Solvency II Phase-In, Dubai ‘2012’ Law, China: Compliance

The European Union is considering phasing in new capital rules for the life insurance industry over seven years, easing the burden on insurers who had criticized the changes.

The European Commission, the EU’s executive arm, is considering the change as it negotiates with insurers and members of the European parliament about the transition from the current Solvency I regime to Solvency II rules, Karel van Hulle, the EC’s head of pension and insurance, said in a telephone interview from Brussels yesterday.

The proposal was discussed at a meeting in Brussels yesterday, according to Stefaan de Rynck, a spokesman for Michel Barnier, the European Commissioner for Financial Services. Solvency II, which is scheduled to be applied in 2014, aims to improve policyholder protection by forcing insurers to hold more capital as a buffer against potential investment losses.

About 40 percent of German life insurers would have problems complying with the new rules, Financial Times Deutschland reported yesterday. Prudential Plc, the U.K.’s biggest insurer by market value, has threatened to leave Britain if Solvency II hinders its U.S. business.

The seven-year transition could buy the industry time to come up with a long-term solution to its struggle with the low interest-rate environment that reduces yields insurers earn on their investments, according to Stephan Kalb, who heads Fitch Ratings’ insurance ratings team.

The Council of the European Union and the European Parliament will vote on the plans, which could be finalized at the beginning of July, van Hulle said.

Compliance Policy

Dubai’s Ruler Makes Changes to Some Laws for Financial Center

The Dubai Financial Services Authority, the regulator of Dubai’s tax-free financial center, said Dubai’s ruler had enacted two laws that alter some provisions of the center’s markets law and regulatory law.

The Markets Law 2012 replaces the Markets Law 2004. It brings about a number of changes including modifications to prospectus disclosure, DFSA said in an e-mailed statement yesterday.

The new law also changes provisions relating to what activities constitute an offer, market misconduct provisions and corporate governance, according to the statement. The Regulatory Law Amendment Law 2012 allows the DFSA to undertake regulatory oversight of auditors within the DIFC, according to the statement.

The Dubai International Financial Center opened in 2004 to attract international banks, asset managers and insurers and is home to the regional offices of Goldman Sachs Group Inc., Citigroup Inc. and Standard Chartered Plc. The center also has a stock exchange and is governed by its own laws that seek to match regulatory standards in developed markets.

Separately, Dubai will make the registration of property-rental contracts mandatory starting next month as the emirate seeks to collect rental-market data.

The requirement will start next month and help Dubai’s Real Estate Regulatory Agency, known as RERA, better set the emirate’s rental index to stop landlords from charging inflatable rents, RERA Chief Executive Officer Marwan bin Ghalita told reporters yesterday. Real-estate brokers will need to comply to receive or renew trade licenses.

Indonesia May Allow Banks to Own as Much as 90% of Local Lenders

Indonesia may allow banks to own as much as 90 percent of commercial lenders, easing concerns on ownership caps that may affect acquisitions including DBS Group Holdings Ltd.’s bid for PT Bank Danamon Indonesia.

Bank Indonesia plans to announce the ownership rule before July, Deputy Governor Muliaman Hadad, who’s in charge of banking regulations, said in Jakarta after a speech yesterday. In response to reporters’ questions, Hadad said that while the ownership stake could be as high as 90 percent of local lenders, “this will be on a very selective basis.”

The comment comes two months after Singapore’s DBS’s 66 trillion rupiah ($7 billion) bid for Danamon, which triggered proposals from Bank Indonesia’s officials to restrict the shareholding of local lenders by other financial institutions. The possible limit led traders to bet that the deal, Southeast Asia’s largest banking takeover, may unravel. The takeover of Danamon would give DBS a 3,000-branch network of 6 million customers, more than the entire population of Singapore.

That would make it the largest takeover of a Southeast Asian bank, exceeding Singapore-based United Overseas Bank Ltd.’s $5.5 billion acquisition of local rival Overseas Union Bank Ltd. in 2001, according to data compiled by Bloomberg.

Indonesia’s parliament this week approved Hadad to head the board of a national financial regulator due to start operating in January 2013.

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China Measures Said to Boost Bond Market, Issuer Scrutiny

China is allowing more companies to trade bonds and increasing scrutiny over issuers as the government seeks to ensure that the expansion of its nascent debt market isn’t derailed by defaults.

The top economic planning agency ordered local governments to examine the ability of companies to repay bonds maturing in 2012 and 2013, two people with direct knowledge of the matter said June 18, asking not to be identified as they weren’t authorized to speak to media. The China Securities Regulatory Commission began allowing mutual funds to invest in private placements by smaller companies, according to an agency document obtained by Bloomberg News.

Chinese companies sold more debt in the first five months of the year than in all of 2010 as the government encouraged companies to boost fundraising through sales of equity and bonds in a campaign to wean them off loans from state-owned banks and make their finances more transparent. The growth is spurring concern given that China has never had a domestic bond default, according to Moody’s Investors Service.

China’s 4.2 trillion yuan ($659 billion) corporate bond market is about 9 percent of its gross domestic product.

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Position Limits in Commodities Requested by Development Group

Position limits in commodities traded in the European Union are needed to prevent “excessive speculation” from contributing to hunger and poverty, the London-based World Development Movement said.

Data from the U.S. show that speculators held as much as 60 percent of a futures contract, it said in an e-mail yesterday. Speculators allow companies that need to hedge against price changes a way to share the risk.

U.K.-based World Development Movement is an “anti-poverty campaigning” organization, according to a statement on its website.

Basel Group Said to Agree on Rules for Large National Banks

Global financial regulators reached an agreement to toughen oversight of lenders whose collapse would threaten national economies, according to two people with knowledge of the discussions.

The Basel Committee on Banking Supervision, meeting in Stockholm, agreed on rules to monitor lenders that escaped plans last year to force international financial institutions to set aside more money to weather a crisis. The rules create a blueprint to identify and regulate banks that have a large presence in a single country, said the people, who asked not to be identified because the meetings were private.

The regulators will seek comment on the measures before finalizing them later this year, the people said.

The Group of 20 nations has called for tougher regulation to boost the resilience of lenders whose collapse would cause economic turmoil. The push comes on top of measures published by the Basel committee in 2010 to more than triple the core-capital requirements of all internationally active banks.

Authorities last year published a provisional list of 29 financial institutions that they said should face capital surcharges of as much as 2.5 percent of their risk-weighted assets because their collapse would have global ramifications. While the committee doesn’t intend to draw up a list of the new domestically systemic, or D-SIB, banks, the plans include guidance for supervisors on identifying and regulating them, the people said.

Regulators also said banks on the list should face heightened supervision.

The paper will give guidance to authorities on what kinds of instruments such lenders should be allowed to count toward meeting additional capital requirements, one of the people said. The group will leave it to national regulators to specify how much extra capital their identified lenders should hold. The committee also agreed on a package of rules for derivatives trading, one of the people said.

Compliance Action

Kuwait Central Bank Sets Lenders New Governance Rules, KUNA Says

Kuwait’s central bank released new governance guidelines for local lenders to follow starting July 1, state-run news agency KUNA reported yesterday, citing Governor Mohammed al-Hashel.

The new rules are an upgrade of regulations in place since 2004 and “take into consideration the lessons learned from the recent global financial crisis,” KUNA cited al-Hashel as saying.

U.K. to Require Public Companies to Report CO2 Emissions

The U.K. will require publicly listed companies to report their greenhouse-gas emissions starting in April 2013, Environment Secretary Caroline Spelman said in a written statement to Parliament in London yesterday.

Spelman said the mandatory reporting will provide “transparency enabling investors to see how listed companies are managing their carbon liabilities.”

SAC’s Cohen Said to Be Deposed in SEC Probe of Insider Trading

Steven A. Cohen, the billionaire founder of hedge fund SAC Capital Advisors LP, is facing renewed scrutiny from U.S. regulators over whether he illegally bought and sold stocks using inside information, two people familiar with the matter said.

Cohen, 56, was recently deposed by Securities and Exchange Commission investigators in New York about trades made close to news such as mergers and earnings that generated profits for his fund, said one of the people, who asked not to be identified because the investigation isn’t public. Neither Cohen nor Stamford, Connecticut-based SAC Capital, which oversees about $14 billion, has been accused of wrongdoing.

SAC Capital has repeatedly landed in the cross hairs of a federal crackdown on insider trading on Wall Street that burst into public view in October 2009 with the arrest of Raj Rajaratnam, founder of Galleon Group LLC. U.S. criminal prosecutors said last year they were looking at trading accounts at SAC Capital, including one run by Cohen that consists of the best ideas from the firm’s portfolio managers and analysts. Also last year, two former traders pleaded guilty to engaging in criminal securities fraud while at SAC Capital.

Cohen, who made his name as a rapid-fire stock trader, is one of the biggest and most successful managers in the $2.13 trillion hedge-fund business.

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Hontex to Compensate Investors After Reaching Settlement

Hontex International Holdings Co., suspended from trading after the Hong Kong securities regulator accused it of misleading investors, agreed to pay shareholders HK$1.03 billion ($133 million) to end a lawsuit.

Hontex “accepts and acknowledges” that statements in its prospectus were false and misleading, Simon Westbrook, a lawyer for the Securities and Futures Commission, said on the 13th day of a High Court trial in which the regulator accused the fabric maker of inflating figures in its December 2009 listing prospectus.

It’s the first time the Hong Kong regulator has negotiated a share repurchase by a listed company to compensate initial public offering investors.

Hontex admitted to “being reckless” and said it isn’t able to verify what its true financial position was in the three years before the listing, said Westbrook, reading from a list of agreed facts signed by the Fujian province-based company and the regulator. High Court Judge Jonathan Harris made the order to proceed with a repurchase offer plan.

The agreement shouldn’t be taken as admissions of criminal liability by Hontex or its directors, according to an SFC statement yesterday. Hontex plans to work with regulators to reinstate trading, the lawyer added.


SEC’s Schapiro Tells Congress Money Markets Prone to Runs

U.S. Securities and Exchange Commission Chairman Mary Schapiro will tell a Senate panel today that money-market mutual funds are vulnerable to runs and must face rules to avoid taxpayer bailouts.

“Unless money-market fund regulation is reformed, taxpayers and markets will continue to be at risk that a money-market fund can transform a moderate financial shock into a destabilizing run,” Schapiro said in testimony prepared for a Senate Banking Committee hearing. “In such a scenario, policy makers would again be left with two unacceptable choices: a bailout or a crisis.”

Schapiro told lawmakers that money funds should be required to float their net asset values or increase their capital buffers. She also said in the prepared remarks that limits on redemptions could “further enhance a money-market fund’s resiliency.”

The five commissioners at the SEC are divided on whether and how to propose rules for money-market funds. Concern over money funds, once seen as among the safest of investments, grew after the September 2008 collapse of the $62.5 billion Reserve Primary Fund, triggering a broader run that contributed to a freeze in global financial markets.

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NYSE CEO Says Market Structure Leaves Public ’Disconnected’

High-frequency trading and so-called dark pools and other market structure developments have eroded public confidence in equity markets, NYSE Euronext Chief Executive Officer Duncan Niederauer told lawmakers yesterday.

“The public has never been more disconnected,” Niederauer said in Washington at a House Financial Services subcommittee hearing called to examine ways to ensure “orderly, efficient, innovative and competitive” markets. “The citizenry has lost trust and confidence in the underlying mechanism,” he said.

Lawmakers and regulators have been reviewing innovations such as high-frequency and algorithmic trading since a May 2010 market plunge temporarily erased $862 billion in U.S. equity value.

Representative John Campbell, a California Republican, said at the hearing that events such as the May 2010 plunge and innovations like dark pools and high frequency trading leave the public suspicious of Wall Street.

Niederauer, 52, who runs the biggest U.S. stock exchange operator, responded that “what used to be an investors’ market is now thought of as a traders’ market.”

Domenici Says EU Limits Credit-Ratings Rotation Plan

European Union lawmaker Leonardo Domenici spoke at a news conference in Brussels about the regulation of credit-ratings companies.

Yesterday, lawmakers voted to scrap most of a proposal to force businesses to rotate the firms they hire to assess their debt, while backing tighter restrictions on sovereign-debt ratings.

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BOE’s Jenkins Says Investors Must Adapt to New Liquidity Risks

Bank of England official Robert Jenkins said investors must adapt their strategies to a world where liquidity “is no longer limitless and no longer free.”

“Confronted with sudden surges in cross-border flows, elected governments will attempt to intervene in the interests of stability generally and to protect their taxpayers specifically,” Jenkins said. “Your well-timed trading strategies will not be allowed to get in the way.”

He made the remarks at the Global Alternative Investment Management conference in Monaco yesterday.

Jenkins, a member of the U.K. central bank’s Financial Policy Committee, also said that the crisis in Europe has increased the risk that government actions may hurt borrowers’ ability to repay debts.

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Comings and Goings

James Kroeker to Step Down as SEC Chief Accountant Next Month

The U.S. Securities and Exchange Commission announced its second high profile resignation in less than a week yesterday when it said that James Kroeker, its chief accountant, will leave the agency in July.

Kroeker, 42, joined the SEC in 2007 as deputy chief accountant before becoming the agency’s top accountant in 2009. During his time at the agency, Kroeker focused on a review of fair value accounting standards and sought to improve reporting of off-balance sheet assets.

The SEC said Kroeker plans to return to the private sector.

The agency announced June 15 that Eileen Rominger, head of the SEC’s investment management unit, will step down.

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