Financial Regulatory Forum

By Emmanuel Olaoye

WASHINGTON/NEW YORK, July 10 (Thomson Reuters Accelus) - A major theme in the Barclays scandal over rate-rigging is the firm’s failure to conduct adequate monitoring and testing of its compliance program, governance experts have told Thomson Reuters Accelus.

Barclays has agreed to pay $453 million to settle charges by U.S. and UK authorities that its employees manipulated the London Interbank Offered Rate, or LIBOR, a key benchmark for global financial transactions, including payments on mortgages, credit cards and other financial contracts.  (more…)

By Alex Lee

NEW YORK, Oct. 12 (Business Law Currents) - The first half of 2011 saw rebounding credit markets and an uptick in debt issuance. Due to uncertain economic conditions in the second half of 2011, however, even the most fundamental aspects of loan documentation are facing increasing scrutiny. Representations & warranties that were more routine and non-contentious transformed into significantly stricter provisions as a result of the credit crisis.

Gun shy lenders began placing more onerous terms in credit facilities and the reps and warranties were dramatically bulked up. Some borrowers are now required to announce their credit worthiness under no uncertain terms. Recent litigation concentrating on reps and warranties has heightened the already palpable sense of market unease. Lenders are escalating the investigative function of the reps & warranties to more fully flesh out the factual matrix in reliance of which they will decide to provide a credit facility. (more…)

By Thomson Reuters Accelus – Staff

NEW YORK, July 29 (Business Law Currents) The U.S. debt ceiling debate may be a lot of noise to some of  the public, but for companies and investment funds, the governmental standoff has real consequences. The ripple effect through the markets should the government of the United States default on its obligations can’t be fully appreciated. The inevitable credit ratings hit will drive up the already high cost of borrowing for taxpayers. For many companies, who are starting to discuss the debt-ceiling debate in their regulatory filings, it is not only credit markets that will be affected. Independent government contractors may also get stiffed, not to mention lose future business. (more…)

By Christopher Elias

London, July 20 (Business Law Currents) – Governments around the world may regret the vitriol they cast at rating agencies as these American companies turn the tables on sovereign debt-marred governments and drive the agenda in the U.S. and EU.

Turning the hunted into the hunters, rating agencies have taken aim at political decisions in the U.S. and Europe as they constrain political decisions and break free from the much-promised legislative clampdown to impact euro zone restructurings and U.S. debt ceiling considerations. (more…)

By Scott McCleskey, Complinet

Suppose a law were passed that made driver licenses optional. If you want one, you’d still need to pass exams and pay fees every few years, and you’d be subject to fines for speeding and parking violations. Or you could just say ‘no thanks’, turn in your license, and get back on the road. Of course, no lawmaker would contemplate such a thing. But flawed provisions in the Dodd–Frank Act would do exactly that for the credit ratings agencies, making regulation an optional multimillion dollar expense.

The license in question is designation as a Nationally Recognized Statistical Rating Organization (NRSRO). Having this status used to mean something. NRSRO ratings have been written into the financial regulations for a good thirty years, so that the designation was a license to print money. Yet until Congress passed a law regulating them in 2006 (only implemented in late 2007), there were virtually no regulatory requirements imposed on NRSROs and their activities. We all know how that turned out.

OUT FOR BLOOD

The 2006 law imposed requirements, costs and penalties for non-compliance on the NRSROs, but it was still worth the bother to be one because the designation was required in order to do business. But the financial crisis exposed both the flaws in the way the NRSROs conducted their ratings and the widespread damage that their mistakes could cause, and the politicians were out for blood.

By Jane Merriman

LONDON, Aug 6 (Reuters) – Contingent capital, a breed of hybrid bond that could help capitalise banks in crisis, will struggle to grow into a mainstream asset class if rating agencies persist in refusing to rate it.

Contingent capital came into the spotlight nine months ago when Lloyds, converting existing hybrid debt, raised over 10 billion pounds as it raced to shore up its balance sheet.

The new form of hybrid bonds convert into equity capital when a bank hits trouble, topping up capital if it falls below a certain level, an attractive option for issuers especially as equity capital is expensive and scarce.

Full convergence of US and international accounting standards appears to be some way off, and while International Accounting Standards Board member Philippe Danjou is still aiming to achieve Plan A – meeting the G20 deadline of full convergence by mid-2011 – a compromise Plan B is clearly being prepared, John Manley writes. (more…)

By Kevin Drawbaugh
WASHINGTON, Oct 28 (Reuters) – Credit rating agencies, which have been widely blamed for failing to spot problems that helped trigger the global financial crisis, would be more tightly regulated under legislation approved on Wednesday by the U.S. House of Representatives Financial Services Committee.

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By Rachelle Younglai
WASHINGTON, Sept 15 (Reuters) – The U.S. Securities and Exchange Commission may force banks to share data used to rate bonds with all credit rating agencies, reducing the risk that investors will buy securities with inflated ratings, two people familiar with the regulator’s thinking said.

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WASHINGTON, Aug 5 (Reuters) – The Obama administration is resisting calls to get involved with ensuring that credit ratings are reliable and said on Wednesday this would force investors to rely even more on the ratings. (more…)