Structural banking reform: An FSB perspective and some alternatives

The international reform agenda for financial regulation continues to move forward on several fronts under the auspices of the Financial Stability Board (FSB), the body responsible for coordinating, and reporting on, progress to the G20. The subjects covered by the agenda include not only rules which target the functioning of financial institutions and markets but also less tangible initiatives designed to enhance trust between regulators in different countries and between the financial sector and the public.

Financial Industry, Banking

Does financial regulation create moral hazard?

Introduction - Patrick Jake O’Rourke is a leading American political satirist, journalist and writer who has authored numerous books and is currently the H.L. Mencken Research Fellow with the Cato Institute. Known as a regular correspondent for national media and author of the ‘Parliament of Whores’ (1991), O’Rourke is also considered to be the author of the quote ‘Regulation creates a moral hazard’.[1] Although one can argue the quote may be of satirical nature, it is worth analysing it in more details in the context of financial regulation.

Regulation, Policy

The regulatory change treadmill in the UK – gathering pace or slowing down?

A review of 2014 and a look forward to 2015 - This time last year, Emma Radmore of Dentons looked at 10 key legislative and regulatory changes that will affect participants in the UK financial markets in 2014. The year 2014 has been to some extent a period of retrenchment, although many changes are still to come. This year, Emma looks at how the 2014 changes have taken effect, and looks forward to the key regulatory priorities and changes for 2015.

Regulatory Reforms, Policy

Financial crime – FCA loses patience

In November 2014, FCA published the results of two thematic reviews into how firms manage their financial crime risks, together with proposed guidance on financial crime systems and controls. The clear message from the papers, and the press release that accompanied them, is that FCA is losing patience. It found many practices that continue to show significant weakness, and accused firms of not using common sense or getting the basics right. In this article, Emma Radmore of Dentons looks at the reviews and guidance, and what firms should do to get financial crime prevention compliance right.

Insurance, Financial Crime

To what extent should a more constructive approach be taken to bribery and corruption in the UK financial services industry: tackling bribery in the banks

The financial services sector is just as susceptible to bribery and corruption as any other, however it is questionable whether the UK’s legal and regulatory framework effectively addresses the manner in which bribery can take place in a financial sector context. This article considers the regulatory and legal approach to combatting bribery within financial services in the UK, focussing on corporate and investment banks as case studies. In critically assessing the approach of the UK authorities towards policing bribery within the financial services sector, this article questions whether the approach is robust and posits that there is a mismatch of resources and strategy which undermines the efforts to curtail bribery risks in the UK financial services sector. The fundamental question asked is whether the current enforcement strategy between the FCA and SFO ultimately places the right lens before the wrong discerning eye and whether, as a result of this mismatch, the robustness of anti-bribery enforcement within financial services is severely weakened.

Regulation, Financial Crime

Recent ruble volatility and related regulatory changes

The much discussed move by the Russian Central Bank (the CBR) to free float the ruble[1] is understood by many to be a method to strengthen market forces. In the following article, the elements of the related legal framework that directly affect this will be discussed.

Regulation, Banking

Enhancing supervision

Andrew Naylor asks how will the FCA’s new regulatory model work in the real world?

Regulation, Financial Crime

Indonesian Court revokes contract drawn up in English

The Indonesian Parliament (Dewan Perwakilan Rakyat) passed a bill regarding the country’s flag, language, national emblem, and anthem in 2009. It became Law No. 24 of 2009 on The Flag, the Language, the National Emblem, and the National Anthem (the ‘Law’ or ‘Law No. 24/2009’).

Policy, Guidance

MiFID II: Why, how and what now?

What is MiFID II? - When the original Markets in Financial Instruments Directive (MIFID) came into effect on 1 November 2007, policy makers were already planning to review this flagship European financial markets legislation. Fast forward nearly six and a half years and work on MiFID II is entering its final strait. In the intervening years, the financial crisis has given rise to extensive regulatory changes across the globe. MiFID II goes beyond the review foreseen in the original MiFID to address many of the significant weaknesses in firms’ and financial markets’ operations identified during the crisis.

Financial Instruments, Policy

To report or not to report – are Bribery Act prosecutions getting closer?

Previous articles in Financial Regulation International have looked at how the Bribery Act 2010 has developed, interpretations of the guidance made under it and firms’ fears for the first prosecution for the offence of failing to prevent bribery.

Policy, Financial Crime

Stress tests in numbers

The European Central Bank (ECB) published the results of its Comprehensive Assessment (CA) on 26 October 2014. The CA consists of an Asset Quality Review (AQR) and a stress test which was executed together with the European Banking Authority (EBA). The stress test included 123 banks across the EU and Norway, covering more than 70% of total EU banking assets. The hurdle rate was defined as 5.5% and 8.0% of Common Equity Tier (CET) 1 ratio (as defined in CRR) for the adverse and the baseline scenario respectively.

Financial Industry, Banking

The ISDA stay protocol brings more market movement than the name suggests

On 11 October 2014, the International Derivatives and Swaps Association Inc. (‘ISDA’), the international trading body for derivatives and provider of the leading derivatives documentation material (‘ISDA Master Agreement’ or ‘ISDA MA’), announced that a new protocol for the recognition of foreign resolution measures (the ‘Protocol’) is anticipated to come into effect in January 2015. The effect of the protocol is that the initiation of resolution measures by foreign resolution authorities would not trigger clauses s5(a)(vii) ISDA MA (‘Bankruptcy’) and/or s5(a)(vi) ISDA MA (‘Cross-Default’ and with Bankruptcy the ‘Events of Default’) that result in the termination of a wide-range of derivative transactions. The rationale of the Events of Default is to limit the exposure to a distressed financial institution; however, the provisions can adversely affect the financial standing of the distressed institutions and hamper its resolvability. In particular, the experience of the 2007 financial crisis demonstrated that the widespread termination could lead to several problems in the resolution of financial institution but also to legal uncertainty and unpredictability for financial institutions concerning the enforceability of Close-Out Netting (as explored below). This experience instigated a global discussion by regulators and market participants to control aforementioned risks.

Financial Industry, Industry Reforms

Is international arbitration suitable for global financial disputes?

Leon Hurd considers the above question from the perspective of the banker assessing options for disputes arising out of the lending and financial products business

Financial Industry, Financial Crime

The global financial crisis and mortgage fraud – The untold story

Dr Nicholas Ryder analyses the association between the 2008 global financial crisis and white collar crime, in particular, mortgage fraud

Financial Crime, Fraud

Bank State Aid under BRRD and SRM

Karel Lannoo reviews the main principles introduced by the Bank Recovery and Resolution Directive and the Single Resolution Mechanism, and their ongoing interaction with EU state aid rules.

Regulation, Europe

A balancing act – The Maltese investment services rules applicable to collective investment schemes authorised to invest through loans

Adrian Cutajar examines the Malta Financial Services Authority’s Investment Services Rules, including their regulatory relevance and the manner in which they address risks associated with specialised investment funds.

Financial Industry, Europe