SEC’s Stein Objects to Waiver for RBS in Criminal Case

Royal Bank of Scotland Group Plc’s successful plea to lift a U.S. Securities and Exchange Commission sanction drew a dissent from an SEC commissioner who said the agency acts as if some firms are “too big to bar.”

Commissioner Kara Stein criticized the SEC for a 3-2 vote that lets RBS retain its ability to issue securities without prior review after a unit was convicted of a criminal offense last year. The action is part of a pattern of failing to hold large banks or brokerages to standards set by both the U.S. Congress and the SEC to protect investors and markets, Stein wrote.

“Our website is replete with waiver after waiver for the largest financial institutions,” Stein, a Democrat, wrote in a statement released yesterday by the SEC. “One large financial firm alone, in the last 10 years, has received over 22 different waivers -- often making the argument that it has a ‘strong record of compliance with federal securities laws.’” She didn’t name the firm.

The SEC said last week that it voted to waive RBS’s automatic disqualification as a “well-known seasoned issuer,” a status that enables the bank to raise money by selling securities without the prior approval of the SEC. Typically, companies that commit securities fraud or are convicted of a crime face an automatic loss of that privilege. RBS’s Japanese unit pleaded guilty to wire fraud last year as part of a $612 million settlement for manipulating benchmark interest rates.

‘Vigorously’ Applied

SEC Chair Mary Jo White told a hearing of the House Financial Services Committee today that the regulator applies its waiver policy “very faithfully and vigorously,” while declining to specifically talk about RBS.

Debbie Phillips, an RBS spokeswoman, declined to comment today.

“I fear that the commission’s action to waive our own automatic-disqualification provisions arising from RBS’s criminal misconduct may have enshrined a new policy -- that some firms are just too big to bar,” Stein wrote.

U.S. Senator Elizabeth Warren, a Massachusetts Democrat, said the SEC is sending “a dangerous signal” that its enforcement is weak, according to an e-mailed statement. The financial crisis was caused in part by regulators that didn’t do their jobs, she said.

“Big corporations should not get special treatment when they break the law, and the SEC needs to learn from its past failures in oversight, to demonstrate no one is above the rules, and to show some backbone,” Warren said.

SEC Commissioner Daniel M. Gallagher said in a statement today that disqualification is justified only if misconduct calls into question a company’s financial reporting.

“It is only then that investors would benefit more from forcing the issuer to jump through additional hoops of commission review,” Gallagher said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE