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Weighing Chat-Room Ban, U.K. Fraud Spies: Compliance

Nov. 12 (Bloomberg) -- JPMorgan Chase & Co., the largest U.S. bank by assets, is weighing whether to ban traders from using electronic chat rooms to communicate with peers at other firms as the forums draw scrutiny from global regulators, according to a person with knowledge of the matter.

JPMorgan’s deliberations, which should be complete by early 2014, focus on multidealer chat rooms for currencies and other asset classes, said one of the people, who asked not to be identified because the talks are private. Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned lender, is also reviewing its use of chat rooms as part of an overhaul of its trading practices around market benchmarks, another person said.

Regulators have targeted traders’ electronic messages, using them as evidence of wrongdoing in their investigations into the manipulation of benchmark interest rates and foreign-exchange markets. During a visit to London last month, Chief Executive Officer Jamie Dimon called on employees to be vigilant about their language in e-mails and instant messages, two people with knowledge of the matter said at the time.

JPMorgan may encourage traders to use the telephone and e-mails rather than chat rooms to assist clients in large currency transactions, the person said.

Credit Suisse Group AG also is considering a chat-room ban, the Wall Street Journal reported Nov. 10, citing people familiar with the discussions. Barclays Plc, Citigroup Inc. and UBS AG are also among banks reviewing the use of chat rooms, the newspaper reported, citing unidentified people at those companies and others that do business with them.

Joe Evangelisti, a spokesman for New York-based JPMorgan, and Citigroup’s Danielle Romero-Apsilos, declined to comment. Jack Grone at Credit Suisse didn’t immediately respond to an e-mailed request for comment. Spokesmen for RBS, Barclays and UBS also declined to comment.

Compliance Policy

U.K. Prosecutor May Turn to Spy Agencies to Find Corporate Crime

The U.K. Serious Fraud Office will work more closely with spy agencies in an effort to crack down on corporate wrongdoing.

The SFO will increase links with U.K. security agencies in a bid to put more pressure on companies to self-report activities such as bribery, David Green, director of the white-collar crime prosecutor, told the Times of London in an interview published yesterday. The largest U.K. spy agencies include MI5, the domestic security service, MI6, the overseas intelligence agency and Britain’s Government Communications Headquarters, known as GCHQ.

Global spy agencies have come under scrutiny in recent months after former U.S. intelligence contractor Edward Snowden revealed the scale of surveillance activities by the U.S. National Security Agency, including allegations the NSA had tapped German Chancellor Angela Merkel’s mobile phone.

The revelations have led to scrutiny of U.K. spy operations, with a number of agency directors from MI5, MI6 and GCHQ brought before lawmakers in Parliament in London last week to discuss their activities.

Liberty, a London-based human rights group, said in a statement yesterday that it will represent similar civil liberties groups in a lawsuit against U.K. spy agencies, including MI6 and GCHQ, over allegations private communications were intercepted on fiber-optic cables.

‘Simpler’ Structure for Small Caps Needed, Group Tells Treasury

Regulators should finish the JOBS Act and also encourage increased liquidity in small-cap stocks by supporting a “simpler, more orderly” market structure for such companies and investors, the Equity Capital Formation Task Force told the U.S. Treasury in a report.

The group was referring to the Jumpstart Our Business Startups Act.

The report calls for national exchanges to conduct a pilot small-cap trading program, which would be overseen by the U.S. Securities and Exchange Commission, in which participating companies trade under new small-cap trading rules. The program would provide for companies to be quoted in minimum price increments of $0.05 and trade only at the bid, offer or midpoint between the two, the group said in the report.

The task force is made up of representatives from mutual funds, venture capital, exchanges, broker dealers, academics, investor relations advisers, and securities industry trade groups.

Compliance Action

Denmark Faces Historic Fight With EU to Save Mortgage System

Denmark is bracing itself for an historic showdown with the European Union as lawmakers in the Nordic country settle on a definition of stable funding for mortgage banks that Brussels has yet to accept.

For the first time in the history of Denmark’s two-century-old mortgage bond market, lawmakers proposed last week adding a trigger to extend maturities on one-year notes at risk of failing to meet stable funding requirements. Never before have investors in the $530 billion market for Danish mortgage bonds faced government intervention in securities funding existing loans, according to the Danish Mortgage Bankers’ Federation.

The government in Copenhagen now needs to convince European regulators the new maturity profile satisfies stable funding rules intended to protect against market freezes. The Danish Financial Supervisory Authority, which deems funding shorter than 12 months as unstable for commercial banks, says the EU should accept the new mortgage bonds. Denmark is waiting for a response from Brussels as lawmakers say they’re willing to do whatever it takes to save the world’s biggest mortgage market per capita.

Without European approval, banks in Denmark will have to slash sales of mortgages with rates that are reset annually. The one-year bonds make up about 40 percent of the market, comprising the single biggest category of mortgages.

ICBC Faces Capital Surcharge as Deutsche Bank, Citigroup Fall

Industrial & Commercial Bank of China Ltd. was added to a list of too-big-to-fail banks that must set aside additional capital to guard against losses as part a global regulator’s plans to protect the economy.

ICBC was the only firm joining the Financial Stability Board’s annual list of too-big-to-fail banks, which it produces in preparation for capital rules scheduled to be phased in starting in 2016. Other changes include lower surcharges for Deutsche Bank AG, and Citigroup Inc., which both drop out of the top category and Bank of New York Mellon Corp.

The capital surcharges for globally systemic lenders are part of a broader overhaul of bank standards in the wake of the 2008 collapse of Lehman Brothers Holdings Inc. International regulators agreed in 2010 to more than triple minimum rules on the core capital banks should have to absorb losses.

Alterations to the list, which this year increased to 29 from 28 banks, were driven by “data quality improvements, changes in the methodology and changes in underlying systemic importance,” the FSB said.

While banks in the top tier of the list may face capital surcharges totaling 2.5 percent of their risk-weighted assets, others face requirements ranging from 1 to 2 percent.

Yesterday’s list leaves only JPMorgan Chase & Co. and HSBC Holdings Plc in line to face the top 2.5 percent requirement.

The FSB brings together central bankers, regulators and government officials from the Group of 20 nations to coordinate financial rule-making.

For more, click here.

Japan FSA Probes Insurers’ Link to Crime Groups, Kyodo Says

Japan’s Financial Services Agency will investigate the compliance of Tokyo Marine, MS&AD Insurance and NKSJ in relation to their link to crime groups, Kyodo News reported, without attribution.

A call to the Financial Services Agency by Bloomberg News was unanswered before business hours.

Japan’s financial regulator last week started inspecting the nation’s three largest banks after finding Mizuho Financial Group Inc. failed to end loans to gangsters.

Basel Bashes Margins to ’08 Low on Australia Bonds Limit

Rules forcing Australian banks to rely more on deposits for funding shrank their outstanding bonds and dragged lending margins to a five-year low.

Bond debt of the four largest lenders declined 2.5 percent to A$411 billion ($386 billion) since the end of 2009, led by a 14 percent drop for Commonwealth Bank of Australia, data compiled by Bloomberg show. Australia will impose new rules in January 2015 requiring banks to hold more assets that can withstand severe stress, even as regulators in the U.S. and Europe delay the original timetable established under Basel III in favor of a phase-in until 2019. Further pressure on margins is expected.

The Reserve Bank of Australia’s decision to cut its benchmark cash target to a record low of 2.5 percent in August pushed the average interest rate for three-year term deposits to 4 percent last month, according to central bank data. That’s still more than the 3.73 percent average yield on Australian bonds issued by highly-rated banks, a Bank of America Merrill Lynch index showed as of Sept. 30.

The increasing dependence on deposits has prevented Australian banks from fully benefiting from a decline in wholesale funding costs. Banks are also relying on lower-margin mortgages as a slowing economy cuts appetite for business credit.

For more, click here.

Financial Holdings of Some SEC Workers in N.Y. Probed, WSJ Says

Federal prosecutors and an internal watchdog of the U.S. Securities and Exchange Commission recently investigated personal financial holdings of some SEC workers in N.Y., the WSJ reported, citing people familiar with matter, without naming the people.

While SEC spokesman John Nester declined to comment on investigation, he said the agency compliance program is “second to none in government,” the paper reported. The Office of the U.S. Attorney in Manhattan also declined to comment on investigation, according to the Journal.

More than four years ago, the SEC revamped procedures for monitoring employees for potential trading abuses after being criticized following an insider-trading investigation, the paper reported.

Courts

Bear Stearns Liquidators Assail Ratings Companies in Lawsuit

McGraw Hill Financial Inc.’s Standard & Poor’s unit, Moody’s Corp. and Fitch Group Inc. were sued by the liquidators of two Bear Stearns hedge funds, who accused them of issuing ratings they knew were bogus.

Geoffrey Varga and Mark Longbottom, the liquidators of the two defunct funds, filed an initial notice of their intent to sue over the ratings in July in New York State Supreme Court in Manhattan. They filed a complaint yesterday giving details of their claims.

In their lawsuit, which seeks damages in connection with more than $1 billion in losses, the liquidators include communications that they say show the companies knew their ratings were faulty.

In one text message cited in the filing, an S&P employee purportedly told a co-worker that investments could be “structured by cows” and still get rated. An internal document from a Moody’s worker said the firm sold its soul “to the devil for revenue,” according to the complaint.

The allegations are without merit and Standard & Poor’s will fight them, Ed Sweeney, a spokesman for the New York-based company, said in an e-mail.

Daniel Noonan, a spokesman for New York-based Fitch Group, also said the claims lacked merit and the company would defend itself. New York-based Moody’s didn’t immediately return a phone message left with its media relations office seeking comment.

The funds were part of Bear Stearns Asset Management and collapsed in 2007, a year before their parent company, which was eventually bought by JPMorgan Chase & Co.

The case is Varga v. McGraw Hill Financial Inc., 652410/2013, New York state Supreme Court, New York County (Manhattan).

Citigroup, BNY Mellon Records of ZKB Clients Sought by IRS

The U.S. sought court permission to ask Citigroup Inc. and Bank of New York Mellon Corp. for records of U.S. clients of Zuercher Kantonalbank, the biggest of Switzerland’s publicly owned regional banks, to determine whether those people evaded taxes, records show.

U.S. Attorney Preet Bharara in Manhattan filed a lawsuit on Nov. 6, asking to serve Internal Revenue Service summonses on the two New York-based banks, which allowed ZKB to get access to the U.S. banking system through correspondent accounts. ZKB “conspired with U.S. taxpayers to help them conceal their foreign accounts,” according to the complaint.

The IRS concluded that “ZKB has used the Citibank and BNY Mellon correspondent accounts to provide offshore banking services to U.S. taxpayers, who in turn have failed to report the existence of their ZKB accounts to the IRS, as well as the income earned on those accounts,” according to a copy of the complaint obtained by Bloomberg News.

The complaint, known as a John Doe summons, comes amid a U.S. crackdown on offshore tax evasion. Since 2009, 38,000 U.S. taxpayers avoided prosecution by voluntarily disclosing offshore accounts to the IRS, and 371 were ZKB clients, according to the complaint.

Mark Costiglio, a spokesman for Citigroup, and Kevin Heine, a spokesman for BNY Mellon, declined to comment in e-mails. A spokesman for Zurich-based ZKB couldn’t be reached after hours for comment.

The case is In the Matter of the Tax Liabilities of John Does, 13-Misc-378, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Interviews/Speeches

EU Reviews FX Manipulation That Raises Libor-Like Concerns

The European Union is looking at possible manipulation of currency rates after “concerns” similar to those in the Libor and Euribor lending-rate probes were brought to the attention of regulators.

Joaquin Almunia, the EU’s antitrust chief, discussed a possible investigation of currency rates during a speech in London today, after saying last month that inquiries were at a “very, very preliminary phase.”

“Revelations of irresponsible and possibly illegal practices keep emerging in the press,” Almunia said. “Similar benchmark-manipulation concerns” to those examined in the EU’s London interbank offered rate and Euribor investigations “are raised in a case that has just been brought to our attention in the foreign exchange market.”

The EU’s probe comes after Swiss regulators said last month that they’re investigating several banks for allegedly colluding to manipulate the $5.3 trillion-a-day foreign exchange market.

Almunia’s speech comes as the European Commission prepares to hand out fines as soon as next month to banks that have reached settlements in the Euribor probe.

Comings and Goings

Pay Increases for Bank Risk Officers in Asia Trump New York

Salaries for banks’ risk and compliance officers in Singapore and Hong Kong rose at about twice the pace of pay for similar positions at New York and London firms amid a shortage of skilled staff members, a recruiter said.

Pay excluding bonuses for people who changed jobs in the Asian cities rose as much as 20 percent this year, compared with 10 percent in the Western hubs, said Neil Owen, a director for Robert Half International Inc. in London. A senior official in Singapore is paid as much as S$250,000 ($201,000) annually, compared with Hong Kong’s HK$1.8 million ($232,000), London’s 175,750 pounds ($281,000) and New York’s $323,595, data compiled by the firm show.

The faster wage gains reflect the smaller pool of experienced professionals available in the Asian cities, Owen said. It also underscores the rise in demand for such skills as policy makers globally tighten regulations on banks’ capital buffers and crack down on offenses from money laundering to rigging of interest rates. Pay for risk and compliance officers rose more than for other finance jobs in 2013, Owen said.

For more, click here.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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