The Italian government pushed ahead with its rescue of Monte dei Paschi di Sienna bank, as the likelihood of a private sector remedy receded. Ireland appointed three institutions as ‘Global Coordinators’ for the potential sale of Allied Irish Banks by way of an initial public offering. The derivatives industry was reported to be struggling to comply with the EMIR regulations on uncleared margin in time for the March deadline. Spain recorded a record fall in the number of unemployed people. Donald Trump nominated Wall Street lawyer Jay Clayton as head of the Securities and Exchange Commission as part of his plans to reduce regulation. This first instalment of 2017 of our regular round-up brings you the financial and regulatory news from the last three weeks.
A roundtable discussion was held by the Central Bank with Irish financial services stakeholders, which included a discussion on Brexit as well as on current regulatory issues. On Brexit, Deputy Governor Cyril Roux noted that there were material levels of interest from London firms to establish a base in Dublin. However, he emphasised that applications would be subject to rigorous standards and that the Central Bank would expect to see a substantial staff and management presence in Ireland.
The Central Bank updated on its tracker mortgage review. 8200 customer mortgage accounts across different lenders have so far been identified where the correct tracker rate of interest was not provided to customers in accordance with lenders’ contractual or regulatory obligations, or where the right or the option to a tracker rate was not exercised. Engagement with impacted customers is expected in mid-2017, based on current levels of progress.
The Central Bank issued a ‘Dear CEO’ letter on Solvency Capital Requirements applying to life insurance companies. The letter highlighted a number of findings from the regulator’s review of compliance with the requirements. In relation to banking, the Central Bank published Risk Based Contributions to the Deposit Guarantee Scheme, in compliance with its obligations to the European Banking Authority. In addition, Consultation Paper 86 on Fund Management Company Effectiveness completed with the publication of the Feedback Statement to the third consultation and the publication of ‘Fund Management Companies - Guidance by the Central Bank’.
The European Banking Authority recommended retaining the risk-sensitive framework for bank regulatory capital. The requirement of the bank capital regulations was re-examined on request from the European Commission in order to understand the interaction of the regulations with economic cycles. The Authority also released research which showed a constant improvement in the Liquidity Coverage Ratio. The Authority further announced it would run its next bank stress tests in 2018. Finally, the Authority further recommended a harmonised EU framework be introduced for covered bonds, which would mean that only bonds meeting the minimum criteria benefitted from special regulatory and capital treatment.
The European Insurance and Occupational Pensions Authority published the results of its 2016 insurance industry stress tests. The tests focused on two scenarios: ‘low-for-long yield’ and ‘double hit’ and applied Solvency II criteria. The tests were not conducted on a pass or fail basis but instead examined the impact on excess assets over liabilities. The results showed that in the ‘double hit’ scenario - a significant increase in claims in a low yield economic environment – 40% of firms tested would suffer a drop of one-third of their assets. In the ‘low-for-long yield’ scenario, 38% of firms tested would also lose one-third of their assets. The report concluded that a continued low yield economic environment could be as damaging to balance sheets as a shock rise in the number of claims.
Christine Lagarde of the International Monetary Fund was found guilty of negligence in public office during her time as Finance Minister by a French tribunal. The tribunal ruled that she had failed to prevent a fraudulent payment made by the government to the entrepreneur Bernard Tapie. The tribunal did not hand down any sentence, however, and she was quickly backed by the board of the IMF where she remains in her position as Managing Director.
The Financial Conduct Authority confirmed that it is continuing with its implementation timeline for MIFID II. The regulator issued a consultation on its fourth set of implementation proposals, covering specialist conduct of business regimes, tied agents and SME growth markets, as well as transaction reporting. The regulator intends to provide policy statements for March and June 2017.
The Financial Services Consumer Panel warned that ‘robo-advice’ is failing investors. Publishing research and a position paper, the Panel noted that there was confusion over whether investors were being offered regulated advice or guidance, costs disclosures and recourse to the Financial Services Ombudsman. It called on the Financial Conduct Authority to clarify and enforce existing rules and to establish an industry and consumer working group to develop consistent standards in the area. Meanwhile, the Financial Conduct Authority reported that pension providers were making significant progress on meeting the recommendations of the Office of Fair Trading to reduce costs and charges.
Mark Lyttleton, the former portfolio manager at BlackRock Investment Management (UK) Limited, was sentenced to 12 months imprisonment on two charges of insider dealing. He was also subject to a confiscation order of £149,000 and a costs order of £83,000. The judge described his offences as premeditated and blatantly dishonest. His actions included setting up a Panamanian company in his wife’s maiden name to trade on inside information.
Deutsche Bank and Credit Suisse reached settlements with the United States Department of Justice over their involvement in the mis-selling of mortgage backed securities in the run up to the 2008 financial collapse. The settlements are composed of fines and investor compensation, and bring the total amount paid by financial institutions to $58bn. Deutsche agreed to pay a total of $7.2bn and Credit Suisse $5.28bn. However, Barclays Bank declined to settle and is instead willing to have the matter dealt with in the US courts.
Russia accused Deutsche Bank’s former head of equity trading in the country of market manipulation. Yuri Khirov, who left Deutsche in 2015, was alleged to have entered Rbs300bn of illicit trades in the names of his relatives, earning a profit of Rbs255m. The Russian Central Bank conducted a joint investigation with the BaFin in Germany.
The head of Barclays Securities Japan was interviewed by the Serious Fraud Office under a third investigation into the role of the bank in the manipulation of LIBOR. The investigation is understood to be concentrating on whether Barclays falsified its LIBOR returns to enhance its apparent strength to investors and customers. Two other senior staff and a number of senior employees were also understood to have been questioned.