Financial Regulatory Forum

EXCLUSIVE: Ernst & Young to oversee high-stakes review of Citibank transactions, sources say

By Brett Wolf

NEW YORK, April 12 (Thomson Reuters Accelus) - Citibank has retained Ernst & Young to supervise a regulator-mandated review of the bank’s transactions that will seek to determine the degree to which alleged compliance failures allowed drug traffickers or other criminals to launder money, sources familiar with the arrangement said.

The results of this high-stakes process will likely play a key role in determining the size of any fine the regulator ultimately levies against the South Dakota-based bank, the sources said. (more…)

Enforcement against Citibank serves as reminder that compliance counts in product development

By Brett Wolf

NEW YORK, April 12 (Thomson Reuters Accelus) - A financial institution’s anti-money laundering team must have the authority to question account relationships and business plans, and any objections must be taken seriously. That was one of the key lessons to be learned from the last week’s regulatory enforcement action against Citibank over AML weaknesses, experts said.

A provision of the cease-and-desist (C&D) order, levied by the Office of the Comptroller of the Currency (OCC), obliges Citibank to ensure that its compliance staff has the authority to implement a Bank Secrecy Act compliance program “and, as needed, question account relationships and business plans.”  (more…)

JOBS Act provision opens door to hedge fund advertising, trade group urges caution

By Emmanuel Olaoye

NEW YORK, April 9 (Thomson Reuters Accelus) - A little known provision of the new small-business capital JOBS Act opens the door to advertising by hedge funds, but an industry organization cautioned members that the advertisements must still comply with state laws and other regulations.

Firms registered with the U.S. Commodity Futures Trading Commission or state regulators should seek legal advice before advertising to the public to avoid the threat of enforcement, Ron Geffner, vice president at the Hedge Fund Association and partner at the law firm Sadis & Goldberg, told Thomson Reuters. (more…)

Disclosures 2012: level of cyber-security risk disclosures varies after new SEC guidance

By Robert Kalb

NEW YORK, April 6 (Business Law Currents) – Ever-growing reliance on technology in customer interactions, proprietary data storage and even normal business operations is creating increased risk for companies working to ensure these systems remain uncompromised. As threats of cyber-attacks expand across industries, and given the potential material impact on operations, the security of these digital technologies from internal and external threats is vital.

Prior to newly released SEC guidance, there were no existing requirements to explicitly disclose these cyber-risks. With annual reports now being filed and sent to shareholders, companies have made varied levels of cyber-risk disclosure, and these disclosures may expand in the future with subsequent regulatory oversight. (more…)

Time to merge risk management and compliance?

By Rachel Wolcott

LONDON/NEW YORK, April 5 (Thomson Reuters Accelus) – Regulators’ rising interest in risk management combined with a long trail of big fines for compliance failures has some consultants and industry leaders wondering whether it is time for the two disciplines to come closer together if not merge completely.

More than ever there are areas of overlap between risk and compliance. Risk management is now hardwired into more rules and regulations since the beginning of the financial crisis. In the UK, for example, the Financial Services Authority (FSA) hasincreased its fines for risk management failures . The U.S.’s Securities and Exchange Commission (SEC) has also indicated that it intends to take risk management as well as other governance and compliance issues even more seriously than in the past. (more…)

Financial institutions and investment funds should prepare now for FATCA

By Steven D Bortnick, contributing author for Thomson Reuters Accelus

NEW YORK, April 4 (Thomson Reuters Accelus) – The enactment of the Foreign Account Tax Compliance Act (FATCA) as in March of 2010 has sent shock waves through financial institutions and investment fund management companies. FATCA aims to obtain information to prevent U.S. persons from evading taxation through the use of foreign entities. Although the law does not fully enter in force until January 1, 2013, the effort to become compliant with FATCA should begin immediately. Some tips on how to do so are noted below.

The legislation is the direct result of the events that led to UBS’ admission that it helped U.S. taxpayers evade U.S. income tax on U.S.-source income. While the goal is the increased collection of tax, the intention is not to create any new tax. FATCA’s goal is accomplished by adding an entirely new chapter to the Internal Revenue Code devoted to due diligence, reporting and withholding. Failure to comply will result in withholding tax at the rate of 30 percent, including withholding on items understood not to be taxable in the hands of foreign persons.  (more…)

SEC examiners enter U.S. boardrooms to gauge compliance

By Nick Paraskeva

NEW YORK, April 4 (Thomson Reuters Accelus) - The U.S. Securities and Exchange Commission plans to reach into the boardroom to assess a financial firm’s culture of compliance, a senior commission official told a conference in New York.

The agency, departing from traditional practice to take a page from bank regulators, intends to have direct discussions with the firm’s board about the regulatory issues board members and senior management team are paying attention to, and how they are navigating them. (more…)

Convicted inside trader Bauer warns others to “think harder” before breaking the law

By Emmanuel Olaoye

NEW YORK, (Thomson Reuters Accelus) - A former registered representative who was convicted last year of participating in a $37 million insider-trading scheme on Tuesday warned would-be securities law violators to think twice before breaking the law.

Garrett Bauer, a 44-year-old day trader, pled guilty in December to participating in the scheme, which lasted more than 15 years, as part of a three-man ring that included lawyer Matthew Kluger and middleman Kenneth Robinson. (more…)

U.S. Treasury wants financial institutions to help combat identity theft-related tax frauds

By Brett Wolf

NEW YORK (Thomson Reuters Accelus) - U.S. Treasury Department reminded financial institutions of their obligation to lend a hand as the Internal Revenue Service struggles to crack down on rampant schemes using identity theft to obtain fraudulent tax refunds via electronic filings.

“Financial institutions are critical in identifying tax refund fraud because the methods for tax-refund distribution – direct deposit into demand deposit accounts, issuance of paper checks, and direct deposit into prepaid access card accounts – are often negotiated and deposited at various financial services providers,” Treasury’s Financial Crimes Enforcement Network (FinCEN) stated in an advisory issued Friday. (more…)

Disclosure system no guarantee of protection for China-focused investors

By Helen H. Chan (Hong Kong)

HONG KONG/NEW YORK, March 26 (Business Law Currents) – China’s bourse regulators and the nation’s IPO watchdog, the China Securities Regulatory Commission, have been busy brainstorming improvements to legislation governing the disclosure requirements of listed companies in the PRC.

Aiming to bring increased transparency and other investor protection merits often associated with a disclosure-based securities regulatory framework, the CSRC is contemplating models from Hong Kong, the United States and other jurisdictions where listed companies are required to publicly disclose corporate and financial statements in a timely manner. (more…)

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