Month: August 2012

Treasury Committee Publishes LIBOR Report

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On August 18, the Treasury Select Committee (TSC) published its report “Fixing LIBOR: some preliminary findings“. Volume I (Report).  Volume II (Oral and Written Evidence). 

As well as conclusions relating to the conduct of Barclays and the FSA’s LIBOR investigation, the report also includes a number of points of general regulatory interest including:

  • Firms must be encouraged also to self-report.
  • The committee requires the FSA to report to it on how it will alter its supervisory efforts to counter weak compliance by firms in future.
  • Wheatley (FSA) review should consider the case for amending the present law by widening the meaning of market abuse to include the manipulation, or attempted manipulation of LIBOR and other benchmark rates.
  • A formal and comprehensive framework needs to be put in place by the Serious Fraud Office (SFO) to ensure effective relations in the investigation of serious fraud in the financial markets.

The BoE submitted a response to the report on August 18. Response.   

FSA Consultation Paper on Restricting the Retail Distribution of UCIS

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On August 22, the FSA published a consultation paper on restrictions on the retail distribution of unregulated collective investment schemes (UCIS) and close substitutes. CP12/19. 

In CP 12/19, the FSA outlines proposals to ban the promotion of UCIS and close substitutes to most ordinary UK retail investors. As providing financial advice generally includes making a financial promotion, by limiting the promotion of UCIS the FSA aims to limit the number of retail clients being wrongly advised to invest in UCIS.

Highlights include:

  • changing the financial promotion rules to limit the type of customer to whom firms may promote financial promotions for UCIS and closely substitutable investments;
  • Handbook guidance on the effect of the financial promotion rules on advised sales to clarify that personal recommendations generally amount to a financial promotion and, as a result of the marketing restrictions, advice on a non-mainstream pooled investment may result in an unlawful promotion if no valid exemption is available; and
  • updating the retail investment product definition to clarify the position on advice on UCIS and substitutable products in relation to Retail Distribution Review independence requirements.

Comments can be made on the proposals until November 14.

In keeping with its regulatory objective of protecting consumers, on August 17, the FSA published final notices issued to Richard Rhys and Anthony Adams, both former directors of MNFA Ltd (in liquidation), for their involvement in mis-selling a UCIS. Final Notice for Mr. Rhys.  Final Notice for Mr. Adams.    

Confiscation Orders Made Against Investment Banker and Wife Convicted of Insider Dealing

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On August 20, Confiscation Orders (the Orders) totalling £1,534,000 were made against Christian Littlewood, a former Dresdner Kleinwort Wasserstein investment banker, and his wife Angie Littlewood. Press Release. 

The couple used inside information obtained through his employment to facilitate the placing of trades in eight separate stocks just prior to announcements to the market and were convicted and sentenced for insider dealing in February 2011.

The confiscation regime under the Proceeds of Crime Act 2002 (POCA) allows the court to assume that the proceeds of other trading that took place within the same period as the insider dealing represents the proceeds of crime. Both Mr and Mrs Littlewood have been ordered to pay £767,000, representing the benefit each obtained from insider dealing.

This is an example of the FSA’s increasingly tougher sanctions towards insider dealing. Tracey McDermott, director of enforcement and financial crime said “The Orders made today, coupled with the sentences previously imposed, should make it clear that insider dealing does not pay.”  

FSA Report on Assessing Sources of Systemic Risk from Hedge Funds

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On August 22, the FSA published a report on assessing the possible sources of systemic risk from hedge funds, setting out the findings of the March 2012 hedge fund survey (HFS) and the April 2012 hedge fund as counterparty survey (HFACS). Report. 

Some of the key findings include:

  • Aggregate assets under management increased in the survey period;
  • Leverage remains largely unchanged and modest for most funds;
  • In aggregate, surveyed hedge funds report that they are able to liquidate their assets in a shorter timeframe than the period after which their liabilities would fall due; and
  • Counterparty exposures of surveyed hedge funds remain fairly concentrated among five banks.

The FSA intends to repeat the HFS in September 2012 and the HFACS in October.

Steps to Expedite Wind Down of Fannie Mae and Freddie Mac

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On August 17, Treasury announced modifications to the Preferred Stock Purchase Agreements between Treasury and the FHFA to expedite the wind down of Fannie Mae and Freddie Mac.  The modifications include: (i) the accelerated wind down of the retained mortgage investment portfolios at Fannie Mae and Freddie Mac; (ii) an annual taxpayer protection plan; and (iii) a full income sweep of all future Fannie Mae and Freddie Mac earnings to benefit taxpayers.  Treasury Release.  FHFA Release.   

CFTC Proposed Order on Non-Financial Energy Derivative Transactions

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On August 17, the CFTC approved a proposed order that would exempt some non-financial energy derivative transactions between government-owned electric utilities and cooperatively-owned electric utilities from most of the requirements of the Commodity Exchange Act.  Comments are requested within 30 days after publication in the Federal Register.  CFTC Release.    

OCC Proposed Annual Stress Test Reporting Requirements for Large Covered Institutions

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On August 16, pursuant to Section 165(i)(2) of the Dodd-Frank Act, the OCC issued a notice of a proposed information collection regarding annual stress test reporting for Covered Institutions with total consolidated assets of $50 billion or more.  Comments on the notice must be submitted by October 15.  OCC Release.   FPRA Notice.   

CFTC Proposed Clearing Exemption for Swaps Between Affiliates

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On August 16, the CFTC proposed an exemption from clearing requirements under Section 723 of the Dodd-Frank Act for swaps between certain affiliated entities within a corporate group.  The proposed exemption would be limited to swaps between majority-owned affiliates and would require centralized risk management, swap trading relationship documentation, variation margin payments, and satisfaction of certain reporting requirements.  Comments on the proposed rule must be submitted within 30 days of publication in the Federal Register.  CFTC Release.  CFTC Proposed Rule.   

NFA Approves Amendments to Customer Funds Reporting Requirements

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On August 16, the National Futures Association (NFA) approved amendments to NFA Financial Requirements that will require a futures commissions merchant (FCM) to provide its Designated SRO with view-only access via the internet to account information for each of the FCM’s customer segregated funds accounts maintained and held at a bank or trust company.  Designated SROs would be able to review this information at any time against an FCM’s daily segregation report.  The amendments have been sent to the CFTC for approval.  NFA Release.