May 28 (Bloomberg) -- Banks and brokers face a clampdown on using assets they hold for clients as collateral for their own trades as part of European Union moves to bolster market stability and rein in shadow banking.
The European Commission is weighing whether firms should have to obtain formal consent from their clients before being allowed to reuse assets to back other trades, according to a document obtained by Bloomberg News. The consent would be enshrined in a “contractual agreement” between the parties.
The handing over of collateral is an integral part of repurchase agreements, or repos -- one of the activities under review by global regulators as part of their efforts to regulate shadow banking. The reuse of clients’ assets poses a potential threat to financial stability should one of a chain of firms that handled the securities go bankrupt, according to the document prepared by commission officials and dated May 15. Uncertainty about who holds an asset can fuel panic in times of market stress, according to the paper.
“Complex” chains of collateral can make it difficult for investors to “identify who owns what, where risk is concentrated and who is exposed to whom,” according to the document. “This has consequences for transparency and financial stability.”
Under the plans being weighed by the commission, banks and brokers holding securities for clients wouldn’t be allowed to reuse the assets for trading on their own account -- speculation on the markets aimed solely at boosting their own revenues, according to the document.
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EU Advised by IMF Staff Paper to Harmonize Depositor Preference
The European Union should give depositors preference over other unsecured creditors when a bank fails and standardize its approach across the 27-nation bloc, according to International Monetary Fund’s staff memorandum.
The EU should introduce a preference for insured depositors immediately to buttress investors’ confidence, the May 9 analysis seen by Bloomberg News said. A possible extension of the preference to uninsured depositors should be introduced after a phase-in period of several years to avoid driving up banks’ funding costs.
European policy makers are developing rules to limit risks to taxpayers in bank failures. Under measures being considered as part of a directive for recovery and resolution of credit institutions, regulators would be given statutory powers to impose losses on unsecured creditors, while holders of secured debt such as covered bonds would be protected.
All EU nations are required to insure bank accounts with 100,000 euros (about $132,000) or less, a guarantee that was called into question by euro-area deliberations on a bailout for Cyprus.
The IMF staff is planning a longer version of the 13-page document to broaden the analysis of the issue beyond Europe.
Angela Gaviria, a Washington-based press officer at the IMF, declined to comment on the memorandum.
EU Says Merger-Rules Overhaul to Focus on Minority Holdings
Revamped European Union merger control rules may lead to scrutiny of deals that involve noncontrolling minority shareholdings, EU Competition Commissioner Joaquin Almunia told lawmakers today.
He made the remarks at the European Parliament in Brussels.
Almunia said the European Commission will also come forward with procedural changes “to make our review of unproblematic cases even more business friendly than it is at present.”
A larger proportion of transactions will be treated under a simplified process, he said.
The process will reduce the amount of information to be provided by companies in “non-problematic cases,” he said. This “will speed up the process” and “allow us to focus on the most problematic mergers.”
Barnier Seeks ‘Level Playing Field’ From U.S. on Bank Rules
Michel Barnier, the European Union’s financial services chief, repeated criticism of U.S. Federal Reserve proposals to toughen oversight of bank units belonging to overseas lenders.
Barnier told members of the European Parliament in Brussels he’s seeking a “level playing field,” for European companies and that if the U.S. adopts a discriminatory approach, it can expect the same in return.
Barnier last month warned Fed Chairman Ben Bernanke of “potential retaliation” against the plans, saying they risk driving up costs at EU-based banks, leaving them at a competitive disadvantage.
Germany’s Bafin Says Libor Rigging Caused by Individual Traders
German markets regulator Bafin said its probe into the involvement of local banks in manipulating benchmark lending rates, including Libor, suggests that rigging wasn’t the result of “systematic criminality.”
Elke Koenig, the president of Bonn-based Bafin, made the remarks at a conference in the city today. She said “it doesn’t look like we are faced with systematic criminality in Germany.” The problem seems to be “more to be about single traders.”
The setting of benchmark rates has faced a wave of criticism after U.S. and U.K. regulators uncovered widespread attempts by banks to manipulate the London interbank offered rate, or Libor. Royal Bank of Scotland Group Plc, UBS AG, and Barclays Plc have been fined about $2.5 billion and at least a dozen firms, including Frankfurt-based Deutsche Bank AG, remain under investigation.
Deutsche Bank has suspended or fired at least seven people over alleged inappropriate behavior related to interbank rate submissions, people familiar with the matter said in February. Neither Deutsche Bank’s internal rates probe nor that of Bafin have found evidence that current or former management board members engaged in wrongdoing, officials at the bank and the regulator have said.
Google Said to Face New Antitrust Probe on Display-Ad Market
Google Inc. is facing a new antitrust probe by the U.S. Federal Trade Commission into whether the company is using its leadership in the online display-advertising market to illegally curb competition, people familiar with the matter said.
The fresh inquiry, which follows the FTC’s decision to close a review of Google’s search business in January without taking action, is in the preliminary stages and may not expand into a larger probe, said the people, who asked not to be named because the matter hasn’t been made public.
FTC investigators are examining whether Google is using its position in U.S. display ads -- a $17.7 billion industry that includes the sale of banner ads on websites -- to push companies to use more of its other services, a practice that can be illegal under antitrust laws, the people said. Google has been drawing regulatory scrutiny around the world as it bolsters its market share of digital advertising.
Canada’s Competition Bureau is preparing to start a formal inquiry into Google’s search practices, the company has disclosed. The European Union is investigating Google for the way it operates the search business and also has opened a probe into its handset unit, Motorola Mobility, over the licensing of its patents to rival device makers. Antitrust agencies in Argentina and South Korea are also scrutinizing the company.
Niki Fenwick, a spokeswoman for Google, and Peter Kaplan, a spokesman for the FTC, declined to comment on the probe.
China Reaches Agreement With U.S. for Sharing Auditors’ Records
China agreed to give a U.S. regulator access to documents from Chinese accounting firms, moving toward a resolution of a dispute that could have pushed the country’s companies to stop trading on U.S. markets.
The Public Company Accounting Oversight Board, the China Securities Regulatory Commission and China’s Ministry of Finance signed the agreement May 7, the ministry said in a statement on its website May 24. The deal is a step toward resolving other disputes including one with the U.S. Securities and Exchange Commission, PCAOB Chairman James Doty was quoted as saying by the Wall Street Journal, which reported the agreement earlier the same day.
The SEC last year accused affiliates of the world’s top four auditing firms of withholding documents from investigators probing potential fraud by China-based companies. Auditors that don’t comply with the regulator’s demands face temporary or permanent deregistration in the U.S., according to the rule under which the proceedings were brought, meaning they wouldn’t be able to audit U.S.-listed companies.
Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. refused to cooperate with accounting investigations into nine companies whose securities are traded in the U.S., the SEC said in an administrative order in December. BDO China Dahua Co. was also named by the SEC in the action.
The auditors had said Chinese law prevented them from meeting the SEC’s demands.
ASIC Appeals Decision in Macquarie Bank Class Action Settlement
The Australian Securities and Investments Commission appealed a recent decision of the Federal Court of Australia to approve the settlement between former Storm Financial clients and Macquarie Bank, the regulator said on its website.
The settlement follows a class action brought against the bank by Sydney law firm Levitt Robinson, according to ASIC.
Under terms of the settlement, Macquarie Bank will pay A$82.5 million ($79.6 million), including legal and administrative costs, in final settlement of the claims of 1,050 Storm Financial clients who took out margin loans with the bank.
ECB’s Constancio Sees Some Non-Euro States Joining SSM
European Central Bank Vice President Vitor Constancio spoke in Brussels about participants of the Single Supervisory Mechanism, bank stress tests and maintaining regulatory standards.
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U.S. Technology Needs ‘World’s Brightest,’ Shapiro Says
Gary Shapiro, president of the Consumer Electronics Association, talked about U.S. immigration policy and its impact on the technology industry. His discussion included the impact of the U.S. tax code and competition with Canada for talent.
He spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
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European Insurance Watchdog Wants More Powers and Industry Levy
The European Insurance and Occupational Pensions Authority, the European Union’s insurance watchdog, called for extending its powers to include directly banning and restricting financial activities to enhance its supervision.
Eiopa, which is charged with drafting new solvency rules for European insurers, also wants to “explore partial financing by levying fees” on the insurance companies it regulates, according to a speech by Chairman Gabriel Bernardino, who attended a public hearing on financial supervision in Brussels May 24.
The authority, which is one of the three European supervisory bodies for the financial industry, is currently funded by the European Union, which directly pays 40 percent of its budget, while the remaining 60 percent is paid by the member states.
Eiopa wants more flexibility in its financing and says exploring a levy as well as getting financing through an independent budget line in the EU’s general budget are steps “necessary in order to strengthen the operational independence of Eiopa” and to attract qualified staff, according to the speech.
Bernardino also wants direct access to information of individual insurers and to be able to directly conduct inquiries into financial institutions, products or behavior. It currently has to go through local supervisors.
HSBC Says ‘Worrying’ Countries Act Unilaterally on Rules
HSBC Holdings Plc Chairman Douglas Flint said it’s “worrying” that more countries are acting unilaterally on regulation as financial oversight undergoes its biggest change since the Great Depression of the 1930s.
Flint made the remarks to shareholders at the bank’s annual meeting in London May 24. His comments came the day after Peter Sands, chief executive officer of Standard Chartered Plc, the other U.K. bank that gains most of its profit in Asia, said British banks face an “avalanche” of regulation with rules imposed “increasingly at the national level.”
Flint apologized after the HSBC agreed in December to settle U.S. charges that it helped Mexican and Colombian drug cartels launder millions of dollars in trafficking proceeds. It has set aside $1.9 billion for settlements, while increasing spending on compliance by $500 million in 2012.
He said at the meeting, where he also apologized, that the bank was “humbled and horrified to discover failings of such magnitude.” The bank has “paid huge penalties both in monetary cost and reputational damage,” Flint told shareholders.
Comings and Goings
Raiffeisen Chief Stepic Offers to Quit After Offshore Probe
Raiffeisen Bank International AG Chief Executive Officer Herbert Stepic offered to resign from Eastern Europe’s second-biggest lender, a day after officials began a probe into his investments through offshore accounts.
Raiffeisen will “promptly consider” Stepic’s offer to quit, the Vienna-based lender said in a statement May 24.
Raiffeisen ordered an internal review May 23 to determine whether Stepic’s offshore accounts, set up by UBS AG to invest in Singapore real estate, comply with bank rules. Austria’s financial market regulator has also requested more information.
Stepic will stay at the bank until Raiffeisen decides whether to accept the resignation, the lender said.
Finding a replacement may not be easy, said Erste Bank’s Guenter Hohberger, who advises investors to buy Raiffeisen shares.
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