Financial Regulatory Forum

Impact analysis: UK outline of new approach to financial regulation

By Susannah Hammond

LONDON, Feb. 24 (Complinet) -The British Treasury’s latest proposal for reshaping financial regulation, published last week, has given more detail to the plans set out in an outline last summer. The fundamental shape of the new bodies now looks to have been finalized, but many fine points on how the new approach will actually function in practical, operational and cultural terms are still under consideration.

Following is a discussion of the major elements of the consultation, “A new approach to financial regulation: building a stronger system,” and how they may affect the UK financial industry:

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SEC market abuse chief takes trader-based approach

By Nick Paraskeva, Complinet contributor

NEW YORK, Feb. 18, (Complinet)  - The Securities and Exchange Commission market abuse unit is using new approaches to better identify insider trading and abusive conduct by market professionals. Unit Chief Daniel M Hawke said the SEC is using a trader-based approach to look for patterns across groups of people, such as related trades across different products and markets by a single trader or connected group of traders. The new approach has given the SEC a greater ability to detect relationships among traders, and bring cases against large trading networks.

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UK plan for early notice of insider-trading probes draws criticism

By Peter Elstob

LONDON, Feb. 18 (Complinet) – UK regulatory lawyers have united in their concerns about giving the new Financial Conduct Authority the power to make insider dealing and other investigations public at their initial stage.

The government proposed giving the controversial “early publicity” power to the FCA — the successor body to the Financial Services Authority that will regulate retail, wholesale, and markets conduct of business — in a consultation document that it published on Thursday. (more…)

NYSE and Deutsche Borse: New York not home, so merger far from home-free

A U.S. flag hangs outside the New York Stock Exchange building, February 15, 2011. Deutsche Boerse will take over NYSE Euronext to create the world's largest exchange operator in a deal that dodges key questions that could yet threaten its completion. REUTERS/Joshua Lott Feb. 18 (Westlaw Business) The much-ballyhooed merger of the parent company of the New York Stock Exchange with that of German exchange Deutsche Borse makes two things clear – if they can make it through the thicket of global regulatory approvals and similarly convince their shareholders to tender into the offer, they’re home free. The just-filed agreement and related corporate governance documents make equally clear that “home” will not really be New York, and the NYSE Euronext will be the New York Stock Exchange no more.  This may make regulatory approval that much more difficult, with U.S. regulators in particular looking at issues from antitrust to financial markets, to national security. (more…)

Protests in Middle East, North Africa spur look at corporate risk disclosures globally -Westlaw Business

A man prays for demonstrators who were injured after riot police stormed an anti-government protest camp, outside the Salmaniya hospital where the casualties were sent to, in Manama February 17, 2011. Troops took control of Manama on Thursday after riot police stormed the anti-government protest camp at dawn and fought demonstrators on the streets, killing four people in Bahrain's worst violence in decades. REUTERS/Hamad I MohammedFeb. 18 (Westlaw Business) The winds of change blowing across the Northern Sahara all but demand a look at foreign operations disclosures, particularly as many companies are deeply entrenched in preparing this year’s annual reports. Political risk has many guises—war, expropriation, currency devaluation—but for companies doing business abroad, these risks don’t begin to give a complete picture of potential threats to earnings. Just six weeks into 2011, a number of well-known companies have already provided a glimpse of what’s keeping their board members awake at night.

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COLUMN-Qatar bank ban bad for Islamic finance

By Keith Mullin, Editor at Large, International Financing Review; the views expressed are his own.

LONDON, Feb 18 (Reuters) – Qatar’s decision to ban conventional banks from offering Islamic banking services with immediate effect and to wind down their Islamic windows by the end of the year is an absurd development.

It is disgracefully anti-competitive, counter-productive and there is every likelihood that the government will come to regret it.

COLUMN-Two paths to failure on Dodd-Frank

capitol bldg 2 RTXX2LO_Comp.jpg(Scott McCleskey is a managing editor for the ThomsonReuters Governance, Risk and Compliance unit. The views expressed are his own)

By Scott McCleskey

NEW YORK, Feb. 14 (Complinet) – With all the chest-thumping about U.S. financial reform last year, you would suppose that the regulatory authorities responsible for implementing the provisions of the Dodd-Frank Act would now have the political wind at their back.

This is particularly the case given the tight deadline for most of the provisions — on or before the July 21 anniversary of the Act’s enactment. You would be wrong. Both sides of the aisle in Congress have taken or threatened steps which only serve to undermine the process of regulatory reform and leave the market with all the costs and none of the benefits of reform. (more…)

LSE and TMX: ‘London Bridge’ shakes from staggering complexity

Office workers are seen in the London Place business district near Tower Bridge in central London February 9, 2011. REUTERS/Toby MelvilleBy John Mackie

Feb. 10 (Westlaw Business) The blockbuster merger bridging the London and Toronto Stock Exchanges may have been announced, but this London bridge may yet fall under the sheer weight of staggering legal complexity. A broad group, from AIM to Borse Dubai, and from the Montreal Exchange to Borsa Italiana, stand to be impacted by these issues. And what a set of issues it is, ranging from post-Potash foreign investment concerns to restrictive provincial securities laws to undertakings regarding corporate governance. Even legacy contractual commitments from past acquisitions by the TSX must be considered. Global markets affecting everything from equities to derivatives to venture funding await.

Of course, if it does stay standing, the London-Toronto structure, reported to be a $4 trillion transaction, would bridge not only the LSE and TSX, but also the venture-oriented AIM and TSX Venture Exchange, and significant foreign players including Borsa Italiana and Borse Dubai. Together, the parties represent 20 trading markets/platforms across North America and Europe, with major positions in equities, derivatives, energy and fixed income. The list of markets within the group also includes the Montreal Exchange, and the Natural Gas Exchange.

Once united, the combined group would become the global leader in number of listings (over 6,700), with a dominant position in natural resources, mining, energy and clean technology. Listed companies would include not only domestic Canadian and UK businesses, but many others with origins around the world that have turned to these exchanges for their access to deep capital pools and their expertise in industries from commodities to shipping. The megalith would offer listing, trading and post-trade services, along with global information services and technology solutions.

US sentencing guidelines: a cornerstone of hedge fund compliance practices

By Judith Gross

The following is a guest column for Complinet  by Judith Gross, the principal and founder of JG Advisory Services. She develops compliance training for hedge funds, specializing in compliance and related topics, such as insider trading. The views expressed are her own.

Compliance regulations couldn’t get any more press coverage than they do today, given the almost daily raft of new SEC and Treasury rules. Putting the proposed and actual laws aside, however, have you ever stopped to wonder what the backbone of compliance law is?

The answer is the US Sentencing Guidelines, which were enacted in 1991 and later amended in 2004. These Guidelines set forth the sentencing recommendations for a variety of criminal offenses, including those for “organizations,” such as a hedge fund. Thus, if a hedge fund is convicted of engaging in criminal conduct, the court looks to these Sentencing Guidelines for a recommendation on penalties. (more…)

ANALYSIS-Madoff whistleblower tries new shield tactic in bank-fraud suits

19:09 03Feb11 -REFILE-ANALYSIS-Madoff whistleblower tries new shield tactic (Refiles to fix typo in headline) * Markopolos turns to Delaware law to protect whistleblowers * Markopolos boasts of more fraud cases “in pipeline” By Ross Kerber and Tom Hals BOSTON/WILMINGTON, Del., Feb 3 (Reuters) – Delaware touts itself as a business-friendly haven, but a new strategy by a well-known whistleblower takes the rules in an unexpected direction. Recent suits against major banks claiming they defrauded public pension funds were filed by Delaware partnerships tied to Harry Markopolos, an associate said. Markopolos is the Massachusetts fraud investigator best known for trying to tip authorities to Bernard Madoff’s massive Ponzi scheme. It is not unusual for companies to file suits seeking a share of damages that officials might recover in fraud cases. The twist is that by using Delaware entities that disclose few details about themselves, Markopolos has made it easier to shield the identities of the insiders who bring forward evidence of wrongdoing, said Patrick Burns, spokesman for Taxpayers Against Fraud, a Washington group Markopolos has worked with in the past. “This was something Harry figured out,” Burns said in an interview on the recent cases. “It’s to protect the anonymity of the whistleblowers who are still in their industries, and helped set up teams of whistleblowers who can work together.” Markopolos declined to comment via e-mail. Burns declined to discuss many more specifics. Another person who has worked with Markopolos, Los Angeles attorney Mark Labaton of Motley Rice, said the new partnerships also could be a way to protect whistleblowers from retaliation from companies whose fraud they are reporting, a concern Markopolos has expressed in the past. “That is something new and I think it reflects a certain amount of creative thinking,” Labaton said of the partnerships. Just how to protect the identity of whisteblowers has been a hot topic among like-minded attorneys in the past, he said. DELAWARE FILINGS The suits against the banks claim they overcharged public pension funds. They include one filed in Fairfax County, Virginia, circuit court by a Delaware partnership, FX Analytics, against Bank of New York Mellon Corp <BK.N>, in which Virginia Attorney General Kenneth Cuccinelli has intervened; and one unsealed in 2009 by then-California Attorney General Jerry Brown against State Street Corp <STT.N>, which states it was built on a suit first filed by another Delaware corporation Associates Against FX Insider Trading. Also, on Thursday Florida Attorney General Pam Bondi filed a motion to intervene in and unseal a case that FX Analytics had filed against Bank of New York Mellon. [ID:nN03280263] The two large custody banks deny wrongdoing. Neither partnership provided many details in filings, a common omission permitted by state rules. They were created in 2008 and 2009. The partnership strategy fleshes out some details that Markopolos has left vague in past interviews, and shows the growing power of investigators and attorneys to leverage laws such as the False Claims Act and state statutes. Broadly these allow individuals who bring forward evidence of fraud to share in money recovered by the government. Such cases are on the rise. Last fall a former GlaxoSmithKline PLC <GSK.L> employee was awarded about $96 million after reporting problems at a drug-making plant in Puerto Rico, believed to be a record recovery. Also, in a Jan. 24 letter to U.S. Sen. Charles Grassley of Iowa, officials noted the number of new Justice Department healthcare fraud investigations — often sparked by whistleblowers — had risen 10 percent in fiscal year 2010 from 2009, after rising 17 percent that year compared with 2008. It is not unusual for these suits to be brought by companies rather than individuals. Just on Tuesday, for instance, a Texas jury ordered a unit of Iceland’s Actavis to pay $170 million for overcharging the state’s Medicaid program, in a case first brought by the owners of Florida pharmacy Ven-a-Care, themselves a group of former healthcare workers. LEGAL SECRECY Ven-a-Care has been quite public about its role. Delaware laws allow partnerships like FX Analytics much secrecy, however, under a state effort to get companies to register themselves under its business-friendly laws. The state says it has attracted more than 50 percent of all U.S. publicly traded companies, including nearly two-thirds of the Fortune 500. Lately the lack of transparency has itself come under fire as potentially aiding tax fraud or terrorism. Michigan Sen. Carl Levin has criticized the state and Nevada for allowing businesses to set themselves up with “less information than is required to open a bank account or get a driver’s license,” as Levin told a Senate hearing in 2004. SHADOWY IMAGE Markopolos himself has cultivated a somewhat shadowy image, an approach he has said in interviews was needed to help protect employees rooting out fraud. Markopolos discussed some of his thinking in the book he published last spring, “No One Would Listen,” about his unsuccessful efforts to get securities regulators interested in Madoff years before his scheme blew up. In it Markopolos described how matters he unearthed became the basis of the fraud suit filed by California against State Street Corp. “I have many other cases in the pipeline,” Markopolos wrote. He added, “In fact I intend to be in this business until I can’t find any more financial or Medicare frauds — which makes me think I’m going to be in the whistleblower business for a long, long time.” (Reporting by Ross Kerber; additional reporting by Tom Hals), editing by Matthew Lewis) ((Ross.Kerber@ThomsonReuters.com; + 1 617-856-4341; Ross.Kerber.Reuters.com@Reuters.net)) Keywords: WHISTLEBLOWERS/MARKOPOLOS Thursday, 03 February 2011 19:09:44RTRS [nN03135825] {C}ENDS

Harry Markopolos, a former financial executive, testifies before a House Financial Services Subcommittee on "Assessing the Madoff Ponzi Scheme and Regulatory Failures" in Washington February 4, 2009. Markopolos, who tried to blow the whistle on Bernard Madoff, told Congress that securities regulators had ignored his repeated pleas for a thorough investigation of the accused swindler's alleged $50 billion fraud. REUTERS/Jason Reed By Ross Kerber and Tom Hals

BOSTON/WILMINGTON, Del., Feb 3 (Reuters) – Delaware touts itself as a business-friendly haven, but a new strategy by a well-known whistleblower to pursue bank-fraud suits takes the rules in an unexpected direction.

Recent suits against major banks claiming they defrauded public pension funds were filed by Delaware partnerships tied to Harry Markopolos, an associate said.

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