Metals Vault, Morgan Stanley Fine, Ceske LCR: Compliance

Hong Kong’s Chinese Gold & Silver Exchange Society was given permission to set up a precious metals vault in Shenzhen, becoming the first non-mainland bourse granted onshore commodity warehousing access.

Local government authorities and the People’s Bank of China Shenzhen branch approved the exchange’s plan to build the 1,500-ton facility to store gold and silver in Qianhai, a special economic zone on the west of Shenzhen, according to Haywood Cheung, president of the CGSE. Construction will begin next year and take about 18 months, he said.

China, which overtook India as the biggest gold user last year, is starting gold trade in the Shanghai free-trade zone this month as the country seeks to exert its influence over prices while expanding the yuan’s role in global trade.

Compliance Policy

China FDI Falls to Four-Year Low as U.S. Complains on Probes

Foreign direct investment into China, a gauge of external confidence, slumped to a four-year low amid antitrust probes into multinational companies that have spurred a letter of complaint from the U.S.

Inbound investment was $7.2 billion in August, down 14 percent from a year earlier, the Ministry of Commerce said today in Beijing after a 17 percent drop in July. It was the first back-to-back decline of more than 10 percent since 2009, based on previously reported data compiled by Bloomberg.

U.S. Treasury Secretary Jacob J. Lew said in a missive to Vice Premier Wang Yang that China is using competition law to force companies to cut prices its consumers pay for products relying on foreign intellectual property, according to a person with knowledge of the correspondence. Lew said such steps might have consequences for bilateral ties, according to the person, who asked not to be identified because the letter isn’t public.

The July and August declines in FDI have “no relation” to China’s anti-monopoly measures, Shen Danyang, a Commerce Ministry spokesman, said at a briefing in Beijing today without elaborating, according to a transcript on the ministry’s website. China can still attract $120 billion in inbound investment in 2014, he said at a separate briefing.

Lew’s complaint follows criticism from the main U.S. and European business lobbies in China that authorities in the world’s second-biggest economy are discriminating against non-Chinese corporations.

Compliance Action

Morgan Stanley Fined for Violations Tied to Ponzi Scheme

Morgan Stanley was fined $280,000 for ignoring “numerous red flags” in opening an account tied to a multimillion-dollar Ponzi scheme, a U.S. regulator said.

The bank’s Smith Barney unit was cited for improper supervision and records violations, the Commodity Futures Trading Commission said yesterday in a statement. The New York-based company also failed to enforce trading limits it assigned to the account and adequately respond to regulators’ requests for documents, the CFTC said.

The accounts were used by Benjamin Wilson, the owner of SureInvestment, to continue a $35 million Ponzi scheme based in the U.K., according to the statement. Wilson was sentenced to seven years in prison this year after pleading guilty to charges brought by the U.K. Financial Conduct Authority, the CFTC said.

Morgan Stanley didn’t admit or deny the allegations, while consenting to the entry of the CFTC’s findings.

“Morgan Stanley takes its regulatory responsibilities seriously,” Christine Jockle, a company spokeswoman, said in an e-mailed statement. “The firm fully cooperated with the CFTC’s investigation. The events described in the settlement involve a single account that traded for less than three months. CFTC did not conclude that the firm’s conduct in this matter was willful, intentional or fraudulent.”


Banks Face Substantial Undertaking in LCR Compliance, Ceske Says

“It is a substantial undertaking,” Robert Ceske, principal in KPMG LLP’s Market/Treasury Risk Services Group, said in an interview with Bloomberg News, referring to efforts by large U.S. banks to comply with liquidity coverage ratio reporting requirements.

The rule was made final Sept. 3 as part of the Dodd-Frank Act reforms. It applies phased-in timetables for frequency of reporting on high quality liquid assets, tailored for banks with assets exceeding $700 billion, $250 billion, and so-called modified LCR banks with assets of $50 to $250 billion.

The rule becomes effective Jan. 1, 2015, when the largest banks will begin a phase-in schedule that first requires a monthly calculation and reporting of LCR until June 30, 2015, and then transitions to daily frequency, according to Ceske.

“A key change from the notice for proposed rulemaking and the final rule is for banks with total consolidated assets of at least $250 but less than $700 billion. They will have an 18-month delay in their obligation to begin daily reporting of LCR,” Ceske said.

Reporting concerns don’t stop at the U.S. border.

“The U.S.-headquartered holding company would also need to share information required under the Basel III LCR standard with its European headquartered parent, to meet Basel requirements,” Ceske said.

This is the case even if the assets in question wouldn’t fall under U.S. reporting requirements, Ceske said.

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