Financial Regulatory Forum

“Volcker rule” exemption for liquidity management remains half-thought

By Bora Yagiz

NEW YORK, Sept. 19 (Thomson Reuters Accelus) - The question what distinguishes a “trading account” from a legitimate liquidity management program will be a primary concern as no less than four regulators, namely the Federal Reserve, the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, finish work on the “Volcker rule” limiting risky trading by banks. The regulators jointly proposed last year the provisions for implementing section 619 of the Dodd Frank Act. Final rules are expected by year end.

The July 2012 statutory deadline for what is commonly referred to as the Volcker rule has already been missed, and the 298-pages of proposed rules have attracted more than 17,000 comment letters and sparked a heated debate across the industry. This is because the regulators aim for a complete overhaul of trading activities by severely restraining any “banking entity” from “proprietary trading,” thereby preventing undue risk exposure of consumers’ and taxpayers’ money.

The devil will be in the interpretation of many of these rules. The definition of “trading account” will likely be the most critical premise, as the rest of the rules will be built upon it.

Since the inception of the Volcker rule, named after former Federal Reserve Chairman Paul Volcker, who promoted it, much of the discussion has revolved around what constitutes “proprietary trading.” Dodd-Frank defines it as “engagement in an activity by a deposit-taking institution as a principal for its trading account in the purchase or sale of a security, derivative, future or an option contract. “

The interest in proprietary trading is not surprising, as significant losses incurred by banks during the recent financial crisis came from proprietary positions in trading accounts, mostly from mortgage-backed and asset-backed bonds tied to toxic loans. More recently, JPMorgan’s “London whale” trade debacle, where the company lost $5 billion, raised the question of whether it was a legitimate form of portfolio hedging or a speculative play on short-term price movements.

IA brief: California broadens scope of private-adviser exemption

By Jason Wallace

NEW YORK, Sept. 12 (Thomson Reuters Accelus) - California has broadened registration exemptions for private-fund advisers in a final rule adopted by the state Department of Corporations that considers the manager and its fund-investor characteristics rather than “assets under management” (AUM) or the number of clients.

The move aims to minimize regulatory requirements on a venture-capital industry considered to be a lifeblood for the emerging firms that fuel California’s high-tech economy, and responds to changes in registration requirements under national Dodd-Frank Wall Street reforms. (more…)

SEC whistleblower program stricter than IRS bounty which paid $104 million to felon, former official says

By Stuart Gittleman

NEW YORK, Sept. 12 (Thomson Reuters Accelus) - Rewards like the $104 million the Internal Revenue Service said Tuesday it would pay a convicted felon would not occur under a similar Securities and Exchange Commission program, a former official who helped develop the program told Compliance Complete. (more…)

Brokerages stumble on following in-house supervision rules – study

By Suzanne Barlyn

CORONADO, Calif., (Reuters) – Wall Street’s brokerages are falling short when it comes to policing their brokers, according to a nationwide series of examinations by state regulators.

The biggest issue: Many firms are not following their own procedures for keeping employees in check. (more…)

Retaliation rate against U.S. company whistleblowers climbs, senior staff affected, survey finds

By Julie DiMauro

NEW YORK, Sept. 6 (Thomson Reuters Accelus) - Retaliation against workplace whistleblowers is rising sharply, expanding into previously safe categories of employees such as senior-level managers and even in workplaces with notably strong ethical cultures, a study found.

The trend comes as new regulations require more formal reporting channels for internal whistleblowing and more managers use them, study sponsors said. They recommended that companies more closely monitor what happens to whistleblowers after they report. (more…)

Standard Chartered case may not set model for targeting other banks

By Aruna Viswanatha and Brett Wolf

WASHINGTON/ST. LOUIS, Sept. 5 (Thomson Reuters Accelus) - Benjamin Lawsky’s surprise move against Standard Chartered in an Iran sanctions case may have stunned the banking world, but it is unlikely to expand the scope of a series of similar U.S. cases against European banks that are still in the pipeline.
Lawsky, the New York state bank regulator, stunned the British bank, its shareholders and other U.S. authorities when he moved ahead last month with his own case against Standard Chartered, accused of hiding transactions involving Iran, which is under U.S. trade and economic sanctions. (more…)

Post-Katrina moves helped banks weather the storm after Isaac, says state banking official

By Ted Knutson

WASHINGTON, Sept. 5 (Thomson Reuters Accelus) - Post-Hurricane Katrina disaster preparations helped banks weather the storm after last week’s Hurricane Isaac, Louisiana Office of Financial Institutions (Bank) Division Chief Examiner Sid Seymour told Thomson Reuters Monday.

“After Katrina in 2005, some bank locations were closed for weeks. But Isaac came in on the 29th, we had banks in the coastal parishes that were closed that day, on the next, bank staffers were doing damage (recovery) the next day and the day after, most locations were reopen,” the head state bank examiner said. (more…)

Weak U.S. legal oversight puts burden on compliance pros to protect their firms, author says

By Stuart Gittleman

NEW YORK, Sept. 4 (Thomson Reuters Accelus) - An inadequate government and industry response to the financial crisis will require compliance professionals to do more to protect their firms, customers and colleagues, Jeff Connaughton, who said he saw firsthand how reform withered in Congress, has told Compliance Complete.

“Until law enforcement causes actual deterrence, compliance needs to understand what institutional and retail customers can – and can’t – stomach. And those customers need to get back to performing exacting due diligence. Until we have tough law enforcement again, institutional customers will have a greater impact on Wall Street behavior than federal prosecutors,” said Connaughton, a former investment banker, aide in President Bill Clinton’s administration, lobbyist and longtime political associate of Vice President Joe Biden. (more…)

Sanctions and prosecutions against international banks creates dark market, increase risk

By Kim R. Manchester, Thomson Reuters Accelus contributing author

TORONTO, Sept. 4 (Thomson Reuters Accelus) - The black market for Iranian oil will carry increasingly sophisticated money laundering risks for international banks engaged in correspondent banking, international trade finance and global payments. Sanctions evasion will remain the top priority for the Iranian government, state-owned enterprises and the bankers that enable firms around the globe who aim to profit from this black market.

The increase in risk is a result of tightening sanctions against Iran and the crackdown by American authorities on international banks accused of providing Iranian entities access to the U.S. financial system, often leading to enormous multi-million dollar settlements. (more…)

U.S. Justice Department eyes compliance lapses in next era of money-laundering cases

By Aruna Viswanatha and Brett Wolf

NEW YORK, Sept. 4 (Thomson Reuters Accelus) - The U.S. Department of Justice is shifting its sights to a new offensive in combating money laundering: bringing criminal charges against banks and other financial institutions for weak compliance systems that fail to catch illicit money flows.

Even while the department’s money-laundering unit is wrapping up a series of blockbuster cases involving sanctions-busting transactions routed through some of Europe’s biggest banks, it has set its sights on the next front. (more…)

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