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from Financial Regulatory Forum:

U.S. regulators ease credit risk rules on guarantees for banks using advanced approach

By Bora Yagiz, Compliance Complete

NEW YORK, Aug. 15, 2014 (Thomson Reuters Accelus) - Three major U.S. regulatory agencies have eased requirements under the advanced approach risk-based capital rules by removing a key requirement concerning guarantees provided by counterparties eligible for recognition as credit risk mitigants. The final rule , agreed by the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation, modified the definition of “eligible guarantee” for purposes of the advanced approach risk-based capital rules by removing the requirement that an eligible guarantee be provided by an “eligible guarantor” for all exposures other than securitization exposures.

The change in the definition comes as a response to concerns from the industry. Certain banks using the advanced approach noted that guarantees provided by owners or sponsors of commercial real estate loans fail to meet the definition of eligible guarantor, simply because they have not issued investment grade debt securities. The rule, they argue, ignores valuable credit risk mitigation that should otherwise be recognized under the advanced approach capital requirements.

The definition of eligible guarantor includes a sovereign, international financial organizations (such as the Bank for International Settlements, the IMF, the European Central Bank), a multilateral development bank, a depository institution, a bank holding company, a savings and loan holding company, a credit union, a foreign bank, and a qualifying central counterparty, that at the time the guarantee is issued or anytime thereafter, has issued and has outstanding an unsecured debt security that is investment grade; whose creditworthiness is not positively correlated with the credit risk of the exposures for which it has provided guarantees; and that is not an insurance company engaged predominately in the business of providing credit protection (such as a monoline bond insurer or re-insurer).

from Financial Regulatory Forum:

Canadian banking outlook downgraded over ‘bail-in’ move, adding to recent financial stability concerns

By Daniel Seleanu, Compliance Complete

TORONTO, July 17, 2014 (Thomson Reuters Accelus) -  In yet another worrying sign for Canada's financial sector, Moody's Investors Service has lowered its outlook for the Canadian banking system from "stable" to "negative" over uncertainty about government willingness to bail out banks during a crisis. It follows a pair of recent warnings issued by the Bank of Canada (BOC) and the Bank for International Settlements (BIS), both of which highlighted the growing risk of stress posed by runaway consumer debt and property prices.

 

Moody's negative outlook reflected the rating agency's pessimism over Canada's plan to implement a "bail-in" regime that would avoid taxpayer-funded bank bailouts by shifting some of the burden to bondholders. It would allow banks to convert some of their debt into to equity during a crisis.

from Breakingviews:

China wrestles with repression of financial sort

By John Foley 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

China is richer and more stable than when tanks rolled into Tiananmen Square 25 years ago. Then, incomplete political reforms led to chaos, violence and retrenchment. While there’s little risk of that now, a similar dynamic is playing out in the financial system.

from Financial Regulatory Forum:

Forget HFT; “High Intelligence Trading” is the new frontier for technology, markets, regulation

By Henry Engler, Compliance Complete

NEW YORK, Apr. 10, 2014 (Thomson Reuters Accelus) - While fast is good, smart is better, and with untold resources of computing power and memory banks in the clouds, the new frontier in electronic trading combines sophisticated intelligent software with rapid-fire processing, enabling traders to stay one step ahead of the regulators.

“What’s the difference between pure speed and adding intelligence to that speed?” asked Terry Keene, head of iSys, a technology integration firm, at a conference focused on high performance computing. The answer is “big data analytics” that brings decision-making and trading to a “near-time” environment, he added.

from Financial Regulatory Forum:

Special report: UK regulators face mounting concerns over their handling of multi-million pound fund collapse

By Alex Davidson, Compliance Complete

LONDON, Apr. 4, 2014 (Thomson Reuters Accelus) - Regulators face searching questions about whether they acted effectively in the multi-million pound collapse in 2012 of an unregulated collective investment scheme (UCIS). The then Financial Services Authority's (FSA) decisions concerning the Connaught Income Fund, Series 1, a UK-domiciled fund based in London, will come under fresh scrutiny at a debate in Westminster Hall, between members of parliament and HM Treasury this month, subject to scheduling. The Financial Conduct Authority (FCA) has said that the FSA, its predecessor body, acquitted itself well in dealing with the situation. Detractors, including investors, MPs and independent financial advisers (IFAs), have said the regulator failed to act appropriately on warnings about the misappropriation of multiple millions of pounds from the fund.
Some have found fault with the regulator, fund operators and IFAs who sold the Connaught fund, but it remains to be seen who, if anyone, will be held broadly accountable. Critics of the regulator have said it failed to investigate effectively evidence of financial misappropriation and insolvency, at Tiuta Plc (Tiuta), a regulated mortgage lender, to which the fund was lending money. The evidence was provided by whistleblower George Patellis, chief executive of Tiuta, which, like its unregulated subsidiary,Tiuta International (TIL), was a specialist partner to the Connaught fund.

In March 2011, Patellis informed the FSA he had discovered fictitious secured loans in the loan book of the fund and that the books of Tiuta had been arranged to pretend it was solvent when it had a multi-million pound deficit. Notwithstanding his subsequent provision of evidence, seen by Compliance Complete, the FSA did not close down Tiuta or require the regulated fund operator, Blue Gate Capital, to suspend the fund's operations. Tiuta continued to trade. Tamlyn Stone, director of compliance oversight at Blue Gate, declined to comment.

from Breakingviews:

Deadly assault brings new kind of risk to China

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The shocking knife attack that left at least 33 dead in Kunming railway station brings a new kind of risk to China. Investors’ belief in the relative stability of the People’s Republic has allowed it to weather political purges and border disputes without upsetting asset prices or capital flows. But rising ethnic tension could lead to a damaging recalculation at a fragile time.

from Financial Regulatory Forum:

“Big data” tools will improve regulatory oversight, FINRA’s di Florio says

By Stuart Gittleman, Compliance Complete

NEW YORK, Feb. 25 (Thomson Reuters Accelus) - The Financial Industry Regulatory Authority is developing a suite of "big data" information sources and analytics to improve regulatory oversight of securities firms, according to Carlo di Florio, FINRA's chief risk officer and head of strategy.

Leveraging technology and analytics can make for a "unique moment in regulation [that lets regulators] see things they couldn't have seen or understood as well before," di Florio said at an event this week hosted by the Securities Industry and Financial Markets Association compliance and legal society.

from Financial Regulatory Forum:

Big banks fall short on data requirements, but regulators may share in the blame

By Bora Yagiz, Compliance Complete

NEW YORK, FEB. 11 (Thomson Reuters Accelus) - An international study for a bank regulators' group has found deficiencies in the way banks measured and reported counterparty exposures. But the regulators themselves may share responsibility for the shortcomings, as they have provided little specific guidance for the banks.

The report by the Senior Supervisors Group (SSG) --a forum of senior officials from banking regulatory agencies of several countries-- found that 19 participating large banks fall short in some areas of data aggregation and quality. The report was based on the banks' own self-assessments.

from Financial Regulatory Forum:

Small banks await regulatory fix on Trust Preferred Securities portion of the Volcker rule for capital decisions

By Bora Yagiz, Compliance Complete

NEW YORK, Jan. 24 (Thomson Reuters Accelus) - Banks that have relied over the years on a special type of assets to fulfill their capital requirements may soon have to restructure their investment portfolios to bring it in line with the Volcker rule limiting risky trading by banks. At stake is the treatment of the Trust Preferred Securities (TRuPS), whose inclusion as “investments in entities referred to as covered funds” such as collateralized loan obligations and collateralized debt obligations, would oblige banks to divest them in compliance with the Volcker rule.

The intent behind the complex Volcker rule is clear. It is aimed at limiting the exposure of banks to certain type of “covered funds” such as hedge funds or private equity funds to 3 percent, and to prevent them from engaging in proprietary trading, namely, trading with their customers’ funds for their own short term gains rather than trade on their clients’ behalf. It is, therefore, a rule to make banks’ investments less risky and more transparent.

from Financial Regulatory Forum:

Regulators release public portions of resolution plans for smaller banks

By Bora Yagiz, Compliance Complete

NEW YORK, Jan. 16 (Thomson Reuters Accelus) - The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) released the public portions of resolution plansfor 116 institutions that submitted plans for the first time in December 2013, a group comprising smaller banks affected by Dodd-Frank requirements for winding-up plans.

The Dodd-Frank Act requires that bank holding companies (and foreign companies treated as bank holding companies) with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council periodically submit resolution plans to the Federal Reserve Board and the FDIC. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both a public and confidential section.

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