RBS Report, U.K. Hedge Bonuses, EU Data Privacy, Austria Banks: Compliance
A report on Royal Bank of Scotland Group Plc’s near-collapse was changed to remove a section that said Fred Goodwin, the lender’s former chief executive officer, “lacked the experience to run an international bank.”
The findings in the Financial Services Authority report were altered when Goodwin’s lawyers were allowed to see the document, Bill Knight, a lawyer who conducted an independent review of the document, told a U.K. Parliament committee yesterday. Knight said the change during the so-called “Maxwellization process” was fair.
“The suggestion was that he lacked the experience to run an international bank,” Knight told the U.K. Treasury Select Committee. “There was no evidence of a lack of competence.”
The FSA released the report into RBS’s finances in December after the regulator was criticized by lawmakers for clearing Goodwin and other officials of wrongdoing. Lawmakers said they deserved a greater explanation of the circumstances that led to RBS getting a 45.5 billion-pound ($70.9 billion) rescue by taxpayers following the lender’s acquisition of ABN Amro Holding and the 2008 financial crisis.
David Walker, the former chairman of Morgan Stanley International (MS) who along with Knight conducted the independent review of the FSA report at the request of the committee, said that Goodwin did a poor job delegating authority and didn’t always give the bank’s board “adequate risk information.”
Neither Knight nor Walker would be drawn in on questions from the committee about whether the FSA report raised serious enough concerns to strip Goodwin of his knighthood. U.K. Prime Minister David Cameron said last week that it should be reviewed.
A spokesman for Goodwin wasn’t immediately available to comment when contacted by Bloomberg News. Liam Parker, an FSA spokesman, and Michael Strachan, an RBS spokesman, declined to comment.
Hedge Fund, Private Equity Bonus Rules Considered by FSA
The U.K. Financial Services Authority may set bonus rules specifically for hedge fund and private equity managers as it works to implement European Union regulations.
The FSA may write “a remuneration code to apply specifically to Alternative Investment Fund Managers, but modeled closely on the existing code” that applies to banks and other financial firms, the regulator said in a statement on its website. While the FSA is obliged to comply with EU standards set by the European Securities and Markets Authority, that agency hasn’t yet completed them.
European finance ministers in 2010 approved a law, known as the Alternative Investment Fund Managers Directive, which gave Paris-based ESMA power to set rules for hedge funds and private equity firms, regulating their pay and access to EU investors.
The aim of the rules would be to ensure managers “control risk-taking behavior by reducing the potential adverse impact of poorly-defined remuneration schemes,” the FSA said in a discussion paper. It’s seeking input on the plans from the industry and the public.
The FSA said its existing bonus code, which it expanded to include more than 2,700 firms at the end of 2010, may already be compliant with the EU rules. Some U.K. funds are required to disclose the size of their bonus pools for the previous year in regulatory filings.
Companies Face Fines as Much as 2% of Sales Under EU Privacy Law
Companies face fines as high as 2 percent of yearly global sales for losing personal data under an overhaul of European Union privacy rules.
Data protection agencies in the EU’s 27 countries would gain the power to sanction companies that violate requirements for handling personal information proposed by the European Commission today. The measures, which also target online- advertising and social-networking sites, update the EU’s 17- year-old data-protection policies.
The EU overhaul would also clamp down on data lapses such as Sony Corp. (6758)’s six-day delay in warning customers about a cyber attack that exposed more than 100 million customer accounts, the second-largest online data breach in U.S. history. Industry groups with members including Microsoft Corp. (MSFT) and Google Inc. (GOOG) have warned against overly strict data-privacy rules that may stifle innovation.
Under the draft rules, serious violations, such as processing sensitive data without an individual’s consent or without any legal justification, may be punished with penalties as high as 1 million euros ($1.3 million) or as much as 2 percent of a company’s yearly sales, the commission said. Less serious offenses would be punished with smaller fines.
Google, which has had separate policies for more than 70 products, said it will unify the approach for more than 60 of them, including Android software for mobile phones, in a more- readable format. The company also is reducing the number of terms of service, conditions users agree to when accessing Google products, and making them easier to read.
The company, based in Mountain View, California, is grappling with increased government scrutiny amid concern that the company needs to do more to safeguard customer privacy. The changes will take effect on March 1. Google will preserve some policies, for products such as Google Wallet and the Chrome browser.
Obama Creates Unit to Investigate Mortgage Misconduct by Banks
President Barack Obama said he will create a mortgage crisis unit that includes federal and state officials to investigate wrongdoing by banks related to real estate lending.
The president announced the unit in his State of the Union speech yesterday after protests by the Campaign for a Fair Settlement, a coalition of labor unions, consumer advocates and political activists including MoveOn.org. The group is calling for a full investigation into bank home lending and the creation and sale of mortgage-backed securities.
New York Attorney General Eric Schneiderman will co-chair the unit along with officials from the Justice Department, Securities and Exchange Commission and Internal Revenue Service.
For months, state and federal officials have been negotiating with the five largest mortgage servicers -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc (ALLY). -- to settle claims they used so- called robo-signing and faulty documentation to justify foreclosures.
The deal with the banks could be worth as much $25 billion in loan forgiveness, interest-rate reductions and other aid for homeowners, said a person familiar with negotiations who declined to be identified because the terms weren’t public.
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Erste, RZB May Need Less EBA Capital as Austria Backs Banks
Erste Group Bank AG (EBS) and Raiffeisen Zentralbank Oesterreich AG (RZBOPA) may have to raise less capital to meet requirements by the European Banking Authority as their home regulator backed their demand to recognize hybrids.
Austria’s Finanzmarktaufsicht regulator will argue the EBA should recognize non-voting capital that the Austrian lenders sold to private investors in 2009 in a combined deal together with state aid, the FMA’s two co-heads, Helmut Ettl and Kurt Pribil, said in Vienna yesterday. The final decision about the capital recognition is up to the EBA, they said.
The EBA told banks in October to increase their core reserves to 9 percent of risk-weighted assets by the end of June as part of measures introduced to respond to the euro area’s fiscal woes. It excluded hybrid capital from the core reserves definition, counting them only if provided in state aid measures since 2008. European Central Bank policy makers including Austria’s Ewald Nowotny and Luxembourg’s Yves Mersch have joined banking lobby groups in saying that those capital requirements may curb economic growth in the euro area.
Ettl, a member of the EBA’s 29-strong board of supervisors, said the body will “evaluate” its entire recapitalization exercise in the coming days together with bodies including the European Systemic Risk Board, whose chairman is ECB President Mario Draghi. The review will focus on whether the measure reduces the availability of credit for the European economy to a degree where it crimps growth.
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SEC Gains Judgment Against New Jersey Investment Adviser Chiaese
The U.S. Securities and Exchange Commission said it obtained final judgments against New Jersey-based investment adviser Carlo Chiaese, his firm C.G.C. Advisors LLC and his wife, Micol Chiaese, in an enforcement lawsuit claiming they misappropriated at least $2.4 million from clients.
The SEC announced the civil judgment in a statement on its website yesterday. Chiaese was sentenced to 58 months in prison and ordered to pay more than $2.4 million in restitution last year on related criminal claims, the SEC said.
European Commissioner, IIF Leaders Discuss Greek Debt
European Commissioner for Economic and Monetary Affairs Olli Rehn and Danish Economy Minister Margrethe Vestager talked about efforts between Greece and its private-sector creditors to reach a debt-swap agreement and the fiscal outlook in Spain.
For the Rehn video, click here.
Separately, Charles Dallara, managing director of the Washington-based Institute of International Finance, Walter Kielholz, chairman of Swiss Re Ltd. (SREN) and vice chairman of the IIF’s board of directors, and Philip Suttle, IIF chief economist, spoke at a news conference in Zurich about global capital flows and Greek debt-swap negotiations.
The IIF’s Frank Vogel and Jeffrey Anderson also spoke.
For the Zurich video, click here.
Volcker Rule Changes in Congress Will Have to Wait, Corker Says
U.S. financial companies lobbying to change the Volcker rule ban on proprietary trading will have to wait until 2013 because the upcoming elections will make this a “non-year in Congress,” Senator Bob Corker said yesterday.
Political pressure will make it nearly impossible to generate support from Senate Democrats or President Barack Obama’s administration to advance any proposals for changing the Dodd-Frank Act measure, Corker said at a U.S. Chamber of Commerce conference on the Volcker rule in Washington.
“We need to revisit our approach here, and I’m hopeful in the months and years ahead we will do so,” said Corker, a Tennessee Republican who serves on the Senate Banking Committee.
The Federal Reserve and other agencies have faced criticism over a 298-page Volcker rule proposal that has been faulted by lawmakers, banks and international regulators as too complex and potentially damaging for financial markets. Regulators are seeking public comment on the proposal.
The rule named for former Fed Chairman Paul Volcker, who championed it as an adviser to Obama, would ban banks from proprietary trading while allowing them to continue short-term trades for hedging or market-making. It also would limit banks’ investments in private-equity and hedge funds.
Dodd-Frank, the regulatory overhaul enacted in 2010 requires that the rule be in place by July 21.
Proposed changes would encounter opposition from Democratic drafters of the rule who have argued in favor of strengthening it.
Borg Says EU Transaction Tax Could Drive Up Borrowing Costs
Swedish Finance Minister Anders Borg said the European Union’s proposed financial transaction tax might drive up borrowing costs by making it more expensive to trade bonds in the secondary market.
“Obviously people would demand a better return if they’re going to own an asset that is less liquid,” Borg told reporters today in Brussels. “This would increase the financing costs for countries” that already have a “deep problem when it comes to indebtedness.”
The European Commission, which drafts legislation for the EU, has proposed a tax that it says could raise 57 billion euros ($74 billion) a year. The tax would cover a wide range of trading. Financial institutions would pay in their home countries, regardless of where transactions take place.
As proposed, the plan has the potential to hurt more than it helps, Borg said yesterday. “The negative growth impact is so large and we have such a high tax rate in Sweden that it would actually be a loss of revenues,” he said, recommending that the EU consider other methods to levy the financial system instead of the current proposal.
Borg also criticized Greece for not doing enough to comply with the terms of its International Monetary Fund and EU rescue package.
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