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Bafin Benchmarks, Credit Suisse Unit, Yellen: Compliance

Nov. 22 (Bloomberg) -- Germany’s financial watchdog told banks to bolster internal oversight of benchmark-setting processes to guard against manipulation in the wake of the Libor-rigging scandal.

Bafin last month wrote to German lenders on benchmark panels, including Libor and Euribor submissions, Bafin spokesman Ben Fischer said in an interview yesterday. The document specifies minimum risk-control standards banks must adhere to and includes regular reviews from bank units not involved in rate setting, he said.

Regulators around the world are investigating whether more than a dozen firms colluded to rig benchmark interest rates.

The Bafin requirements stipulate transparent documentation and the clear allocation of responsibilities within banks. Senior management must get involved as soon as implausible findings are flagged that can’t be sorted by the units handling the rates, according to the rules.

At least once a month an independent unit not handling rate submitting must review the process. It must also be possible to examine submissions at a later stage to allow sample tests in hindsight, according to the rules.

Bafin found that lenders had classified rate submission processes as “low risk,” prompting banks to either have no controls at all or weak ones, the regulator said on its website.

The new standards were posted on the regulator’s website to make sure all banks are aware of the requirements, Fischer said. Those banks that have participated in a benchmark were also informed by the letter, he said.

Compliance Policy

SEC Panel to Propose Higher Standard for Brokers’ Retail Advice

Investment brokers advising retail customers should be held to a standard that requires them to recommend products that are in the best interest of clients, according to a proposal from a group advising U.S. regulators.

Members of the Securities and Exchange Commission’s Investor Advisory Committee will vote today to recommend the regulator impose a fiduciary duty on brokers who provide personalized investment advice. Brokers are currently required only to steer clients toward “suitable” trades or investments, while other professionals known as investment advisers have a fiduciary duty to put a client’s interest first.

The 2010 Dodd-Frank financial overhaul told the SEC to study the existing standards for providing personalized investment advice to retail customers.

Brokers who simply provide customers with recommendations to buy, sell or hold a security and don’t provide investment advice wouldn’t have a fiduciary duty under the committee’s approach. Those who “hold themselves out” as advisers, “based either on the titles they use or the manner in which they market their services” should have a fiduciary duty, the committee said in its recommendation.

CFTC’s Chilton Says He Would Vote Against Current Volcker Rule

The Volcker rule that U.S. regulators are trying to complete this year doesn’t do enough to limits banks’ ability to make speculative bets, said Bart Chilton, a member of the U.S. Commodity Futures Trading Commission.

He made the remarks in a phone interview Nov. 20. He said he is prepared to vote against the rule as it’s currently drafted because it invites “proprietary speculative bets” under the guise of hedging, which is what Congress asked the regulators to avoid.

His comments raise questions about whether five U.S. financial regulators, including the Federal Reserve and Securities and Exchange Commission, can meet a White House-imposed year-end deadline for completing the Dodd-Frank Act regulation.

Chilton, one of three Democrats on the CFTC, has said he intends to step down by the end of the year from the commission, which is planning to vote on the rule next month. If Chilton leaves before the commission’s vote, the rule could still be completed this year if it wins the support of two of the remaining three members.

The rule, named for former Fed Chairman Paul Volcker, seeks to prevent banks with insured deposits from engaging in the kind of speculative trading that could threaten their stability.

Compliance Action

Credit Suisse to Fence Off Swiss Operations in Separate Unit

Credit Suisse Group AG plans to fence off its Swiss operations in a separate unit to make it easier to salvage them in a crisis without a taxpayer bailout.

The bank will divide its remaining businesses between subsidiaries in the U.K. and U.S., and create a unit housing shared services, to address potential rules for too-big-to-fail banks, the Zurich-based company said in a statement yesterday. The plan, to be implemented starting in mid-2015, needs the approval of the Swiss regulator.

Credit Suisse can lower its Swiss capital requirements by ensuring it is able to keep providing functions that are systemically important for the country during a crisis.

The bank said the moves are in response to evolving rules in Switzerland, the U.S. and Britain for dealing with too-big-to-fail banks. The program has been approved by Credit Suisse’s board.

The unit in Switzerland would encompass Credit Suisse’s wealth and asset management, retail and corporate and institutional clients businesses.

For more, click here.

Finma Forces Basler Kantonalbank to Give Up Profit on Misconduct

The Swiss financial watchdog Finma has told Basler Kantonalbank to give up 2.64 million francs ($2.88 million) in illegally generated profits after violating market conduct rules.

The Swiss regional lender “inadmissibly propped up the market price of its own participation certificates” between January 2009 and September last year, the Swiss Financial Market Supervisory Authority, or Finma, said yesterday in a statement. The bank said it’s already started measures to prevent a repeat of such misconduct.

The lender decided to stop influencing the price of its certificates in November 2011 and switch to a trading model based on set parameters instead, according to the statement. Finma found the bank hadn’t committed a criminal offense or harmed investors, it said.

China’s Culture of Bribery Poses Risk to Multinational Companies

Running afoul of local and U.S. anti-corruption laws has become a risk of doing business in China, adding to risks such as pollution and government relations.

China, the world’s second-largest economy, fares poorly in surveys by Transparency International, the Berlin-based anti-corruption organization. Chinese President Xi Jinping has said widespread government corruption poses a threat to Communist Party rule.

The “most serious” risk to multinational companies comes from U.S. enforcement of the Foreign Corrupt Practices Act, according to Daniel C.K. Chow, a law professor at Ohio State University.

The law, enforced by U.S. authorities, bans payment of money or anything of value to foreign officials to obtain or retain business or gain an improper advantage.

For more, click here.


Sloan, Amir-Mokri, Foley, McCullough on Bank Industry

Tim Sloan, chief financial Officer at Wells Fargo & Co., Cyrus Amir-Mokri, assistant secretary for financial institutions at the U.S. Department of Treasury, Michael Foley, managing director of global financial institutions at Moody’s Investors Service, and Howell McCullough, chief strategy Officer at U.S. Bancorp, participated in a panel discussion about the banking industry.

Dan Ryan, chairman of financial services advisory practice at PricewaterhouseCoopers LLP, moderated the panel at the Clearing House Annual Conference in New York.

For the video, click here.

Comings and Goings

Probe of Ex-Co-Op Chairman Said to Be Discussed by U.K. PRA

U.K. regulators will discuss a possible investigation today into Co-Operative Bank Plc and its former chairman, Paul Flowers, according to a person familiar with the plans, after Flowers’s apology Nov. 17 following media reports that he bought illegal drugs.

The board of the U.K. Prudential Regulation Authority will discuss possible inquiries into Flowers at a board meeting, said the person, who requested anonymity because the meeting is private. Co-Operative Group Ltd., the bank’s parent, is reviewing its governance structure after the Mail on Sunday newspaper reported on Nov. 17 that Flowers had bought crystal methamphetamine and crack cocaine in Leeds, England. Flowers, a Methodist minister, was the bank’s chairman from March 2010 until June of this year.

Flowers couldn’t be immediately reached for comment yesterday. He apologized in a statement issued through the Methodist Church on Nov. 17.

Spokesmen for the PRA and FCA declined to comment on the inquiries. Patrick Tooher, a Co-Op Bank spokesman, didn’t immediately respond to a call seeking comment.

Yellen’s Nomination as Fed Chairman Approved by Senate Panel

Janet Yellen’s nomination to be chairman of the Federal Reserve was approved by the Senate Banking Committee yesterday with a vote of 14-8.

Yellen was approved by 11 of the 12 Democrats on the banking committee, and three of the panel’s Republicans.

Republican Senators Mark Kirk of Illinois, Bob Corker of Tennessee and Tom Coburn of Oklahoma supported her. Joe Manchin of West Virginia was the only Democrat to vote against her.

Six Senate Republicans have signaled their support for Yellen to succeed Ben S. Bernanke as Fed chairman, which should give her the 60 votes she needs to be confirmed by the full Senate.

Rand Paul of Kentucky, Richard Shelby of Alabama, Pat Toomey of Pennsylvania, John Hoeven of North Dakota, John McCain of Arizona, David Vitter of Louisiana and Pat Roberts of Kansas are among Senate Republicans who have said they probably or definitely will vote against Yellen’s confirmation.

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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