Financial Regulatory Forum

Knight Capital crisis brings new push for rules on trading, technology, structure

By Nick Paraskeva

NEW YORK, Aug. 6 (Thomson Reuters Accelus) - The near-collapse of equity market maker Knight Capital after sending erroneous trades to the New York Stock Exchange last week is the latest in a string of errors causing heavy losses and disrupting markets. While smaller in dollar terms than losses from JPMorgan’s ‘London whale’ or UBS’ rogue trader, it is causing regulators to review firms’ compliance and controls over operational risks, and rules for restructuring of equity markets.

“The apparent trading error by Knight Capital Group reflects the type of event that can raise concerns for investors about our nation’s equity markets,” SEC chairman Mary Schapiro said on Friday. “I have asked SEC staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems”. (more…)

Knight Capital’s filings reveal scant oversight focus on tech risks for board

By Emmanuel Olaoye

WASHINGTON, Aug. 3 (Thomson Reuters Accelus) – Knight Capital Group’s public filings show that the company viewed technology systems among significant risks faced by the firm, but the duties outlined for its seven board members do not specify oversight of technology as a factor that could derail it, a threat the company now faces.

A $440 million trading foul-up blamed on software, which comes after problems with Facebook’s initial public offering and the Flash Crash of 2010, has put a renewed focus on the level of risk posed by technology.

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INTERVIEW: Whistleblowing is a duty if internal calls unheeded, U.S. bailout overseer tells compliance officers

By Stuart Gittleman

NEW YORK, July 31 (Thomson Reuters Accelus) - Compliance officers have a duty to become whistleblowers if their concerns are not heeded internally, Neil Barofsky, the watchdog over the U.S. financial crisis bailout program, told Compliance Complete in an interview.

Exposing wrongdoing is the only way to eradicate a “cancer” of fraud that can endanger companies and the larger economy, said Barfosky, who also in the interview warned on dangers of a revolving door between financial regulators and Wall Street.

Barofsky was appointed Special Inspector General for the Troubled Asset Relief Program in the aftermath of the September 2008 financial crash by President George W. Bush and served from mid-December through March 2011, when he left to teach at New York University School of Law.

Collateral management reform could herald benefits for risk managers

By Rachel Wolcott

LONDON/NEW YORK, July 30 (Thomson Reuters Accelus) - Risk managers could benefit from the financial services industry’s revamp of collateral management services in preparation for the new regulatory requirements that will drive demand for high-quality collateral. New regulations for the clearing of over-the-counter (OTC) derivatives through central counterparties (CCPs) alone could increase demand for high-quality collateral to $2 trillion or more, according to some estimates. In response, some firms are aiming for a more universal approach to collateral management.

Many firms still take a rather old-fashioned view of collateral management. It is often fragmented and inefficient. Most firms operate collateral management in silos determined by geography or asset class. This can lead to poor communication between different collateral management functions — for example, repo staff might not speak to the securities lending unit, or the New York office might not speak to its UK counterpart as much or as often as it should.  (more…)

Pressures of high revenues, growth, fuel compliance shortcuts, study finds

By Julie DiMauro and Stuart Gittleman

NEW YORK, July 26 (Thomson Reuters Accelus) – Most Fortune 500 companies have the components of a comprehensive compliance program, but many have too many employees who feel pressured to compromise standards, a recent nationwide survey revealed. Pressures intensify in periods of growth and high profits, the survey’s sponsor said.
The National Business Ethics Survey (NBES) study, for the nonpartisan research group Ethics Resource Center (ERC), polled adult employees in a wide range of job titles working at least 20 hours per week for U.S.-based for-profit companies with yearly revenues of $5 billion or more.

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ABA urges U.S. consumer bureau to exercise caution in regulating prepaid debit cards

By Emmanuel Olaoye

WASHINGTON/NEW YORK, July 26 (Thomson Reuters Accelus) - The Consumer Financial Protection Bureau should expand the disclosure protections on debit and credit cards to general purpose reloadable prepaid cards, but it should provide flexibility on the disclosures that prepaid card issuers have to make to consumers, a major U.S. banking trade group said on Tuesday.

In a comment letter submitted yesterday, the American Bankers Association said that the general purpose reloadable, or GPR, prepaid cards should be given the same protections as prepaid cards such as gift cards, but the CFPB should recognize that there are a variety of GPR cards and that the market will continue to evolve.  (more…)

With new U.S. swaps definitions, the horse is finally put before the cart

By Bora Yagiz

NEW YORK, July 24 (Thomson Reuters Accelus) - The definition of swaps finalized by the U.S. futures regulator is the linchpin in an overhaul that will change the swaps market landscape markedly and offer the promise of lower risk.

In an effort to bring the over-the-counter (OTC) swaps into the regulatory fold for the first time since they appeared in 1981, the Commodity Futures Trading Commission (CFTC) issued a set of final rules this month defining a “swap” under the Dodd-Frank Act, section 721. These rules complement the agency’s other final rule on end-user exemptions as well as those adopted by the Securities and Exchange Commission on “security-based swaps” and “security-based swaps agreements.” They also delineate the jurisdiction for mixed swaps between the agencies. (more…)

Compliance lessons: U.S. Senate report on HSBC AML failings

By Susannah Hammond

LONDON/NEW YORK, July 20 (Thomson Reuters Accelus) - The United States Senate Permanent Sub-Committee on Investigations has published a report into U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing using HSBC Group plc as a case history. The report does not detail enforcement action taken, though there are several likely fines being considered by a number of U.S. authorities regarding HSBC’s anti-money laundering (AML) failings; it is however a valuable insight into the operations and associated compliance, risk and AML issues arising in a global financial services firm.  (more…)

Low interest rates can pose safety-and-soundness issues, state bank regulator says

By Ted Knutson

WASHINGTON, July 19 (Thomson Reuters Accelus) - The low interest rate environment being pushed by the Federal Reserve can pose safety and soundness issues for some banks, Michael Stevens, senior executive vice president of the Conference of State Bank Supervisors, told Thomson Reuters Accelus Wednesday.

“Low interest rates are a supervisory concern because they can have a corrosive effect on net interest margins, which impacts profitability, which impacts capital formation, which affects the ability to lend more and to grow,” said Stevens. (more…)

U.S. bank regulator promises better enforcement following scathing congressional report into HSBC AML failures

By Brett Wolf

WASHINGTON, July 18 (Thomson Reuters Accelus) - After widespread anti-money laundering (AML) failures at HSBC that continued for years due to lax regulatory oversight, a U.S. bank regulator has vowed to take a broader view of institutions’ compliance programs during examinations.

“The agency was much too slow in responding and addressing what are significant weaknesses or violations at this institution. Going forward, I would hope that we would be much more nimble and take into account the entire picture,” Thomas Curry, who took over as Comptroller of the Currency less than four months ago, said on Tuesday during a hearing by the Senate Permanent Subcommittee on Investigations. (more…)

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