Volcker Proposal, Mortgage Insurers, BlackRock: Compliance

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Five years after giving his name to a rule designed to restrict trading by Wall Street banks, Paul Volcker is pushing for another change that would put at least one top regulator out of business.

The Federal Reserve would be at the helm of a reorganized regulatory system eliminating the Office of the Comptroller of the Currency and combining other agencies in a plan released Monday by the Volcker Alliance, a group formed in 2013 by the former central bank chairman.

In a report outlining the plan, the group described its aim as a simpler, clearer and more adaptive regime. The plan calls for a new Prudential Supervisory Authority to handle supervision currently done by the Fed, OCC, Federal Deposit Insurance Corp. and market regulators.

Support from Volcker, who ran the Fed from 1979 to 1987, was crucial in winning enactment of the Dodd-Frank Act trading restrictions that bear his name. The goal of the changes now being sought by his group of former lawmakers and regulators is to address the unfinished work from Washington’s response to the 2008 credit crisis.

The proposal -- likened by Volcker to the U.K. system -- would put the new agency under direction of the Fed’s vice chairman for supervision.

Concerned about a regulatory and supervisory framework that he’s called “rickety,” Volcker told reporters Monday that the system “just doesn’t make sense” in today’s world. Lawmakers missed an opportunity in Dodd-Frank, he said, and now they should make amends.

In arguing for changes to a system in which oversight is both inconsistent and overlapping, he made a pitch for his former agency as the ideal place to house the new regime, telling reporters that the Fed is the best-equipped and the most independent financial agency of the U.S. government.

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Compliance Policy

New Rules Offer Capital Standard Relief to Mortgage Insurers

The Federal Housing Finance Agency announced rules Friday that eased capital requirements on some loans from 2005 through 2008 when compared with measures proposed by the regulator in July.

Mortgage insurers were hobbled by guarantees issued in those years, because housing prices collapsed soon after. The final rules grant relief on loans from that period in cases where borrowers steadily met their commitments.

Mortgage insurers cover losses when homeowners default. Fannie Mae and Freddie Mac, the government-owned mortgage-investment companies overseen by the FHFA, require insurance when homeowners make down payments below 20 percent.

The new standards are designed to ensure there’s no repeat of what happened after the financial crisis, when a plunge in home prices pushed about half the industry out of the business. Fannie Mae and Freddie Mac were saddled with losses when insurers were unable to honor their obligations.

Radian Group Inc. and MGIC Investment Corp. surged in New York trading on news of the rules.

Darren Marcus and Harry Fong of MKM Partners said in a note to clients Monday that they view the rules as “a big win” for MGIC and Radian.

Mortgage insurers that began selling coverage after the depths of the financial crisis had more modest moves in New York trading.

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Compliance Action

BlackRock Agrees to Pay $12 Million Over SEC Conflicts Claims

BlackRock Inc., the world’s biggest money manager, agreed to pay $12 million to settle U.S. regulatory claims that it failed to disclose a conflict of interest of a top portfolio manager.

Daniel J. Rice III, a former money manager, invested client money in Alpha Natural Resources Inc., which had entered into a joint venture with a company Rice founded, the said in a statement Monday. BlackRock knew about and approved Rice’s investment and failed to disclose the conflict to investors, the regulator said. Rice left the company in 2012.

The company said in a statement that it has taken additional steps to enhance its policies and procedures regarding employees’ outside business activities.

“BlackRock has extensive policies and procedures in place to manage conflicts of interest,” the company said in a statement. “As a fiduciary for our clients, we take even the appearance of conflicts of interest extremely seriously.”

The SEC also sanctioned Bartholomew Battista, the former compliance chief. In resolving the claims, BlackRock agreed to hire a compliance consultant and conduct an internal review.

A phone call to Jonathan Polkes, an attorney for Battista at law firm Weil Gotshal & Manges LLP, wasn’t immediately returned.

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Interviews/Commentary

EU Has an ‘Open Mind’ on Google Android Probe, Vestager Says

European Union Competition Commissioner Margrethe Vestager talked about the EU’s probe into Google Inc.’s online shopping tool and Android mobile software, and the outlook for a possible antitrust complaint against OAO Gazprom.

Vestager spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.”

CLSA Americas LLC’s Michael Mayo also spoke.

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Comings and Goings

Leader of SEC’s Accounting Fraud Task Force Will Leave Agency

The head of the U.S. Securities and Exchange Commission’s accounting fraud task force is leaving the agency.

David Woodcock, who was appointed two years ago to root out improper financial reporting, will step down by June, the SEC said Monday in a statement, without specifying his plans.

SEC Chair Mary Jo White started the accounting-fraud task force in 2013 after the number of such cases declined in previous years. Investigators scanned financial statements for red flags, such as restatements and revisions, to find possible frauds.

Woodcock is also the director of the agency’s regional office in Fort Worth, Texas.

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