EU Equity Research Rule, AMF, Federated Funds: Compliance

Investment banks want the European Union to scale back potentially “draconian” draft rules that would rein in the use of client money by asset managers paying for equities research.

The European Commission, the EU’s executive arm, is weighing how far to go in forcing asset managers to separate payments for research from those they make to banks and other brokers to execute trades. These costs are commonly lumped together, a practice known as bundling.

While the U.K.’s Financial Conduct Authority said that an unbundled system could enhance competition and transparency, banks and asset managers have argued the change would put EU-based fund managers at a disadvantage to overseas rivals and prompt them to cut back on research that supports investment.

The commission plans to publish rules by mid-year as part of its work to overhaul EU financial-market legislation. The bloc’s 28 national governments and the European Parliament will have six months to raise objections. If they don’t, the final standards could be issued by year-end and take effect in 2017.

The European Securities and Markets Authority, which brings together national regulators in the EU, provided guidance to the EU commission in December that retreated from earlier proposals requiring a full separation of payments.

Compliance Policy

French Market Regulator Starts Public Survey on Asset Sales

Autorite des Marches Financieres, France’s market regulator, will undertake a public survey on asset sales by companies.

A focus group was already consulted on the topic and said shareholders should be allowed to vote on major asset sales, AMF said Thursday in a statement.

The next step is a public consultation about what should be done in the case of such sales. One option could be a legislative solution, according to the statement.

The study was commissioned after Vivendi SA sold its unit SFR, and Alstom SA sold assets to General Electric Co.

Compliance Action

Federated Plans Money Fund Changes to Meet New SEC Regulations

Federated Investors Inc., one of the largest providers of money-market mutual funds, said it would make changes to its lineup of funds and, in some cases, limit the maturity of the securities the pools can hold.

Federated’s announcement comes two weeks after Boston-based Fidelity Investments said it would convert its largest money fund into one that buys mainly securities issued or backed by the U.S. government, a move that could make it more expensive for banks to borrow.

The companies are reacting after the U.S. Securities and Exchange Commission last year made changes to how non-government and institutional money market funds should operate, including abandoning their traditional $1 share price in exchange for a floating net asset value. The rules also give money funds the ability use liquidity fees and redemption gates to prevent runs.

The SEC began working with the Federal Reserve and Treasury Department on ways to shore up money funds after the $62.5 billion Reserve Primary Fund was brought down in 2008 by a loss on Lehman Brothers Holdings Inc. debt. The fund’s decision to re-price its shares below $1, known as breaking the buck, set off a panic among investors, who had assumed their principal would never be lost.

Pittsburgh-based Federated, which has more than $258 billion in money-fund assets, said it would continue to offer a broad range of both government funds and prime funds, which can buy corporate debt. Federated said many of the changes would require approval from its funds’ board of trustees and, in certain cases, approval from shareholders.


Wegelin Bankers Face Obstruction Charges in U.S. Tax Case

Three Swiss bankers accused in 2012 of helping Americans hide more than $1.2 billion from the U.S. Internal Revenue Service face new charges of obstructing the agency from collecting taxes on undeclared accounts.

Federal prosecutors in Manhattan filed an expanded indictment Wednesday against former Wegelin & Co. bankers Roger Keller, Urs Frei and Michael Berlinka. Keller, 50, was arrested on Feb. 2 in Frankfurt, where he faces extradition to New York.

The men are among 38 offshore bankers, lawyers and advisers charged in the U.S. since 2008 with tax crimes. About two dozen have yet to answer the charges in court. They include bankers from Switzerland’s top three wealth managers -- UBS Group AG, Credit Suisse Group AG and Julius Baer Group Ltd. Most live in Switzerland, where they remain off-limits to U.S. prosecutors because the Swiss don’t extradite suspects for tax crimes.

Wegelin, Switzerland’s oldest private bank, pleaded guilty in 2013 in New York to helping taxpayers hide as much as $1.5 billion from the IRS. Wegelin paid and forfeited $74 million to the U.S., admitting it helped hundreds of taxpayers evade taxes from 2002 to 2010. It no longer operates.

The bank was charged in February 2012, a month after prosecutors accused Keller, Frei and Berlinka of conspiring with others to cheat the IRS.

Prosecutors accused them of helping Americans open dozens of accounts and hide them from the IRS after a U.S. probe led clients to flee bigger Swiss banks in 2008 and 2009. That probe picked up after the U.S. charged UBS in 2009 with helping Americans cheat the IRS.

The case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).

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