Banks’ Commodities, Bafin Claws, Barclays: Compliance

The Federal Reserve is poised to take a preliminary step toward limiting banks’ activities with commodities amid congressional scrutiny, according to three people briefed on the discussions.

The Federal Reserve is planning to release a notice seeking information on ways to curb banks’ ownership and trading of some commodities as it tries to cut risk for deposit-taking banks, said the people, who requested anonymity because the talks are private. Regulators and lawmakers have said raw-materials assets could lead to catastrophic losses, collapses and public bailouts.

A Senate Banking subcommittee has set a hearing on the issue for today, the second such hearing on the topic. Senator Sherrod Brown, an Ohio Democrat, has raised concerns that banks may have a conflict of interest when they own and trade both physical commodities and instruments tied to them.

Fed spokeswoman Barbara Hagenbaugh declined to comment. The Fed is weighing whether to extend some legal and regulatory exemptions that allow banks to participate in the commodities markets, a person briefed on the process said in October.

U.S. law restricts banks from owning non-financial businesses unless they get special exemptions. Goldman Sachs Group Inc. and Morgan Stanley were the two biggest U.S. securities firms until they converted into banks in 2008. A 1999 law “grandfathers” any commodities operations they had before Sept. 30, 1997.

The Fed said in July that it’s reconsidering a 2003 decision to grant some lenders, such as Citigroup Inc. and JPMorgan Chase & Co., permission to expand into raw materials.

The Fed is soliciting comments and other input before regulators take a position on a potential rule.

Compliance Policy

Bafin Paper Tiger’s New Claws May Not Scratch in Rate Scandals

Bafin, the German financial watchdog that’s been called a “Paper Tiger” because it can’t fine for abuses like Libor-rigging, got its claws sharpened this year. It may not help in the next benchmark scandal.

While the watchdog can levy large fines under the new rules for some offenses -- such as not meeting capital requirements, failing to disclose information or not fulfilling duties in granting loans -- manipulating rates isn’t one of them. That means they probably can’t be used in Bafin’s probes into precious metals benchmarks and other rates.

Fines for banking-rule violations had been capped at 500,000 euros ($682,000). As of January 1, the Bonn-based watchdog can impose penalties of as much as 10 percent of annual sales, or twice the profit made through illegal actions, under rules introduced in response to the financial crisis.

Bafin has the power to remove the top leaders of a bank, suspend shareholders’ voting rights or appoint an outside supervisor to oversee management.

The watchdog also reports on lenders’ compliance with its rules. Bafin said Jan. 13 that banks in Germany often used the wrong parameters in rewarding bonuses to top executives and risk-takers after it reviewed the way 15 lenders rewarded employees in 2012, without naming the firms.

The regulator’s enforcement powers are hardly ever used by Bafin, which typically resolves issues discretely with any bank. The threat that Bafin may use any of these powers is often enough to make a bank comply with any demand the regulator may have, according to Thomas Koch, a capital markets lawyer at Luther Rechtsanwaltsgesellschaft mbH in Cologne.

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Funding for SEC and CFTC Included in Omnibus Spending Bill

Financial appropriations in the fiscal year 2014 omnibus spending bill includes funds for the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, according to a statement from the House Appropriations Committee.

The funding will include $1.35 billion for the SEC, which is $29 million more than the fiscal year 2013 enacted level and $324 million less than President Barack Obama’s budget request and the Senate bill, the committee said.

Of the total planned for the SEC, $44 million will be designated for the agency’s division of economic and risk analysis. The legislation rescinds $25 million from the SEC’s “reserve fund.”

The Agriculture appropriations bill includes $215 million in funding for the CFTC, which is $100 million less than Obama’s budget request, according to the statement.

The appropriation was described in a statement as a “modest increase” by CFTC Commissioner Scott O’Malia, who said the agency will need to “pick its funding priorities carefully.”

Separately, the omnibus bill requires the Office of Management and Budget to complete a report within 90 days on the cost of implementing the Dodd-Frank Act.

Compliance Action

Deutsche Bank Said to Suspend at Least One in Currency Probe

Deutsche Bank AG, the world’s biggest foreign-exchange dealer, has suspended at least one currency trader for suspected attempts to rig rates, a person familiar with the matter said.

Deutsche Bank suspended one trader who dealt in the Argentine peso and was based in the Americas, said the person, who asked not to be identified because he’s not authorized to speak publicly on the matter. The bank is examining the electronic communications of several employees, using search terms negotiated with regulators late last year, and will suspend or reinstate based on those findings, the person said.

The suspension draws Germany’s biggest bank into investigations by regulators around the world into possible fixing of foreign-exchange rates in the $5.3 trillion-a-day market. At least a dozen firms have been contacted by authorities, and at least 12 traders have been suspended, put on leave or fired. The probes come after Bloomberg News reported in June that dealers at banks pooled information through instant messages and used client orders to move benchmark currencies.

“Issues like Libor manipulation, allegations of foreign-exchange manipulation, this is sapping at the very core of what we are trying to do,” Deutsche Bank Co-Chief Executive Officer Anshu Jain said in October.

The currency investigations are taking place as authorities grapple with a widening list of scandals involving the manipulation by banks of benchmark financial rates. Germany’s financial regulator is “investigating the facts” and has “kept an eye on the currency trading issue since the summer,” Bafin spokesman Ben Fischer said in an e-mail today. He declined to comment on whether it’s a formal investigation or on any actions against individual banks.

German newspaper Welt said today that at least one trader was suspended for suspected manipulation. Klaus Winker, a spokesman for Deutsche Bank in Frankfurt, declined to comment.

Barclays Traders Said to Face U.K. Fraud Office Libor Interviews

Several former Barclays Plc traders suspected of involvement in Libor manipulation were ordered to report to U.K. fraud prosecutors for interviews, according to a person with knowledge of the case.

The Serious Fraud Office sent notices to the people in the U.S. and U.K. during the past six weeks, telling them to come in to be questioned under caution, meaning what they say can be used as evidence, as part of a global investigation into rate-rigging, said the person, who asked not to be named because the requests are private.

The agency is preparing to prosecute more people in the case.

Prosecutors and regulators around the world are investigating whether more than a dozen firms colluded to rig Libor in a number of currencies to benefit their own derivatives trades. The recent interview requests relate to possible manipulation of dollar Libor, the person said.

Nilima Fox, a spokeswoman for the SFO, declined to comment. Giles Croot, a spokesman for Barclays, declined to immediately comment.

Barclays was the first firm to be fined over Libor rigging in June 2012 by U.S. and U.K. authorities.

Swiss Fatca Opponents Short of Signatures, Ticino Libero Says

Swiss opponents of the U.S. Foreign Account Tax Compliance Act failed to collect the 50,000 signatures needed to force a nationwide vote to stop Switzerland from implementing the law, Ticino Libero said on its website yesterday.

Opponents collected only about 40,000 signatures, Ticino Libero reported, citing SVP politician Tiziano Galeazzi.

Opponents have until Jan. 16 to collect signatures for a referendum after the Swiss parliament agreed to implement the law, known as Fatca.

Switzerland and the U.S. agreed to delay the implementation of Fatca to July 1 from Jan. 1, in line with other countries.

Fatca is an anti-tax evasion law requiring banks and governments outside the U.S. to share American account holders’ cross-border bank information.


Foreign-Exchange Futures May Double on New Rules, Greenwich Says

Foreign-exchange futures trading has the potential to more than double as regulatory measures push investors out of options and non-deliverable forwards, according to Greenwich Associates.

“Trading volume will shift to futures because, under the new rules, futures will provide a cheaper means of accessing the FX market,” Kevin McPartland, head of market structure and technology advisory service at Greenwich, said in a statement. “Investors are already comfortable with the products and now they will have a big incentive to make much more use of futures.”

Options and forward contracts have fallen under greater scrutiny and now face more stringent trading and clearing requirements, according to McPartland. A 5 percent reallocation from over-the-counter foreign-exchange derivatives to futures would result in growth of more than 50 percent in the latter category, he said.

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