Adviser Hearing, OppenheimerFunds, Risk Council: Compliance

Investment advisers opposed to a U.S. House measure that would subject them to oversight by a self-regulatory organization say the outfit they presume will get the assignment isn’t up to the task.

They made their case yesterday at a hearing of the House Financial Services Committee.

The presumed self-regulatory organization, or SRO, is the Financial Industry Regulatory Authority, which has come under fire recently for fee increases on the brokers it currently oversees and for the compensation paid to its top executives. Investment advisers’ industry groups used that criticism to discredit the organization.

David Tittsworth, the executive director of the Investment Adviser Association, who testified at the hearing, said Finra has an “excessive cost structure and a questionable track record.” He argued that giving Finra more power would not improve efficiency or enhance oversight.

The legislation, introduced in April, doesn’t mention Finra and the bill’s sponsor, Alabama Republican Spencer Bachus, said he hasn’t decided who should get the power.

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Compliance Policy

China Plans to Start New Bank Capital Rules Next Year

The China Banking Regulatory Commission plans to start new capital management rules for commercial banks from 2013, according to a statement on the central government’s website yesterday related to a State Council meeting presided over by Premier Wen Jiabao yesterday.

Systemically-important banks must have a capital adequacy ratio of 11.5% while other banks must maintain a ratio of 10.5%. Risk weightings for bank loans to small-sized companies will be lowered.

Banks will be given a “reasonable” period to meet the adequacy standards. Excessive loan-loss provisions can be counted toward capital, according to the statement.

EU Parliament Postpones Vote on Credit-Rating Rules

The European Parliament postponed a vote on rules for credit-rating companies that was scheduled for today.

The vote was delayed to allow more time for discussions on the dossier, John Schranz, a spokesman for the assembly’s economic and monetary affairs committee, said in a phone interview. The vote by the committee will be postponed until June 19 at the earliest, he said.

Compliance Action

OppenheimerFunds Agrees to Pay $35 Million Over SEC Claims

OppenheimerFunds Inc. will pay $35 million to resolve U.S. regulatory claims it misled mutual-fund investors about exposure to commercial mortgage-backed securities amid credit-market turmoil in late 2008.

Investment management and sales units at OppenheimerFunds, a unit of Massachusetts Mutual Life Insurance Co., inadequately disclosed two funds’ use of leverage that increased risk and made misleading statements about losses as markets froze, the Securities and Exchange Commission said in an administrative order yesterday. The company agreed to settle the claims without admitting or denying wrongdoing.

OppenheimerFunds used derivatives called total return swaps to gain exposure to commercial mortgages without buying actual bonds, the SEC said. By mid-September 2008, declines in the commercial mortgage market drove down the net asset values of the funds, forcing them to sell in an increasingly illiquid market to meet payments on the derivatives, according to the order.

“We continue to further enhance our fund disclosure, risk management and compliance controls and procedures to ensure those functions are best in class,” OppenheimerFunds Chairman and Chief Executive Officer Bill Glavin said in a statement. “We attach the utmost importance to our regulatory obligations and our fiduciary duties to our advisory clients, and we will continue working every day to create value for our investors while helping them to effectively manage risk.”

Philips Gets EU Antitrust Complaint Over Cathode-Ray Tube Sales

Royal Philips Electronics NV received an antitrust complaint from European Union regulators as part of a probe into the cathode-ray tube industry.

Joost Akkermans, a Philips spokesman in Amsterdam, said the company “received a supplementary statement of objections” from the European Commission. He declined to comment further.

LG Electronics Inc. also received a formal complaint from the EU, according to two people familiar with the matter. The region’s antitrust regulator made the complaints against LG and Philips to hold them responsible for the behavior of LG.Philips Displays, a now-defunct joint venture that made the tubes for televisions and computer monitors, said the people, who declined to be named because the matter isn’t public.

The commission confirmed sending supplementary statements of objections last week and declined to name the companies involved.

The Brussels-based commission can fine companies accused of operating a cartel as much as 10 percent of their annual sales.

“LG Electronics is aware that the European Commission has issued the supplemental statement of objections,” Ken Hong, a spokesman for the company in Seoul, said in an e-mail.

“We’ve been in close contact with the relevant authorities throughout the investigation and will continue to cooperate until the conclusion of this case,” Hong said, adding that the company isn’t “100 percent clear” on what regulators’ intentions are.

Danish Stress Tests Show Biggest Banks Can Withstand Losses

Denmark’s biggest banks are “robust” and can withstand losses after reducing their reliance on short-term funding in recent years, the central bank’s stress tests showed.

“The large financial institutions’ use of short debt issuance has been reduced considerably in the past years,” the Copenhagen-based central bank said in a report yesterday. “In an unstable market situation it’s important that large institutions with access to international capital markets make use of periods during which terms are easier and refinance their debt.”

Denmark’s regional banking crisis, which has claimed five lenders since last year, is forcing the industry to consolidate. That trend is “likely to continue” as the number of banks in the Nordic country is reduced, Governor Nils Bernstein said in a statement. The country’s banking turmoil was exacerbated by the 2010 passage of a bail-in bill, requiring senior creditors to share losses and pushing funding costs higher.

Danish banks continued to have “very limited exposure to the vulnerable southern European nations,” the central bank also said.


Ex-Deutsche Bank Worker Claims Sex Bias Over Lower Bonuses

Latifa Bouabdillah, a former Deutsche Bank AG vice president and director, sued the German lender for sexual discrimination in London.

Bouabdillah, who worked in the bank’s equity-structuring group, did “the same work as people who were being promoted around her” between 2008 and 2010, her lawyer Michael Duggan said yesterday at an initial hearing ahead of a trial to be held later this year. Those colleagues “were paid bonuses double or triple that of the claimant,” he said.

The damages Bouabdillah is seeking weren’t revealed because the evidence won’t be heard in full until the trial. There is no limit on damages that can be awarded in discrimination claims in the U.K.

Bruce Carr, a lawyer representing Deutsche Bank, said some of the bankers Bouabdillah was comparing herself with had different job titles and more responsibility.

The Frankfurt-based bank’s effort to stop Bouabdillah, who now works at Commerzbank AG, from using those employees’ compensation figures in the suit was rejected.

“We believe the claim is without merit,” Libby Young, a Deutsche Bank spokeswoman, said in a phone interview.

TenneT, Amprion, E.ON Win Ruling Over Power Grid Fee Regulation

TenneT Holding BV, Amprion GmbH, E.ON Hanse Netz GmbH and other power grid operators won a ruling against Germany’s Federal Network Agency from the Dusseldorf Higher Regional Court.

The judges struck down the agency’s order on what costs the companies may include when calculating fees they charge, court spokesman Ulrich Egger said in an interview. The ruling, covering 19 suits, is the first in a row of about 300 cases filed against the regulator.

Yesterday’s cases are OLG Dusseldorf, VI-3 Kart 245/07 et al.

Hontex Fails to Stop Hong Kong Regulator’s Compensation Bid

Hontex International Holdings Co. failed to stop Hong Kong’s securities regulator from seeking a court order to return HK$1 billion ($129 million) to investors in its 2009 initial public offering.

High Court Judge Jonathan Harris today rejected the Chinese fabric maker’s claim that the Securities and Futures Commission was trying to avoid proving its fraud claims beyond a reasonable doubt, ruling that criminal penalties on the company aren’t being sought.

The regulator, which has fought to establish its right to seek civil remedies from suspected rule breakers, alleges that investors were misled by inflated sales figures in Hontex’s prospectus in December 2009. Share sale arranger Mega Capital (Asia) Co. was fined a record HK$42 million in April and stripped of its corporate finance license.

Hontex lawyer Charles Manzoni asked for the trial to be halted while the company appeals today’s ruling. Harris rejected the request.

Hontex was suspended from trading in March 2010, leaving nearly 8,000 individual investors in the lurch, Simon Westbrook, a lawyer for the SFC, told the court on June 5. Westbrook will make opening statements for the SFC’s case tomorrow and present evidence from 25 witnesses.

The case is Securities and Futures Commission and Hontex International Holdings Co., HCMP630/2010 in the Hong Kong Court of First Instance.

Nasdaq Approves $40 Millin Accommodations Fund for Facebook IPO

Nasdaq said yesterday it is seeking review by the U.S. Securities and Exchange Commission of a one-time $40 million accommodation program for the Facebook Inc.’s initial public offering.

The Financial Industry Regulatory Authority, or Finra, will evaluate claims submitted by firms. About $13.7 million in cash is to be paid to member firms with the balance credited to members to reduce training costs, Nasdaq said.

All funds are expected to be paid out within six months.

Members of the exchange will qualify for the program if they were “directly disadvantaged” due to Nasdaq technical problems before 11:30 a.m. on May 18. In addition, they will qualify if they had uncertainty regarding the IPO cross position; accommodations to cover three kinds of orders; sells priced at $42 or less that didn’t execute; sells priced $42 or less that executed at a worse price; buys priced at $42 that were executed in cross and not immediately confirmed.

IBM is to review system processes, Nasdaq said.


HSBC’s Flint Says Europe Is Facing ‘Immense’ Challenges

HSBC Holdings Plc Chairman Douglas Flint talks about the challenges arising from the European sovereign-debt crisis and the threats to global growth.

Flint, who is also chairman of the Institute of International Finance, speaks at the IIF’s Spring Membership Meeting in Copenhagen.

For the video, click here.

JPMorgan Faced Failure in Risk Controls, Regulators Say

JPMorgan Chase & Co.’s trading loss of more than $2 billion points to failures in the bank’s risk-management practices, U.S. regulators told lawmakers yesterday.

Thomas J. Curry, the Comptroller of the Currency, said the losses raise “questions about the adequacy and rigor” of the bank’s risk operation, particularly of the unit which experienced the losses, the chief investment office.

Curry told the panel that the agency is looking to see if “similar gaps exist in any other area of JPMorgan’s risk management architecture.”

The hearing before the Senate Banking Committee was the first public airing of the roles played by the OCC, the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department before May 10, when JPMorgan Chairman and Chief Executive Officer Jamie Dimon disclosed the trading losses tied to credit derivatives.

“We are looking at whether there were gaps within our assessment of the risks and the risk controls in place in the CIO office,” Curry told lawmakers.

Dimon, who is scheduled to testify to the Senate panel on June 13 and to the House Financial Services Committee on June 19, is under pressure from lawmakers and regulators to explain the losses, which he has called “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment on the remarks of regulators.

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Comings and Goings

Japan Watchdog May Increase Headcount as Insider Probes Deepen

Japanese Financial Services Minister Tadahiro Matsushita said his banking watchdog needs more staff to bolster investigations into wrongdoing ranging from insider trading to accounting fraud.

Matsushita, 73, told a group of reporters in Tokyo today that he would like to increase the number of staff at the Securities and Exchange Surveillance Commission. The agency also needs to hire more people with special knowledge of asset managers and custodians in order to “improve the quality of inspections,” he said.

After his appointment this week, Matsushita pledged to expand the SESC’s insider-trading probes to rebuild confidence in Japan’s markets. The commission this year uncovered information leaks ahead of share sales.

The SESC, the investigative arm of the Financial Services Agency, more than doubled staff including regional inspectors over the past decade to about 710 as of March 31 from 265 in March 2002, according to its website. By comparison, the U.S. Securities and Exchange Commission employs about 3,500.

Former FDIC Chairwoman Bair to Lead Systemic Risk Council

Former Federal Deposit Insurance Corp. Chairwoman Sheila Bair will lead the Systemic Risk Council, which convenes this month to monitor regulatory reform of U.S. capital markets focused on systemic risk.

The independent, non-partisan council was formed by the CFA Institute, the group said yesterday in a statement. The council’s other members include Paul Volcker, former chairman of the Federal Reserve.

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