Merrill Fined, FX Facebook Messages, Risk: Compliance

Bank of America Corp.’s Merrill Lynch was fined $6 million by the Financial Industry Regulatory Authority for allowing short sellers to dump stocks without making sure they had first arranged to borrow the shares.

The industry-financed regulator levied the fines for breaking rules related to short selling, or selling a stock with the hope of profiting by buying it later at a lower price. From 2008 to 2012, Merrill Lynch’s broker-dealer and clearing units violated the Securities and Exchange Commission’s Regulation SHO, which is intended to ensure short sellers borrow the stock they’re selling, Finra said yesterday in a statement.

Merrill Lynch also violated the SEC’s 2008 emergency orders intended to prevent manipulation of bank stocks, Finra said. The group fined Credit Suisse Group AG and UBS AG for violations related to Regulation SHO in 2011.

“We take very seriously our obligations and have improved our procedures to address issues identified by Finra,” Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, said in an e-mailed statement.

Compliance Policy

Nigeria Limits Foreign-Currency Borrowings by Banks on Risks

The Central Bank of Nigeria said it limited foreign-currency borrowings by lenders in Africa’s largest economy as it seeks to reduce their exchange risks.

Overseas currencies should not exceed 75 percent of shareholders’ funds, the Abuja-based central bank said in a statement posted yesterday on its website. “Net Open Position of overall foreign-currency assets and liabilities” are not to exceed 20 percent of shareholders’ funds, it said.

Nigeria’s financial regulator is taking measures to increase the ability of lenders to withstand losses five years after saving the industry from collapse. It told lenders in August they could no longer count certain assets as capital as the country implements tougher Basel standards for banks. It also limited Tier-2 capital to 33 percent of higher-quality Tier-1 capital.

The central bank mandated that lenders have liquid foreign assets to cover maturing foreign-currency obligations and to borrow and lend in the same currency to avoid “mismatch associated with foreign-currency risk,” according to the statement.

Compliance Action

FX Traders’ Facebook Messages Said to Be Sought in EU Probe

Foreign-exchange traders’ messages on Facebook are being sought by European Union antitrust regulators as they expand a probe into alleged collusion between banks beyond work e-mails and instant messages, two people with knowledge of the case said.

Banks have been asked to supply all communications between traders, including those on social media, said three people who didn’t want to be named because the EU’s requests are private. The EU suspects that some e-mails and online messages have been erased to destroy signs that traders were illegally swapping information, one of the people said.

Not all banks involved in the EU’s probe into foreign-exchange rates have been asked to supply more details of communications between traders outside of work e-mail and instant-messaging services, according to three other people with knowledge of the EU’s currency-rigging case.

HSBC Holdings Plc’s foreign-exchange trading is being reviewed by the EU and other authorities and it’s cooperating with regulators, according to a filing in August. JPMorgan Chase & Co., Citigroup Inc., Deutsche Bank AG, UBS AG, Barclays Plc and Royal Bank of Scotland Group Plc have said they are cooperating with global regulators on foreign-exchange investigations.

The European Commission, Deutsche Bank, Barclays, Citigroup, RBS and UBS declined to comment, as did Facebook Inc. representatives. JPMorgan and HSBC didn’t immediately respond to a request for comment.

Interviews/Commentary

Few Companies Grade High for Risk Management, Deloitte Says

Nineteen percent of companies gave themselves an A when asked to grade their capability to manage reputational risk, according to a survey by Deloitte Touche Tohmatsu Ltd., facilitated by Forbes Insights.

About 40 percent rated the maturity of their risk programs as average or below average, according to the survey.

“Most organizations say risk management is important, but they’ll say we don’t do the best job possible,” Henry Ristuccia, Deloitte global leader of governance, regulatory and risk services, said yesterday in an interview, interpreting the survey results.

A Deloitte survey last year showed that 95 percent of companies were working on a risk-management program. A year later “it comes down to crisis management more than anything else,” Ristuccia said.

The 2014 survey asked 300 executives in a range of industries and regions the impact of risk on revenue, brand value, and regulatory investigation.

Companies in the Asia Pacific region were most affected by revenue loss following an event having a negative impact on their reputation, compared with companies in Europe, the Middle East and the Americas.

This reflects concerns about product safety in Asia and “skepticism about production, origin and quality,” said Ristuccia.

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