Russia’s Ratings, Gao on China Stocks, Canada: Compliance

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Russia is creating its own rating company to withstand “geopolitical risks” after two of the three biggest credit assessors downgraded the country to junk status this year.

Ekaterina Trofimova, OAO Gazprombank’s first vice-president and a former banking analyst for Russia and former Soviet states at Standard & Poor’s in Paris, will head the company, which plans to start operations next quarter.

It will have 3 billion rubles ($51.4 million) in capital and will be funded by banks, insurance companies and asset managers, the central bank said Friday on its website. Shares will be distributed on a pro-rata basis and no investor will hold a stake exceeding 5 percent.

“Rating agencies are one of the most important elements of financial-market infrastructure and their activity should be resilient to geopolitical risks,” it said. Participants in a meeting held by the central bank agreed that the country needs a “strong” credit evaluator “with a high level of corporate governance,” authoritative enough for Russian and foreign investors, according to the statement.

The announcement caps years of criticism by officials over the rankings given to Russia, which President Vladimir Putin in 2011 called “an outrage” that increased borrowing costs for both domestic companies and the government. Tensions came to a head this year, when S&P and Moody’s Investors Service Inc. cut Russia below investment grade following a slump in oil prices and sanctions imposed over Ukraine.

Finance Minister Anton Siluanov blamed “political factors” for the downgrades.

The new company will focus first on Russia and then on the Eurasian Economic Union, a bloc of former Soviet states, Trofimova told Rossiya 24 television in an interview.

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Compliance Actions

Cash Genie to Give $31 Million in Compensation in FCA Settlement

The U.K. payday lender Cash Genie will give customers more than 20 million pounds ($31 million) in compensation after reaching a deal with financial regulators.

Ariste Holding Ltd., Cash Genie’s parent company, will provide more than 92,000 customers with a combination of refunds and balance write-downs, the Financial Conduct Authority said in a statement.

British regulators have stepped up scrutiny of the payday lending market and strengthened rules to protect consumers. Starting in January, the interest and fees on new payday loans couldn’t exceed the amount borrowed.

Cash Genie will attempt to contact all affected customers by Sept. 18, the FCA said.

In June 2014, Cash Genie self-reported unfair practices, the FCA said.

The company declined to comment over the phone. Cash Genie said in statement on its website that it “did not always meet appropriate regulatory standards and that this caused detriment for many” customers.

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Interviews/Commentary

Former Chinese Regulator Criticizes Government Stock Rescue

Gao Xiqing, an architect of China’s stock market and a former top regulator, said policy makers helped inflate equity prices and then mishandled the response to a collapse that wiped out $4 trillion in less than a month.

“I don’t see so much of a problem in the reduction of the market value,” Gao, former vice chairman of the China Securities Regulatory Commission, said at a panel discussion at the Council on Foreign Relations in New York. “I worry a lot more about the way it happened and how you deal with it.”

A three-week, 32 percent stock slump since mid-June prompted Chinese officials to allow more than 1,400 companies to halt trading, while banning major shareholders from selling stakes and restricting short selling. The unprecedented intervention raised concerns about the government’s commitment to allow markets to play a larger role in the economy.

The government shouldn’t have let trading stop, Gao said.

In the 12 months through mid-June, the Shanghai Composite Index more than doubled as state media and policy makers publicly encouraged investors to buy stocks. The rally was fueled by a five-fold surge in margin debt as investors borrowed money to finance the purchases.

Gao said policy makers’ endorsements of stock purchases helped drive prices to unsustainable levels. A lack of coordination between government agencies contributed to the buildup of leverage, he said.

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Comings and Goings

Canada Joint Securities Regulator Names William Black Chairman

Canada’s nascent national securities regulator took more steps forward Friday after it named former insurance executive William Black as chairman, and Alberta signaled it may be willing to become a member.

Black was tapped to head the board of directors for the Capital Markets Regulatory Authority, making him the point-man for unifying regulations in what is currently a patchwork system. Five provinces, one territory and the federal government support a joint regulator, while notable holdouts have included Quebec and Alberta, though the latter has softened its position.

The Council of Ministers responsible for the Cooperative Capital Markets Regulatory System announced Black’s appointment in a statement on Friday. A spokesman for Alberta Premier Rachel Notley said Thursday the province would review the proposed system before deciding whether to join.

Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon have already signed up.

The provinces are aiming to unify and streamline the existing patchwork system of regional watchdogs. Canada is the only Group-of-Seven country without a national securities regulator.

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CFTC Appoints Flaherty as Director of Swap Dealer Division

The Commodity Futures Trading Commission appointed Eileen T. Flaherty as Director of the Division of Swap Dealer and Intermediary Oversight, the agency said in a statement on its website.

Flaherty has served as global head of compliance and financial crime prevention for Newedge, where she was also the Americas general counsel, according to the statement. Her other previous positions include working at the Chicago Mercantile Exchange and National Futures Association.

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