In the French election, Emmanuel Macron won a convincing victory against rival Marine Le Pen to become the next president, which provided a welcome boost for the European Union. President Trump shocked Washington by his sudden dismissal of FBI director James Comey. Institutions around the globe, including Britain’s National Health Service, were severely disrupted by a cyber-attack using ransomware. In South Korea, Moon-Jae-in won the presidential election, and promised a more conciliatory approach to the North Korean problem, favouring diplomatic engagement with China and the United States. Below are the main stories in finance and regulation for the last two weeks.
The Central Bank issued its Annual Report for 2016, reporting a profit on its activities of €2.3bn, of which €1.87bn would be passed to the Exchequer. The level of profit was described as high and was generated from interest income and capital gains on the special portfolio acquired as a result of the IBRC liquidation. The report also outlined the 2016 review of the financial system by the International Monetary Fund, the impact of and preparation for Brexit, and other global challenges.
The Central Bank issued Consultation Paper CP109 on ‘Consultation on Potential Changes to the Investment Framework for Credit Unions’. The Credit Union and Co-operation with Overseas Regulators Act 2012 inserted a new provision on credit union investments into the Credit Union Act 1997. The consultation follows a review as to whether credit unions should be permitted to invest in a wider range of investments than presently permitted. Responses are requested for 28 June 2017.
The International Monetary Fund warned that the impact of Brexit on Ireland would be “negative and significant” and advised the government to set aside significant resources. It warned that much needed infrastructure projects and funding for the housing crisis were at risk of being undermined by the budgetary impact of the UK’s decision to leave. In better news, Dublin continued to be mentioned as an option for the movement of staff out of London by global financial institutions.
The European Commission set out simpler and more efficient derivative rules in the form of a proposed regulation to amend the European Market Infrastructure Regulation. The proposal followed the Commission’s Call for Evidence on EU efforts to support investment, growth and jobs. The aim was further described as eliminating disproportionate costs to the industry, whilst maintaining financial stability.
Deutsche Bank was fined by the German financial regulator over delays in public announcements of the departure of their joint chief executives in 2015. The bank was fined €550,000 for this and three other breaches of their disclosure obligations. The bank was entitled to delay an announcement where it might damage its business but had failed in the subsequent obligation to notify the regulator of the reason for that delay.
The former chief executive of Vneshprombank in Russia was sentenced to 9 years’ imprisonment by a Moscow court for one of the country’s biggest bank frauds. Larisa Markus admitted stealing $2bn from the bank which led to its being shut down. The bank was found to have an estimated 23 per cent of fraudulent loans on its books.
Lloyds Banking Group agreed to pay compensation to 7,000 customers in relation to structured products. The products linked to an index such as the FTSE 100 and offered capital guarantees. However, they failed to deliver the promised returns, and were sold in breach of the principles of providing fair, clear and not misleading products. The costs of compensation were estimated to be around £40m.
Accountants PwC were fined a record £5m by the Financial Reporting Council, in relation to its audit of FTSE 250 firm Connaught. A retired partner was further fined £150,000. The company specialised in the maintenance of social housing, but suffered losses in 2010. Its directors artificially boosted its cash flow by use of a loan from the chief executive. PwC admitted a failure to exercise appropriate scepticism or gather sufficient evidence during its 2009 audit but also argued that it had been misled by the management of Connaught.
Barclays Bank paid $97m to settle SEC claims of over-charging wealth management clients by $50m. The business was sold in 2015 but the charges related to three sets of violations during Barclays tenure: client fees for due diligence and monitoring services which were not performed as promised; excessive mutual-fund sales charges for brokerage clients; and miscalculations and billing errors which resulted in 22,000 clients overpaying fees to the bank.
At the International Swaps and Derivatives Conference in Lisbon, Christopher Giancarlo, the acting head of the US Commodity Futures and Trading Commission, committed his support for President Trump’s executive order to review the Dodd-Frank regulations. He noted that American interests would be best served by U.S. regulators being active and strong in international negotiations. Mr. Giancarlo also issued a warning about proposed moves of the clearing of euro-denominated transactions out of London. Meanwhile, ISDA set out its key message that derivatives are essential for growth and stability in the real economy.
U.S. prosecutors were reported to be investigating allegations that hedge funds inflated the value of debt securities in their portfolios in order to increase their fees. Illiquid securities were allegedly subject to bogus price quotes from brokers. Details of the practice have partly come from prosecutions of individuals by the U.S. Justice Department and the Securities and Exchange Commission. The case potentially reveals a susceptibility to fraudulent valuations on bond instruments which are infrequently traded.
The Financial Stability Board published a peer review on corporate governance, looking at how G-20 countries had implemented the Principles of Corporate Governance for publicly listed, regulated financial institutions. It makes 12 recommendations to FSB member jurisdictions and regulatory bodies, including on disclosure and transparency, the responsibilities of the board and the treatment of shareholders.