein in risky financial activities that take place outside the regular banking system, according to a document obtained by Bloomberg News. Michel Barnier, the EU’s financial services commissioner, is scheduled to publish the plans next week.

Repurchase agreements, contracts where one investor agrees to sell a security and then buy it back at a future date and a fixed price, are a “central issue,” according to the document. The EU is working with global regulators to identify “regulatory gaps and inconsistency between jurisdictions,” including for collateral management.

The trades, known as repos, are among several so-called shadow banking activities being targeted by the Group of 20 nations on concerns they may be used to evade a clamp-down on excessive risk taking. The Financial Stability Board, which brings together regulators, G-20 central bankers and finance ministry officials, said last year that shadow banks may create “an opportunity for regulatory arbitrage.”

For more, click here.

Covered Bond Group Lobbies to Drop Commission’s Ratings Plan

A European Commission plan to force debt issuers to rotate the firms rating their securities should be ditched because it will increase costs and complexity, according to a covered bond industry group.

The European Covered Bond Council, which represents issuers in the $3.3 trillion market that banks use to help fund themselves in the region, complained about the Commission’s proposals in a paper dated Feb. 28 and distributed to its members.

The group said it’s “not reassured that the Commission’s proposal to impose rotation will actually achieve its goal of reducing conflicts of interest,” according to the paper, seen by Bloomberg News. The plan, put forward in November, “appears impracticable, implies significant costs on both issuers and investors and is likely to introduce uncertainty and volatility to the rating process,” the group said.

Regulators around the world are seeking greater control over rating firms after the top grades they awarded to bonds backed by U.S. subprime mortgages lulled investors into a false sense of security in the run-up to the 2008 financial crisis. Their proposals are designed to reduce the risk of conflicts of interest and to boost transparency and quality.

Clearinghouses Should Tell Regulator of Capital Crises, EBA Says

Derivative clearinghouses in the European Union should alert regulators when the amount of capital they hold dips to within 10 percent of the minimum required, the region’s top banking regulator said yesterday.

When the level of capital held by a central counterparty approaches the minimum allowed, it “should immediately inform the competent authority and explain which actions it intends to take to ensure compliance with the capital requirements,” the London-based European Banking Authority said in a proposal on its website.

“The competent authority could apply restrictive measures until the capital is fully restored.”

U.S. House Plan Would Ease SEC Rules for Closely Held Companies

U.S. Senate Democrats say they want to put their own mark on House legislation intended to make it easier for closely held companies to raise money and prepare to go public.

Lawmakers in the Republican-controlled House and Democratic-controlled Senate say they see the potential for bipartisan agreement on elements of the plan, which would loosen U.S. Securities and Exchange Commission rules on such companies.

President Barack Obama’s administration yesterday urged the House to pass its plan and said it will work with Congress toward a final measure.

Smaller companies have been struggling to raise money amid regulatory and economic pressure. Secondary markets, where private shares of companies are bought and sold, have surged as the 2002 Sarbanes-Oxley Act and the 2010 Dodd-Frank Act made accessing public markets more expensive.

The goal, lawmakers say, is to let companies attract investors while remaining closely held, giving them an opportunity to prepare to eventually go public.

The House Republican plan also would provide newly public companies with less than $1 billion in annual revenue with exemptions and phase-ins for compliance with some SEC rules, including a requirement that an outside auditor attest to the firm’s internal controls.

For more, click here.

Compliance Action

Libor Links Deleted as U.K. Bank Group Backs Away From Rate

Twenty-six years after helping to design the London interbank offered rate, Britain’s bank lobbyists are distancing themselves from their creation amid regulatory investigations and lawsuits.

The British Bankers’ Association, the century-old lobby group that oversees the rate, last week deleted references from its website referring to its role in setting Libor. This week, it met regulators and bank executives to review the future of the benchmark. Under one option, the Bank of England’s proposed Prudential Regulation Authority would take responsibility for policing the rate, said a person with knowledge of the talks who asked to remain anonymous because discussions are private. The BBA says it isn’t seeking to cede oversight to the regulator.

Libor, the basis for $360 trillion of securities worldwide, has transformed from a talisman of London’s influence in financial markets to an albatross for the industry. Regulators worldwide are investigating whether banks routinely lied about their true borrowing costs to avoid the perception they faced difficulty raising funds and traders rigged submissions to benefit their own wagers on derivatives linked to the rate. The probes have called into question whether banks can be trusted to set Libor with only minimal regulatory oversight.

The U.S. is conducting a criminal investigation into suspected manipulation of benchmark rates including Libor, the Justice Department said in a letter to a federal judge that was made public yesterday.


Stanford Convicted of Defrauding Investors in Ponzi Scheme

Onetime billionaire R. Allen Stanford was convicted of fraud in what prosecutors said was a $7 billion scheme involving bogus certificates of deposit at his Antigua-based bank.

A federal jury in Houston yesterday found the financier guilty of all but one of the 14 counts against him, including wire and mail fraud and obstructing a federal regulatory investigation. Stanford, 61, faces as long as 20 years in prison for each fraud count.

Stanford’s jury, a day after finding the Texas financier guilty, will continue hearing evidence on federal prosecutors’ request that he forfeit $300 million in assets.

Stanford, who was ranked 205 on Forbes magazine’s 2008 list of the richest Americans with a net worth of $2.2 billion, has been jailed since being indicted in June 2009 after prosecutors said he might try to flee. A second trial with the same jury began yesterday to determine the amount Stanford must forfeit. Prosecutors are seeking about $300 million in assets.

The founder of Stanford Financial Group, based in Houston, denied accusations by prosecutors and the U.S. Securities and Exchange Commission that he cheated investors through CDs issued by Stanford International Bank Ltd.

Stanford was found not guilty of a single wire fraud count related to bribing an official with Super Bowl tickets.

“We are disappointed in the outcome,” Ali Fazel, Stanford’s lawyer, said outside the court. “We expect to appeal.”

Robert Scardino, Stanford’s other lead attorney, said the defense team will “examine issues for a new trial.” They both declined to comment further, citing a gag order by Hittner.

Prosecutor Gregg Costa declined to comment, citing the order.

The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

For more, click here.


Schapiro Says SEC Conflict Mineral Rule ‘In Progress’

U.S. Securities and Exchange Commission Chairman Mary Schapiro testified yesterday about her department’s budget and rules on conflict minerals before a House Appropriations subcommittee in Washington.

The agency’s rules for companies to disclose the use of so-called conflict minerals may not be finished until the middle of the year, Schapiro said during her testimony.

The Dodd-Frank Act of 2010 set an April 2011 deadline for the rule, which requires public companies to disclose whether any of four metals in their manufacturing or products came from central Africa, where mining revenue has funded violent militia groups. Schapiro told lawmakers at the Washington hearing that the SEC will need at least “the next couple of months” to finish because the rule is complex and unusual.

For the video, click here and for more, click here.

Gensler Says Markets Need Confidence That CDS Will Hedge Risk

Financial-market participants need confidence that credit-default swaps will pay out and provide their promised protection, U.S. Commodity Futures Trading Commission Chairman Gary Gensler said.

Gensler declined to comment specifically on whether Greece’s bond exchange will trigger a swap payout, or whether the market has suffered because of authorities’ efforts to avoid such a credit event. Instead, he spoke broadly about the need for a functioning CDS market, particularly in the agriculture, energy and other commodity markets, that gives investors confidence in the contracts they sign.

Gensler said he has “not been involved in the specifics” of how the International Swaps and Derivatives Association is weighing the Greek debt swap.

The bond exchange is a central element of Greece’s efforts to win 130 billion euros ($171 billion) in international aid. Finance Minister Evangelos Venizelos said on March 5 that Greece is ready to force investors to participate if the swap, which runs through tomorrow, doesn’t draw enough voluntary participation.

EU’s Basel III Law Should Have Leverage Rule, U.K.’s Hoban Says

U.K. Treasury Minister Mark Hoban said that the European Union’s implementation of so-called Basel III bank rules should include measures to curb bank leverage.

Hoban told a Brussels conference that EU nations must not be allowed to “unpick” parts of the Basel accord, which sets global rules for bank capital and liquidity.

Hoban also said he’s “concerned” separate proposals to revamp the EU’s Markets in Financial Instruments Directive, or Mifid, may cause barriers to trade.

The proposals contain tough “equivalence” rules that that no other country would currently meet and may “choke off opportunities,” he said.

Comings and Goings

Katainen Denies Seeking to Succeed Juncker as Eurogroup Chief

Finland’s Prime Minister Jyrki Katainen said he’s not seeking to succeed Luxembourg’s Jean-Claude Juncker as head of the group of euro-area finance ministers.

Katainen said today on Finland’s MTV3 television that he is not running for the position. Asked if he would take the job if offered, Katainen didn’t rule out the possibility.

Juncker, whose tenure as eurogroup leader ends this summer, said on March 2 that he won’t seek another term. Asked if he would support Katainen as his successor, Juncker said: “It depends.”

Katainen may have the support of Austria’s Finance Minister Maria Fekter, who said on March 5 that the next leader of the eurogroup should be a head of government with experience as a finance minister.

Finland is one of four AAA rated countries in the single-currency region. Katainen served as finance minister for four years before becoming prime minister.

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