Financial Regulatory Forum

Conduct risk: an overview

By Jane Walshe, Compliance Complete

LONDON/NEW YORK, Mar. 19 (Thomson Reuters Accelus) – Conduct risk is one of the hottest topics in financial services but what exactly is it? This article explores the various definitions of the concept, which can be hard to pin down, put forward by regulators and international standard setting bodies. It will be followed by other articles exploring the findings of Thomson Reuters Accelus’ recent Conduct Risk Report, which provide an industry benchmark showing the work firms are doing in relation to this important area.

The phrase “conduct risk” comprises a wide variety of activities and types of behaviour which fall outside the other main categories of risk, such as market, credit, liquidity and operational risk. In essence it refers to risks attached to the way in which a firm, and its staff, conduct themselves. Although there is no official definition, it is generally agreed to incorporate matters such as how customers are treated, remuneration of staff and how firms deal with conflicts of interest. (more…)

Is the medicine for financial services turning out to be worse than the disease?

By Susannah Hammond

LONDON/NEW YORK , Sept. 9 (Thomson Reuters Accelus) – Almost three years on from the fall of Lehman Brothers and the widespread public bail-out of financial services the world is looking grim. In the white heat of the crisis itself jurisdictions, policymakers and governments moved together to resolve the worst of the immediate issues and bought global financial services time to heal. While some recovery and mending of balance sheets has certainly taken place, global financial services continue to suffer at the hands of divergent policymakers, international recessions and sovereign debt crises.

The medium-term aftermath of the financial crisis may well turn out to be more damaging to financial services than the crisis itself. Quite how severe the current state of affairs has become was highlighted by the new head of the International Monetary Fund, Christine Lagarde, who stated that “there remains a road to recovery, yet, we do not have the luxury of time”. The risks to any recovery are increased by “a growing sense that policymakers do not have the conviction, or are simply not willing, to take the decisions that are needed”.  (more…)

U.S. ratings downgrade could make it harder for banks to raise capital, experts say

By Emmanuel Olaoye

NEW YORK, July 20 (Thomson Reuters Accelus) – Any downgrade in the U.S. government’s credit rating stemming from a failure to raise the debt limit would make it harder for American banks to raise capital at a time that they are facing higher capital requirements, banking experts and industry representatives warned. (more…)

Is the Financial Stability Board the regulator to rule them all?

By Susannah Hammond, Thomson Reuters’  regulatory intelligence team. The views expressed are her own

LONDON, May 9 (Thomson Reuters Accelus) – The Financial Stability Board, regulatory policy maker of choice for the G20, has started to show its teeth. From its roots as the supranational setter of standards, guidance, policies and principles in the wake of the financial crisis, the FSB has started to clarify how it will monitor compliance with its requirements as well as deal forcefully with breaches.

A progress report on one of its strands of work regarding promoting global adherence to regulatory and supervisory standards on international cooperation and information exchange highlights how the FSB uses the International Monetary Fund as its objective reviewer of compliance with international standards. Critically, it shows how the FSB has taken the first steps in setting out the implications for what are called non-cooperative jurisdictions.

Asia regulators say G20 reform driven by U.S., Europe

By Daisy Ku and Rachel Armstrong

HONG KONG, Nov 29 (Reuters) – The lack of a unified Asian voice in the Group of 20 leading economies means the United States and Europe are driving the overhaul of global financial regulation with several of the new rules posing significant challenges for emerging markets, regulators said in a regional summit on Monday.

The G20 has endorsed a series of major reforms to banking and financial market regulation, which the five Asian members of the group and Financial Stability Board members Hong Kong and Singapore have signed up to.

But Asian regulators say a number of these rules pose significant difficulties for their markets, while others don’t address the way the crisis hit their economies. This, they say, is partly due to the fact that the United States and Europe find it easier to arrive at a common approach to regulatory change.

Regulators face battle to create market for CoCos

By Jane Merriman

LONDON, Oct 18 (Reuters) – Financial regulators favour contingent capital — bonds that convert to equity — as a way to strengthen large banks, but they face a tough job convincing investors to buy these new-fangled instruments in bulk.

A Reuters survey of major corporate bond investors shows that some would be willing to buy the bonds under certain conditions, but they have a lot of questions they want answered.

(more…)

EU to discuss credit default swap speculation, watchdog frets

By Huw Jones and Krista Hughes

LONDON/BASEL, Switzerland, March 8 (Reuters) – European Union finance ministers will discuss next week how to dampen speculation on sovereign credit default swap markets, sources said, as central bankers worry some selling practices pose wider risks.

Greek debt has come under pressure as the country seeks to tackle a ballooning deficit and some politicians say speculators using CDSs, intended to insure against any risk of debt defaults, are amplifying the country’s problems.

“The European Commission may bring forward an initiative at the 16 March Ecofin,” an EU diplomat said.

BREAKINGVIEWS-Obama reforms could undermine global bank rules

G20/ By Peter Thal Larsen and Hugo Dixon

LONDON, Jan 25 (Reuters Breakingviews) – The overhaul of the global financial system has entered a new, more complicated phase. For two years, a fragile multilateralism has prevailed as the world’s largest economies agreed that changes should be designed and adopted on a global basis. The task of redesigning financial regulation was largely delegated to central bankers, regulators and other technocrats.

That consensus is creaking following President Barack Obama’s double-barrelled attack on Wall Street investment banks. The new tax on banks’ wholesale liabilities and the planned prohibition of proprietary trading by deposit-taking institutions both complicate the aim of getting a new effective global regime for regulating the industry — but in different ways.

Look first at the new tax. In principle, it is sensible to charge large financial institutions for the implicit guarantee they receive from taxpayers when they rely on hot short-term money to fund themselves. But there is already a global push, under the aegis of the G20, to boost the size of banks’ capital and liquidity cushions. This exercise, being masterminded by the Basel Committee, has now entered the “calibration” phase — where the precise numbers are being modelled.

UK’s Brown sees growing support for bank levy

By Keith Weir

LONDON, Jan 25 (Reuters) – British Prime Minister Gordon Brown said on Monday he saw growing support for some form of international levy on banks to fund support for the industry.

A global transactions tax, floated by Brown at a meeting of the Group of 20 nations in Scotland in November, was on the agenda when Treasury Minister Paul Myners hosted officials from G7 finance ministries, the IMF, World Bank and the Financial Stability Board in London on Monday.

“As a result of the advancement by U.S. President (Barack) Obama and the financial secretary Tim Geithner about their levy on wholesale lending, I think the proposals that I made at St Andrews for an international levy … are now gaining currency around the world,” Brown told a news conference.

Obama bank plan surprises Europe, muddies global coordination

By Huw Jones

LONDON, Jan 22 (Reuters) – U.S. President Barack Obama’s plans to rein in banks puts Europe on the back foot and creates confusion over global efforts to coordinate financial regulation, lawyer and regulatory officials said on Friday.

Obama proposed on Thursday to curb banks’ size and risk-taking, sending shares in major institutions down.

Senior officials and lawmakers involved in regulatory policymaking at a global and European level said they had been kept in the dark about the plans.

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