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Tags: Benchmarks, Conduct Costs, Discussion, FICC, U.K.
Categories : Bank of England, Banks, Consultations, England and Wales, Libor
In its important consultation document published on 27 October 2014, How fair and effective are the fixed income, foreign exchange and commodities markets?, the Fair and Effective Markets Review (FEMR), has asked no less than 49 questions to restore trust in the wholesale markets which, as exposed by recent events, have been susceptible to abuse and cheating: see earlier post here. Headed by Nemat (Minouche) Shafik, the Bank of England’s Deputy Governor for Markets and Banking, Martin Wheatley (Chief Executive Officer, Financial Conduct Authority) and Charles Roxburgh (Director General, Financial Services, HM Treasury) as co-chairs, the FEMR, which was created by the Chancellor in June 2014 – see terms of reference – is expected to present its final recommendations in June 2015.
The FEMR intends to conduct an exhaustive and dynamic evaluation of the manner in which wholesale financial markets operate and over and above helping to restore trust in the Fixed Income, Currency and Commodities (FICC) markets the FEMR also aims to influence the international debate on trading practices. Earlier in the year (August 2014), the FEMR recommended and consulted on bringing another seven major UK-based FICC benchmarks into the regulatory perimeter originally rolled-out to regulate LIBOR. Read the rest of this entry »
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Tags: Conduct Costs, Corporate Governance, Discussion, U.K., U.S.
Categories : Bank of England, Banks, Company Law, Contract, Financial Services, Libor, LSE
Ever-larger fines for bank misconduct have made headlines around the world, leading the London School of Economics and Political Science‘s Conduct Costs Project to estimate total costs between 2009 and 2013 for 10 major global banks at nearly £100 billion, plus a further £58 billion put aside in provisions at 2013-end. Roger McCormick of the LSE led the project, and he set up and now runs the CCP Research Foundation to build on its efforts. A former partner at law firm Freshfields Bruckhaus Deringer, he spoke with SNL Financial on the sidelines of the British Bankers’ Association annual conference in London about the purpose of fines.
This interview was published on the Conduct Costs Project Research Foundation website and has been republished here with permission and thanks.
By Christian Wuestner
SNL Financial: New U.K. regulations aim to increase accountability of senior managers at banks for failures, including introducing a new criminal offense. Is this a good idea?
Roger McCormick: I am pretty much on exactly the same ground as [Bank of England Governor] Mark Carney on that. I am sympathetic to the concerns it raises for people who are not used to the new regime, but you have to put it in context. Twenty-five years ago, there was a famous legal case in England called the Hammersmith and Fulham Case, sometimes called the Swaps Case, where a lot of banks entered into swaps contracts with English local authorities. The auditors of those authorities challenged the contracts, took it to the courts and won because the contracts were invalid. So the banks could not enforce those contracts. And they all complained to the Bank of England and other people: “We didn’t know about the legal risks involved in these contracts.” Read the rest of this entry »
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Tags: Benchmarks, Discussion, FSMA
Categories : Approved Persons, Bank of England, Consultations, Controlled Functions, FCA, Financial Services, Libor, Wheatley Review
The Fair and Effective Financial Markets Review (FEMR or the “review”) – a triumvirate headed by Nemat Minouche Shafik (Bank of England) and co-chaired by Martin Wheatley (FCA) and Charles Roxburgh (HM Treasury) – has the twofold objective of (i) reinforcing confidence in the fairness and effectiveness of wholesale financial market activity conducted in the United Kingdom and (ii) influencing the international debate on trading practices, including highlighting issues that can only be addressed through co-ordinated international action. The review, which is expected to produce a final report by June 2015, focuses on both regulated and unregulated wholesale markets – such as fixed-income, currency and commodity markets, including associated derivatives and benchmarks – in relation to which most of the recent concerns about misconduct have arisen.
However, at the Chancellor of the Exchequer’s invitation, until the delivery of the final report in June 2015, the review has recommended a list of additional major benchmarks across the fixed income, currency and commodity markets (FICC) that should be included in the regulatory framework originally implemented in the wake of the LIBOR scandal. The review considers the Wheatley Review of LIBOR 2012 to be the blueprint for reform and recalls that Mr Wheatley had envisaged adding further benchmarks to the present LIBOR regime (see here). The ambit of the review includes matters such as trading practices, scope of regulation, supervision of firms and markets and the impact of recent and forthcoming regulation. Read the rest of this entry »
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Tags: Discussion, FSMA, Treasury
Categories : 2014/59/EU, Bank of England, Banks, BRRD, Consultations, Financial Services
Directive 2014/59/EU, or the Bank Recovery and Resolution Directive (BRRD), aims to ensure that the European Union (EU) effectively addresses the risks posed by the banking system. The BRRD contains 133 Recitals and stretches 132 Articles and it aims to create a harmonised framework across Europe for dealing with the problem of “too big to fail” through bank recovery and resolution. It entered into force on 2 July 2014 and establishes a common approach within the EU to the recovery and resolution of banks and investment firms. Article 130 (Transposition) exacts that the Member States shall adopt and publish by 31 December 2014 the laws, regulations and administrative provisions necessary to comply with the BRRD and that the text of those measures shall be communicated to the Commission and, save Section 5 (The bail-in tool) of Chapter IV (Resolution tools) which has an implementation deadline of 1 January 2016, the said measures shall apply from 1 January 2015.
As recorded in the initial recitals, the BRRD is firmly embedded in the belief that the financial crisis was of systemic dimension in the sense that it affected the access to funding of a large proportion of credit institutions. Therefore, in order to avoid failure, with consequences for the overall economy, such a crisis necessitates measures aiming to secure access to funding under equivalent conditions for all credit institutions that are otherwise solvent. Read the rest of this entry »
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Tags: Banking Law, Discussion, ESAs, European Union
Categories : Banks, BRRD, Financial Services
The bi-annual report of the Joint Committee (JC) of the European Supervisory Authorities (ESAs) – i.e. the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) – has identified a number of risks to financial stability in the EU. These risks include uncertainties in global emerging market economies, an intensified search for yield in a protracted low interest rate environment, prolonged weak economic growth in an environment marked by high indebtedness and the risks related to conduct of business and Information Technologies (IT). Subsequent to the last report in spring 2014, the instant report focuses on the delicate economic recovery within the EU that can be observed in weak balance sheets both in private and public spheres. Presently favourable market conditions may conceal shortcomings in a weak economic environment and the ESAs consider high indebtedness and low private sector credit growth to be particularly testing and they place emphasis on continued structural reforms that drive improvements in competitiveness and revive lending.
On the one hand, the report explains that ongoing asset quality reviews and stress tests in the banking and insurance sector will present a clearer picture of asset quality and help improve the reliability of balance sheets of EU financial institutions. However, on the other hand, the report emphasises that ongoing balance sheet repair and debt restructuring should remain a key priority in moving forward. Read the rest of this entry »
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Tags: Conduct Costs, Discussion, Insolvency Act 1986
Categories : Banks, Financial Services, Libor
In the highest fine ever imposed for client assets breaches, pursuant to the Financial Services and Markets Act 2000, the Financial Conduct Authority (FCA) has fined Barclays £37,745,000 because of the bank’s failure to properly protect clients’ custody assets worth £16.5 billion. The majority of these belonged to the bank’s Affiliates (£13.5 billion) and its Affiliates’ clients (£2.7 billion) – read Final Notice here. Had Barclays come to be plagued by the onset of insolvency, its clients ran the risk of incurring extra costs, lengthy delays or losing their assets. The bank’s breaches arose from significant weaknesses in its systems and controls and a historical focus on business lines and products traded, rather than giving adequate consideration to which legal entity was conducting the relevant business.
For David Lawton, FCA director of markets, “Barclays lack of focus on the rules was unacceptable” because the FCA’s “on-going scrutiny of firms’ compliance reflects the importance of the regime, which protects custody assets worth £10 trillion held in the UK.”
Tracey McDermott, the FCA’s director of enforcement and financial crime, considered that:
Barclays … exposed its clients to unnecessary risk.
And she remarked further that:
All firms should be clear after Lehman that there is no excuse for failing to safeguard client assets.
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Tags: European Union, MiFID II, U.K.
Categories : Banks, ESMA, FCA, Financial Services
Directive 2004/39/EC, the Markets in Financial Instruments Directive (MiFID), governing the provision of investment services in financial instruments by banks and investment firms and the operation of traditional stock exchanges and alternative trading venues, has been in force since November 2007. Considered to be a core pillar in EU financial market integration, MiFID has been credited with creating competition between these services and bringing increased choice and lower prices for investors. However, the financial crisis revealed weaknesses and with the aim of making financial markets more efficient, resilient and transparent, and to strengthen the protection of investors, the European Commission published its legislative proposals regarding MiFID II and Markets in Financial Instruments Regulation (MiFIR) in October 2011. These entail wholesale reform that will change financial markets, banking services and the bank-customer relationship.
In April 2014, MiFID II and MiFIR were endorsed by the European Parliament. In May 2014, the Council of the European Union adopted the legislation. Subsequently, the MiFID II legislation came to be published in the Official Journal of the European Union in June 2014. In July 2014, MiFID II and MiFIR entered into force. They must generally apply within Member States by January 2017. It is therefore unsurprising that the Financial Conduct Authority (FCA) considers this legislation to be “the future of European trading in the balance” and has hosted a conference on it. Read the rest of this entry »