Month: May 2012

IOSCO Consults on Rating Agency Internal Controls

On May 25, IOSCO published a consultation report describing internal controls and procedures that rating agencies use to promote the integrity of the rating process and address conflicts of interest. IOSCO is seeking the views of stakeholders and rating agencies to assist it with further analysis of rating agency internal controls and procedures. Comments must be submitted by July 9. IOSCO Release. IOSCO Report.

FSA Investigating Mis-selling of Swaps to SMEs

On 23 May 2012, the Treasury Select Committee published a press release on correspondence between its chairman, Andrew Tyrie, and Lord Turner, chair of the FSA, and Sir Nicholas Montagu, Financial Ombudsman Service (FOS) chairman, on the potential mis-selling of interest rate swap products to small businesses by major banks. In his letter, Lord Turner stated that the FSA is “doing more work to understand…the types of products that have been sold” and that if the FSA finds “widespread evidence” of breaches of its rules or mis-selling it “will take action”. Press Release and Correspondence.

FSA Bans Introducer Appointed Representative Following Upper Tribunal’s Decision

On 22 May 2012, the FSA published a final notice issued to appointed representative Derek William Wright. The notice prohibits Mr. Wright from performing any function in relation to any regulated activity on honesty, integrity and competence grounds.  Mr. Wright was the controller of Moorgate Insurance Agencies Ltd, a small insurance broker. Mr. Wright had acted dishonestly, with a lack of integrity and was found to have a reckless attitude to compliance with regulation. He had been disciplined by the Lloyd’s Disciplinary Tribunal for conducting insurance business in a discreditable manner. He had also performed controlled functions without approval, submitted inaccurate and misleading capital information to the FSA and failed to co-operate with the FSA.

Mr. Wright had referred the FSA’s original decision notice to the Upper Tribunal (Tax and Chancery Chamber). The Tribunal had dismissed the reference and directed the FSA to issue a prohibition notice against Mr. Wright. Final Notice.

European Parliament Adopts Legislative Resolution on Financial Transaction Tax

On 23 May 2012, the European Parliament approved an amended version of the European Commission’s proposal of 23 September 2011 for a Council Directive on a common system of financial transaction tax (FTT). The Resolution states that such a FTT should go ahead even if only some member states would opt for it.

The Resolution:

  • Retains the Commission proposal timetable: 31 December 2013 deadline for member states to adopt implementing laws and 31 December 2014 for entry into force of these laws.
  • Retains the original Commission proposal to exempt transactions made on the primary market, purchasing of securities from the issuer when such securities are first placed on the market.
  • Inserts an “issuance principle” to the Commission’s proposal, whereby financial institutions located outside the EU would also be obliged to pay the FTT if they traded securities originally issued within the EU.
  • Exempts pension funds from the FTT.

The resolution can be found here.

Directive Amending Solvency II Transposition and Application Dates Published

On 21 May 2012, the European Commission published a legislative proposal for a directive to amend the Solvency II Directive. The proposals extend the date by which Solvency II must be transposed by member states into national law from 31 October 2012 to 30 June 2013. It also states that Solvency II will apply from 1 January 2014 (the application date) and Solvency I will no longer apply on this date.

The proposals were made as a result of delays in the adoption of the Omnibus II Directive and to allow a smooth transition into the new law under Solvency II. The Commission has requested that the European Parliament and Council of the European Union adopt the proposed Directive urgently so that it can enter into force as soon as possible. Legislative Proposal.

Upper Tribunal Upholds FSA Decision to Ban and Fine Former UBS Advisers

The Upper Tribunal (Tax and Chancery Chamber) has upheld an FSA decision to ban and fine two former UBS advisers in relation to an unauthorised trading scheme.  The FSA were directed to fine Sachin Karpe £1.25 million and Laila Karan £75,000 and ban them for performing any role in regulated financial services for failing to act with integrity, in breach of Principle 1 of the FSA’s Statements of Principles and Code of Conduct for Approved Persons and for not being fit and proper persons as they lacked honesty and integrity.

Mr. Karpe was Desk Head of the Asia II Desk at UBS AG’s international wealth management business in London. He had carried out substantial authorised trading and made unauthorised transfers and loans between client accounts to conceal the losses. Mr. Karpe was Ms. Karan’s line manager. She assisted him in concealing the unauthorised activity and prepared false attendance notes. UBS paid compensation of over US $42 million to 21 customers who has suffered substantial losses as a result of the scheme.  Decision for Mr. Karpe.  Decision for Ms Karan.

Summary of Required Financial Statements of Businesses Acquired or to Be Acquired

Rule 3-05 of Regulation S-X requires audited financial statements to be filed for a significant business (or a significant group of related businesses) that has been acquired or the acquisition of which is probable. This article, written by Bruce Czachor and Stephen Ashley, discusses the specific financial statements required, as well as the situations in which they need to be included. Click here to read more.


Orrick Restructuring Alert: Lessons for Lenders from Tousa Circuit Court Decision

This alert, written by Raniero D’Aversa, Jonathan Guy and Amy Pasacreta, discusses the bankruptcy case of TOUSA, Inc. and its various subsidiaries is one where lenders have seen their fortunes rise and fall. On March 15, 2012, they fell again when the Eleventh Circuit reversed the District Court’s opinion and reinstated the Bankruptcy Court’s order, which had disgorged over $400 million from Tousa’s senior lenders and avoided certain guarantees and liens granted to them by the Conveying Subsidiaries. Specifically, the Circuit Court found: (i) the Tousa Bankruptcy Court did not err when it found the Conveying Subsidiaries did not receive reasonably equivalent value in exchange for the new liens provided to the New Lenders; and (ii) the Transeastern Lenders were the direct beneficiaries of the new liens and as such subject to the avoidance powers of section 550(a). Click here to read more.

Fed Releases Citi and HSBC Mortgage Servicing and Foreclosure Action Plans

On May 24, the Fed released action plans for Citigroup and HSBC to correct alleged deficiencies in residential mortgage loan servicing and foreclosure processing. The Fed also released the engagement letter between Ally and the independent contractor retained to review foreclosures that were processed in 2009 and 2010. Fed Release.