News
Benchmarking data called into question
Convenience and low cost have always been the prime motives for customers to use bank-provided benchmarks in their portfolio analytics. That user model, shaken by the Libor scandal, now seems upside down after US, UK and Swiss regulators fined 5 major banks more than US$3 billion for rigging FX rates in London.
OFR Annual Report Warns of Lingering Threats to Financial Stability
In its most recent Annual Report, the Office of Financial Research (OFR) warns that despite the strengthening global financial system, threats to financial stability still remain, and it is no time for complacency. Formed in 2010 as a part of the Treasury Department under a mandate in the Dodd-Frank Act, the OFR is charged with improving the quality of financial data available to policymakers and to facilitate more robust and sophisticated analysis of the financial system. As part of its mission, in an annual report to Congress, the OFR analyzes potential threats to U.S. financial stability, documents significant progress in meeting the mission of the Office, and reports on key research findings.
G20 Brisbane Meeting Promises Focus on Resilient Financial System
With the conclusion of their November 15 and 16 meeting in Brisbane, the G20 has published their official communiqué outlining the group’s progress, plans, and areas of focus. Financial regulatory reform remains the central focus of G20 activities. However, with the slow global recovery and disappointing job growth, the G20 announced that they expect to emphasize expanding the financial sector’s role in building a stronger and more sustainable global economy. The overall thrust of the G20’s Brisbane communiqué is that critical work remains to build a stronger, more resilient financial system. Over the next year, the group intends to continue to finalize the various elements of its policy framework that remain open, fully implement financial regulatory reforms already agreed upon, and be vigilant for new risks and unexpected consequences.
Tarullo: Liquidity Regulation Today and Tomorrow
The financial crisis of 2007-08 was a crisis of liquidity. Facing deep uncertainty about the condition of counterparties and the value of collateral assets, investors refused to offer new short-term lending or even to roll over existing repos and similar extensions of credit. As a result, many funding markets ground to a halt.
Global OTC Working Group Updates the G20
The G20’s meeting in Brisbane begins tomorrow, and international working groups have been burning the midnight oil to have their progress reports ready in time. One such group, the OTC Derivatives Regulator Group (ODRG)*, issued a report on November 7 that provides an update to the G20 Leaders regarding the ODRG’s continuing effort to identify and resolve cross-border issues associated with the implementation of the G20 OTC derivatives reform agenda. The report reflects how the ODRG has addressed, or intends to address, cross-border issues identified since the publication of the report published in advance of the St. Petersburg Summit in September 2013.
FSB Moves for More Transparency in Repo and Securities Lending Markets
This latest consultation document is part of a larger effort by the FSB to increase transparency in “shadow banking” activities like securities lending and repo to detect financial stability risks, develop policy responses, and assess global trends in financial stability. Echoing the sentiments of Mr. Carney, Daniel Tarullo, Chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation, stated that “timely, comprehensive and consistent data collection is essential for authorities in identifying the build-up of leverage and other financial stability risks in global securities financing markets. The implementation of the proposed standards and processes will allow authorities to establish a monitoring framework to support their efforts to effectively address financial stability risks stemming from securities financing.”
Eaton Vance Scores Huge Victory on Non-Transparent ETFs
On November 6, 2014, the Securities and Exchange Commission granted Eaton Vance’s request to launch an “exchange traded managed fund” (ETMF), a new kind of exchange traded fund. Only a week before, the SEC provisionally denied similar requests for ETMFs from Blackrock and Precidian Investments.
Shadow Banking: Less is More.
It has generally been acknowledged that shadow banking was the “epicenter for the global financial crisis.” High leverage made the shadow banking system fragile, and an initial run on shadow institutions was then transmitted throughout an interconnected global banking system. Despite this bit of now seemingly conventional wisdom, the primary response from regulators to the financial crisis has been to increase the capital requirements for chartered banks.
AIG Fights for $308M in Economic Substance Claim
In 2009, American International Group (AIG) sued the Internal Revenue Service (IRS) to recover approximately $306 million in denied tax credits. After negotiating a tortuous litigation process, the dispute has surfaced again in court. On October 17, 2014, AIG argued before the Second Circuit Court of Appeals that six transactions it entered into from 1993 to 1997 were part of a bona fide spread banking activity and that it should recoup millions in foreign tax credits denied by the IRS relating to the transactions.
SEC Adopts Final Cross-Border Security-Based Swap Rules
On June 25, 2014, the Securities and Exchange Commission finalized new rules and interpretive guidance addressing the cross-border application of a security-based swap regulatory framework called for under the Dodd-Frank Act. These final rules are the first of a series of rules and guidance on cross-border security-based swap activities for market participants. According to the SEC, these new rules will be key to finalizing the remaining outstanding proposals on security-based swaps.