Global Regulatory Briefingstatic.reuters.com/resources/media/editorial/20100319...2010/03/19 · GLOBAL REGULATORY BRIEFING MARCH !8 UK - UK's FSA bulks up for tougher supervision

Global Regulatory Briefing

MARCH 18, 2010

(I) REGULATORY REFORM

US - U.S. Senator Dodd boosts Fed risk oversight in financial reform bill EU - EU hedge fund rules stalled, UK digs in heels EU - Schaeuble calls for closer euro zone integration, details monetary fund EU – ECB’s Trichet, European Monetary Fund idea “deserves examination” US - Bernanke defends Fed small-bank supervision role US - Citi to boost proprietary trading unit - report US – White House rips business lobby over financial reform US - Big majority in U.S. wants Wall Street regulation

(II) FINANCIAL CRISIS & ECONOMY US - Examiner sees accounting gimmicks in Lehman demise

US - US earns $33 million on rescued-bank warrant auctions in week EU – European central banker says to phase out emergency lending US - US bank regulators may extend crisis-era guarantee US - U.S. thrift regulator defends industry, agency EU - Big EU insurers resilient in stress test - watchdog

(III) ENFORCEMENT & SUPERVISION US - Judge won't modify core of 2003 U.S. financial analyst “firewall” deal GERMANY - Germany's Merkel considering risk charge on banks - paper AUSTRALIA – Central bank says Australian bank rate rises outpace funding costs

GLOBAL REGULATORY BRIEFING MARCH !8

UK - UK's FSA bulks up for tougher supervision UK - UK's FSA charges banker, wife with insider dealing, seeks extradition of third UK - UK bank customers to get overdraft opt-out option US – U.S. bank regulator says jury still out on overdraft fees IRELAND - Police arrest Anglo Irish Bank's former chairman US - Wachovia pays $160 million to settle drug-money probe RUSSIA - Russia corruption “may force Western firms to quit” US/INDIA - US accounting watchdog sanctions Satyam's auditors (IV) ACCOUNTING AND FINANCIAL STANDARDS UK - UK's Myners says curbs needed on bank margins GLOBAL - IASB: single set of accounting rules on track EU – EU central banker backs higher risk margins for low-rated bonds UK - UK's FSA sees British bank capital levels easing FRANCE - France says new Basel bank proposals too sever eGLOBAL - Regulation to trigger bank M&A - Rothschild exec

(V) TAX RUSSIA – Russia plans capital-gains tax breaks for investors – report GLOBAL - IMF's Strauss-Kahn casts doubt on transaction tax US – IRS says new UBS-style foreign bank prosecution "shortly" SWITZERLAND – Credit Suisse sees withholding tax on Germans' accounts - paper US – U.S. tax-cheat probers likely to get peek at HSBC accounts

(VI) DERIVATIVES EU - EU's Barnier pledges to tackle speculator s

(VII) EXCHANGES AND TRADING PRACTICES UK – UK regulatory chief doubts value of high-speed share trading US – U.S. regulator to propose new co-locatio rule nEU - EU's Barnier says will tackle short-selling EU - Splintered Europe share market seen ripe for abuse EU - SmartPool plans pan-Europe dark pool data service NIGERIA - Nigeria court voids election of stock market president US - Direct Edge set to become 4th U.S. stock exchange

(VIII) FUNDS MANAGEMENT US - FDIC sets private-equity rules meeting - sources

(IX) CURRENCY US - US Senate bill threatens stiff penalties on China CHINA - World Bank tells China to tighten policy CHINA - China adviser proposes forex transaction tax - report JAPAN – Bank of Japan’s Shirakawa says latest step not aimed at forex POLAND - Polish regulator mulls limits on forex lending SOUTH AFRICA - S.African central banker warns on carry trade INDIA - India to gradually move to rupee convertibility- finance minister

(X) TRADE & CROSS BORDER SAUDI ARABIA - Saudi Arabia approves first ETF open for foreigners JAPAN/TAIWAN – Taiwan exchange eyes ETF cross-listing with Tokyo – report AUSTRALIA - Australia tells Beijing to stay out of iron ore talks ZIMBABWE - Zimbabwe central bank head attacks planned company seizure TAIWAN - Taiwan approves China financial investment rules TAIWAN - Taiwan to seek tax-free status for LCD panels in China talks

(XI) STATE ENTERPRISES UK - Mandelson: UK should consider state investment fund SINGAPORE - Ex-Morgan Stanley banker to step down as Temasek senior MD CHINA - China state seen fund open to shorting stocks

(XII) COMMODITIES & ENERGY INDIA - India puts off nuclear bill after opposition protests

CANADA - More regulation needed for Canada oil sands - report CHINA/ARGENTINA - CNOOC to buy stake in Argentina's Bridas CZECH REPUBLIC - Czechs seek to temper solar investment boom

(XIII) ISLAMIC FINANCE MALAYSIA - Malaysian body creates new Islamic reinsurance model

INDUSTRIAL POLICY MALAYSIA - Malaysia plans new economic model for growth SOUTH AFRICA – South Africa land nationalization called threat to investment

TELECOMS & INTERNET US - US broadband plan aims to boost speed, wireless CHINA - China warns Google to obey rules even if it pulls out AUSTRALIA - Greens threaten to sink Telstra split THAILAND - Thai AIS jumps on report government won't pursue claims UAE - UAE restricts VoIP to local firms - regulator

MEDIA & PRESS FREEDOM US - Website's instant posts of Wall Street research banned ITALY - Group takes Berlusconi to rights court on TV control VENEZUELA - Venezuela's Chavez calls for Internet controls

INTELLECTUAL PROPERTY RIGHTS PEOPLE

SOUTH KOREA – SOUTH Korea names OECD envoy as central bank chief US - Yellen, 2 others lead picks for U.S. Fed US - US regulator FINRA's enforcement chief steps down HUNGARY - Next Hungary government may try to oust central bank head - report

WEEK IN BRIEF

The U.S. Congress generated a lot of heat this week: senators pressured China to let the yuan climb after China dismissed U.S. complaints about the currency, and Republicans snarled over a proposed Senate Democratic bill to overhaul financial regulation. British regulators lashed out over bank margins and high-frequency traders, and EU finance ministers fell short in their efforts to reach agreement on new hedge fund regulations.

This Briefing is produced by Reuters News. Contact [email protected] for more information, or to be added to the distribution list. © Thomson Reuters 2010. All rights reserved. This information is being distributed free of charge. Thomson Reuters is not liable for any inaccuracies or other errors or delay in the information or for any reliance on it. This Global Regulatory Briefing contains headlines and summaries only and therefore you should refer for more detail or verification to the original sources. Republication or redissemination of this information without Thomson Reuters prior written consent is prohibited.

GLOBAL REGULATORY BRIEFING MARCH 18

QUOTES

"I suspect there will be many important negotiations in the weeks ahead. This is of real concern to people in my country." U.S. Ambassador to China Jon Huntsman, discussing rising U.S. pressure for China to let its currency appreciate "Over time, more exchange rate flexibility can enable China to have a monetary policy independent from U.S. cyclical conditions, which is increasingly necessary." World Bank’s China Quarterly Update report "The last thing China will do is be seen bowing to foreign pressure, even if it's the right thing to do. The Americans should keep quiet and not lecture the Chinese. Once it's left alone, China is quite likely to move on the yuan." Chinese government source "The banking industry has enjoyed more public subsidy than any other industry in our economy. It should not be able to sustain a return on equity of over 20 percent." UK financial services minister Paul Myners "To say there is some great social value to flash trading or algorithmic trading which tries to close out discrepancies in prices ... it's quite bizarre to believe that has anything other than the most minimal social value." UK Financial Services Authority Chairman Adair Turner. "The concept of abolishing, diminishing electronic proprietary trading is really like saying you do not like gravity." Jane Gladstone, senior managing director of investment banking firm Evercore Partners. "Don't let those little punk staffers take advantage of you." U.S. House of Representatives Republican leader John Boehner, urging bankers to resist a Senate Democratic bill to overhaul financial regulations. "An astounding fact to me is that we are sitting here in March 2010 and we've done nothing in the way of financial reform up to now, nothing. We hope it’s not going to end in nothing, but so far it's nothing." Alan Blinder, an economics professor at Princeton University and former vice chairman of the U.S. Federal Reserve Board. "I understand the regulators of the Basel Committee, who want to prevent such a crisis from recurring. But their recommendations on liquidity and capital are severe and taken together, risk seriously threatening the financing of the economy." French Economy Minister Christine Lagarde "It's a good outcome for the UK. We had to hang tough." Official the British Treasury, commenting on a failure by EU finance ministers to reach agreement on new hedge fund regulations. "Like electricity a century ago, broadband is a foundation for economic growth, job creation, global competitiveness and a better way of life." U.S. Federal Communications Commission, in laying out its plans for a faster, more accessible U.S. broadband network


"I have been a big fan of the transaction tax in the 1970s but since then a lot of things have changed. What has changed is the technicality of the financial industry." International Monetary Fund Managing Director Dominique Strauss-Kahn FINANCIAL SERVICES

(I) REGULATORY REFORM

US - U.S. SENATOR DODD BOOSTS FED RISK OVERSIGHT IN FINANCIAL REFORM BILL

The Federal Reserve would take on a greatly expanded role in financial regulation under new legislation unveiled by a top U.S. Senate Democrat, in a push to move ahead with the regulatory reform that has been a top priority of President Barack Obama. The bill by Senator Christopher Dodd would give the Feb power to break up big firms that could threaten the stability of the financial system if they suffered serious problems. The Senate Banking Committee will meet on Monday to debate, amend and move toward a vote on the legislation. Under the bill, the Fed would gain authority over the nation's largest bank-holding companies and become the home to a new consumer watchdog with oversight on mortgage-related businesses and some large nonbank financial firms, such as insurers. Dodd released the bill after efforts at a bipartisan compromise broke down, and the temperature of the debate rose sharply. House of Representatives Republican leader John Boehner urged bankers to stand up to “little punk staffers” writing the legislation in Congress. Republicans and bank lobbyists are working to weaken or block new rules that would threaten the financial sector's profits. But with November congressional elections near, the White House and Dodd are gambling that Republicans ultimately will shy from killing reform for fear of being painted as close allies of the deeply unpopular financial services industry. The Dodd bill would give the Fed supervision authority over bank holding companies with over $50 billion in assets, but it would lose its supervision of state-chartered banks with less than $50 billion in assets. Dodd wants to transfer them to Federal Deposit Insurance Corp. oversight. The bill would create a systemic risk council and allow the Fed, with the council's approval, to order the break-up of large firms judged to pose a threat to economic stability. The bill also contains a version of what has been dubbed the "Volcker rule" to curb proprietary trading at banks, and bank sponsorship of hedge funds and private equity funds. The Dodd bill requires such steps be enacted, but not until a study of the issue is done by the systemic risk council. (Reuters, March 15-18) EU - EU HEDGE FUND RULES STALLED, UK DIGS IN HEELS

European Union plans to crack down on hedge funds hung in the balance when talks stalled after Britain dug in its heels to head off new rules that could damage its financial centre. The draft law had been intended to curb pay and borrowing at hedge funds and usher in an era of transparency for a secretive industry that many politicians said exacerbated borrowing difficulties in Greece by betting on its debt. But EU finance ministers were unable at talks to resolve a dispute between Britain -- which wants lighter regulation of an industry important for London's financial centre -- and Germany and France, which want a heavier clampdown. Consideration of the rules was put off for months. The draft rules would require hedge funds, private equity groups and others to register and disclose trading information to supervisors.


http://dodd.senate.gov/?q=node/5519


London's refusal to sign up to the draft rules casts uncertainty over their future. British elections expected in May could put the Eurosceptic Conservatives in power. This could further compound difficulties in reaching a deal. Although other European countries could overrule Britain and vote through the legislation, they would be reluctant to do so because of the diplomatic fallout. (Reuters, March 16) EU - SCHAEUBLE CALLS FOR CLOSER EURO ZONE INTEGRATION, DETAILS MONETARY FUND

German Finance Minister Wolfgang Schaeuble called for greater integration between euro zone members and stronger surveillance of member states' finances to protect the monetary union from further crises. In a column published in the Financial Times, Schaeuble also spelled out details of his ideas for a European Monetary Fund which could offer last-resort help to euro zone states facing bankruptcy. Jean-Claude Juncker, who chairs monthly meetings of finance ministers from the 16 countries that use the euro, said that an EMF would be created at some stage but would take time to shape and be put in place. Schaeuble said the monetary union was facing a critical moment and must take steps to protect itself from fresh turmoil. He repeated his call for a European Monetary Fund that could provide emergency help to avoid euro zone states going bankrupt. Schaeuble said any aid would be subject to strict conditions but could improve the EU's ability to sort out its own problems without the help of the International Monetary Fund. The Eurogroup would decide on any aid with the European Central Bank and the country in question would be excluded from that process, Schaeuble wrote. (Reuters, March 12) EU – ECB’S TRICHET, EUROPEAN MONETARY FUND IDEA “DESERVES EXAMINATION”

European Central Bank President Jean-Claude Trichet said that a proposal to create a European Monetary Fund "deserves examination." Trichet said in an interview with Fox Business Channel that such a fund should be a mechanism to support countries with budget problems, but that it should not be a "monetary fund." The executive branches of the countries' governments would have to create it, he added, with a "very, very strong conditionality" placed on it. (Reuters, March 12) US - BERNANKE DEFENDS FED SMALL-BANK SUPERVISION ROLE

Top U.S. central bankers present and past joined forces against a plan to strip the Fed of its oversight of smaller banks. U.S. Federal Reserve Chairman Ben Bernanke told a House of Representatives committee that supervising smaller community banks yields insights that increase the effectiveness of monetary policy and foster financial stability. Former Fed Chairman Paul Volcker, who is now a White House economic adviser, joined Bernanke in defending the Fed's role. Senate Banking Committee Chairman Christopher Dodd proposed legislation this week that would pull the Fed out of supervision of more than 5,000 smaller bank holding companies and state-chartered banks, handing those responsibilities to the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency. Passage of financial reform legislation is uncertain in the Senate, where many Republicans remain opposed to the measure. However, the House has passed a bill that would leave the Fed in charge of supervising smaller banks. (Reuters, March 17) US - CITI TO BOOST PROPRIETARY TRADING UNIT - REPORT

Citigroup Inc plans to bolster its proprietary trading unit following the departure of eight employees owing to the U.S. government's proposal to ban banks from trading stocks with their own money, Bloomberg said, citing people with direct knowledge of the matter. Kevin Russell, head of Americas stock trading, told employees and securities firms supporting the unit that Citigroup may increase the group's trading limits and capital, the Bloomberg report said. It said Citigroup is

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trying to preserve the unit, which produces about $100 million of annual revenue, as banks face a proposed ban on proprietary trading dubbed by President Barack Obama as the Volcker Rule. (Reuters, March 16) US – WHITE HOUSE RIPS BUSINESS LOBBY OVER FINANCIAL REFORM

The White House lashed out at a major U.S. business lobbying organization for spending millions of dollars to fight legislation that would overhaul regulation of Wall Street firms. Jen Psaki, deputy communications director at the White House, criticized the U.S. Chamber of Commerce for putting resources into opposing a new bill by Senator Christopher Dodd, a Democrat, that would give the Federal Reserve the power to break up big firms that could threaten the stability of the financial system and create an independent financial consumer protection agency within the Fed. The Chamber argues that an independent watchdog for consumers would make it harder for businesses to get credit, and said it would oppose the measure. Psaki called the Chamber “no stranger to fighting for the status quo” and denounced it for plans to launch a $3 million ad campaign against the legislation. (Reuters, March 17) US - BIG MAJORITY IN U.S. WANTS WALL STREET REGULATION

An overwhelming majority of Americans wants Wall Street subjected to tougher regulation in the aftermath of the bank bailout and the bonus scandals that have rocked the U.S. financial sector, according to a Harris poll. The findings suggest that 82 percent of Americans want the government to clamp down more strongly on Wall Street excesses, with a particular emphasis on bonus schemes that have rewarded employees at loss-making companies. A Harris release on the Feb. 16-21 telephone survey of 1,010 adults did not specify how financial regulation should be applied but said three-quarters of Americans believe Wall Street companies should pay bonuses only while in the black. Harris said the U.S. public sees value in Wall Street: nearly 60 percent say the financial sector is an essential benefit to the United States. But a slightly larger majority disagrees that what is good for Wall Street is good for the country, while about two-thirds harbor strong negative views about the people who work there. (Reuters, March 11) (II) FINANCIAL CRISIS & ECONOMY

US - EXAMINER SEES ACCOUNTING GIMMICKS IN LEHMAN DEMISE

Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, a court-appointed examiner has found. In a 2,200-page report, examiner Anton Valukas, chairman of law firm Jenner & Block, said after a year-long investigation that some of Lehman's management's decisions "can be questioned in retrospect" and the firm's valuation procedures for its assets "may have been wanting." But those responsible for the firm had used their business judgment and were largely not liable for the firm's collapse. He said however that Lehman, which is now liquidating, could have claims against former Lehman chief executive Dick Fuld and chief financial officers Chris O'Meara, Erin Callan and Ian Lowitt for negligence or breach of fiduciary duty. The examiner said there was also sufficient evidence to support a possible claim that the firm's auditor, Ernst & Young had been "negligent" and that Lehman could pursue claims against the firm for "professional malpractice." The examiner suggested Lehman may also be able to pursue claims against banks like JPMorgan and Citigroup for taking some $16 billion in collateral out of Lehman's coffers as it struggled to stay afloat. Legal This Briefing is produced by Reuters News. Contact [email protected] for more information, or to be added to the distribution list. © Thomson Reuters 2010. All rights reserved. This information is being distributed free of charge. Thomson Reuters is not liable for any inaccuracies or other errors or delay in the information or for any reliance on it. This Global Regulatory Briefing contains headlines and summaries only and therefore you should refer for more detail or verification to the original sources. Republication or redissemination of this information without Thomson Reuters prior written consent is prohibited.

http://www.whitehouse.gov/blog/2010/03/17/3-million-protect-big-banks-and-keep-americas-economy-riskhttp://news.harrisinteractive.com/profiles/investor/ResLibraryView.asp?ResLibraryID=36766&GoTopage=1&Category=1777&BzID=1963&t=30http://lehmanreport.jenner.com/


experts said the report could provide a roadmap for possible criminal cases against former executives. (Reuters, March 11) US - US EARNS $33 MILLION ON RESCUED-BANK WARRANT AUCTIONS IN WEEK

The U.S. Treasury said it earned $6.56 million auctioning warrants in Texas Capital Bancshares Inc, pushing taxpayers' take for three sales last week to $33.1 million and boding well for future auctions of small bank warrants. The take for the three banks’ warrants is more than $10 million higher than the amount expected at the minimum bid price. The Texas Capital auction was seen as a "test case" because it was the first auction for a bank that did not have publicly traded options. Most of the 242 banks for which Treasury still holds warrants do not have traded options, and this should encourage Treasury to auction more of these. Treasury received the warrants as part of capital investments it made in financial institutions under the Troubled Asset Relief Program. The securities were meant to allow taxpayers to share in the sector's recovery after making hundreds of billions of dollars in bailout investments. (Reuters, March 12) EU – EUROPEAN CENTRAL BANKER SAYS TO PHASE OUT EMERGENCY LENDING

The European Central Bank will not let banks become dependent on central bank funds, President Jean-Claude Trichet said as he vowed to keep up a gradual phasing out of emergency lending. In a speech to an economics summit in California, Trichet said money markets were now back in balance and the ECB aimed to return eventually to its pre-crisis liquidity offering. He said the bank did not want to “breed dependency.” The ECB took further steps this month to pull back its liquidity lifeline, returning three-month lending operations to an auction procedure but prolonging unlimited funds at fixed rates for shorter-term loans until October. (Reuters, March 12) US - US BANK REGULATORS MAY EXTEND CRISIS-ERA GUARANTEE

U.S. bank regulators may extend a guarantee program set up at the peak of the financial crisis, fearing that ending the program could spark liquidity failures at small banks. Sheila Bair, chairman of the Federal Deposit Insurance Corp, said the agency is considering extending the Transaction Account Guarantee program, known as TAG. The program, set to expire on June 30, provides federal backing for accounts that businesses typically use to meet payroll and pay vendors. It was put in place in October 2008 when businesses were pulling their money out of smaller banks and parking the funds in larger institutions perceived to be safer. She said the FDIC will likely decide in the next 30 days whether to extend the program. As of the end of 2009, the FDIC was guaranteeing $834 billion in transaction accounts. (Reuters, March 18) US - U.S. THRIFT REGULATOR DEFENDS INDUSTRY, AGENCY

U.S. thrifts did not engage in regulatory arbitrage, nor were they a cause of the financial crisis, the top U.S. thrift regulator said. John Bowman, acting director of the Office of Thrift Supervision, speaking at an American Bankers Association meeting, defended the industry against criticism it shopped around for the best regulator. The OTS, a unit of the U.S. Treasury Department, oversees the thrift industry, which provides financing for home buyers. It came under criticism for lax regulation in the recent economic crisis. Financial reform proposals working their way through Congress call for merging the OTS into the Office of the Comptroller of the Currency as a way to streamline regulation of banks, which now can choose from several federal and state regulators. (Reuters, March 17) EU - BIG EU INSURERS RESILIENT IN STRESS TEST - WATCHDOG

Big European insurers are strong enough to resist even a major financial crisis and still have enough capital to pay policyholders, stress tests by EU insurance watchdog CEIOPS showed. The Committee of European

http://financialstability.gov/latest/pr_03122010.htmlhttp://www.ecb.int/press/key/date/2010/html/sp100312.en.htmlhttp://www.ecb.int/press/key/date/2010/html/sp100312.en.htmlhttp://www.ceiops.eu/media/files/pressreleases/20100316-CEIOPS-Press-Release-Stress-Test-EU-insurance-sector.pdf


Insurance and Occupational Pensions Supervisors said in a statement that in all scenarios, aggregate available capital exceeded regulatory requirements. Insurance supervisors launched the stress testing last year to be sure that insurance companies like Allianz, AXA or Generali would be able to withstand a big downturn after a number of banks collapsed in the latest financial market crisis. (Reuters, March 16) US – U.S. financial crisis panel to study Fannie, Freddie A congressionally-appointed commission exploring the roots of the financial crisis said it will hold a hearing in April to study supbrime lending and U.S. mortgage finance giants Fannie Mae and Freddie Mac. The Financial Crisis Inquiry Commission, a 10-member panel that includes former regulators and lawmakers, said it will hear from the Federal Reserve, Citigroup , Fannie Mae, the Federal Housing Finance Agency and the Office of the Comptroller of the Currency. The sessions are scheduled for April 7-9. (Reuters, March 11) (III) ENFORCEMENT & SUPERVISION

US - JUDGE WON'T MODIFY CORE OF 2003 U.S. FINANCIAL ANALYST “FIREWALL” DEAL

A U.S. district court ruled this week against a request by major Wall Street banks to modify a core element of the 2003 legal agreement that created a firewall between research analysts and investment bankers. The firewall, which was created as part of a pact between the Securities and Exchange Commission and the banks, essentially requires their research and investment banking departments to have separate staffs and prohibits communication between the two groups unless a compliance officer is present. Judge William Pauley III of the Southern District of New York said that he would not ease the rules governing communication between the two departments, saying that it would undermine their separation. The SEC had reviewed and approved the requested changes, according to letters from the banks to the judge. (Reuters, March 18) GERMANY - GERMANY'S MERKEL CONSIDERING RISK CHARGE ON BANKS - PAPER Germany is working on various possible schemes, including bank charges, to ensure taxpayers do not have to pay for the risks taken by banks in the future, German Chancellor Angela Merkel told the magazine Sonntag Aktuell. Merkel said a possible plan would be a charge based on “ the riskiness of a banks' business” and the level of its integration in the banking system. A senior ally of Merkel called last week for banks to pay a charge of 0.1 percent of a bank's assets to partly cover the costs of funding bailouts. Merkel said the government would make a proposal “by spring.” Finance Minister Wolfgang Schaeuble told Reuters last month he was optimistic an international deal could be reached for banks to share economic crisis costs. (Reuters, March 13) AUSTRALIA – CENTRAL BANK SAYS AUSTRALIAN BANK RATE RISES OUTPACE FUNDING COSTS

The Reserve Bank of Australia said that Australia's major banks have increased lending rates by up to 25 basis points beyond increases in funding costs, the Sydney Morning Herald and The Age reported. The claim contradicts assertions by major banks that they have had to raise rates beyond official increases to cover their funding costs, the newspapers reported. (Sydney Morning Herald, The Age, March 12) UK - UK'S FSA BULKS UP FOR TOUGHER SUPERVISION

Britain's financial regulator is hiring 460 workers this year to help implement new European insurance rules and bolster finance-industry supervision with a more "proactive" approach it said demands more and better


http://www.rba.gov.au/publications/bulletin/2010/mar/bu-0310-6a.html


employees. In its business plan for 2010/11, the Financial Services Authority (FSA) vowed to become increasingly confrontational as it unveiled plans to increase staff by 14 percent. The FSA has been adding staff in its quest to improve banking practises and it said still more were needed to help meet EU Solvency II rules designed to ensure insurers have enough capital to cover their risks. Industry experts said the FSA had "drawn a line in the sand" after its former “light-touch,” or principles-based, approach was blamed for failing to halt a financial crises that spawned a global recession. Bankers have questioned the regulator's authority and expertise, but it is boosting its clout with experts ranging from criminal lawyers to London business grandees. The opposition Conservative Party, tipped in some polls to win an election expected within two months, wants to dismantle the FSA and return banking supervisory powers to the Bank of England. (Reuters, March 17) UK - UK'S FSA CHARGES BANKER, WIFE WITH INSIDER DEALING, SEEKS EXTRADITION OF THIRD

A senior investment banker and his wife have been charged with insider dealing, Britain's Financial Services Authority said. It added that a third suspect had been arrested in a French territory and the FSA would seek the unnamed suspect’s extradition -- the first time it has sought the extradition of a suspect from abroad to face criminal charges in Britain. The regulator said the banker, Christian Littlewood, and his wife Angie were charged with 13 counts of insider dealing and one count of conspiracy to commit insider dealing. (Reuters, March 15) UK - UK BANK CUSTOMERS TO GET OVERDRAFT OPT-OUT OPTION

British bank customers could soon be offered the ability to "opt out" of unarranged overdraft facilities, sidestepping hefty fees levied if they slip inadvertently into the red, the country's consumer watchdog said. The Office of Fair Trading -- which has criticised unfair practices in Britain's 8 billion pound ($12 billion) current-accounts market in the past -- said its discussions with banks over the past three months had led it to expect lenders to allow customers to turn off the overdraft option. Most bank customers can currently make payments or withdraw money even if it takes them into the red without prior agreement -- but hefty fees and interest rates then apply. Only a few customers are currently allowed the option of turning off the unauthorised overdraft option. (Reuters, March 16) US – U.S. BANK REGULATOR SAYS JURY STILL OUT ON OVERDRAFT FEES

A top U.S. bank regulator said that the "jury's still out" about whether consumers want controversial overdraft protection that can charge them large fees for accidentally overdrawing their accounts. Comptroller of the Currency John Dugan said he thought some institutions' recent moves to end overdraft fees was a "thoughtful thing," but questioned whether some consumers might want the protection. The Federal Reserve in November moved to ban overdraft fees on automated-teller-machine and debit-card transactions unless consumers have actively selected an overdraft-protection service. Those rules take effect July 1. Dugan said it remained to be seen whether there would be a backlash if people’s attempts to use their cards were rejected at the point of purchase because of insufficient funds. Some lawmakers, such as Democratic Senator Charles Schumer, have pushed for more extensive safeguards in legislation, including limiting the amount of overdraft fees that can be charged in a single month. Consumer advocate groups have argued that banks should not automatically give consumers the protection that comes with hefty fees. (Reuters, March 17) IRELAND - POLICE ARREST ANGLO IRISH BANK'S FORMER CHAIRMAN

Police have arrested Sean FitzPatrick, the former chairman of Anglo Irish Bank, sources said, the first casualty of a fraud investigation seen as vital to Ireland's efforts to win back investor confidence. The government has said it wanted to investigate fully the role of nationalised Anglo Irish and other banks in the financial collapse that brought a spectacular period of growth to an abrupt end. It has announced a series of tough new regulatory measures, but until this week no arrests had been made. FitzPatrick said in December

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2008 he had kept shareholders in the dark for years about loans worth 84 million euros ($115 million) he had received from Anglo Irish Bank, which had to be nationalised in early 2009. The regulator has also been investigating whether Anglo Irish used more than 7 billion euros of short-term deposits from bancassurer Irish Life & Permanent to mask large customer disposals. (Reuters, March 18) US - WACHOVIA PAYS $160 MILLION TO SETTLE DRUG-MONEY PROBE

Wachovia Bank has agreed to pay $160 million to settle U.S. charges that it failed to stop more than $100 million of Colombian and Mexican drug traffickers' money being laundered through accounts at the bank, U.S. authorities said. The deferred prosecution agreement, which included a $50 million fine to be paid to the U.S. Treasury, was the largest penalty ever imposed for a violation of the U.S. Bank Secrecy Act, U.S. Attorney for the Southern District of Florida Jeffrey H. Sloman told reporters. Sloman said a "systematic" failure by Wachovia, now a unit of Wells Fargo & Co to maintain effective anti-money laundering (AML) controls had led to more than $400 billion in unmonitored funds being channelled to accounts at the bank between 2004 and 2007 by currency exchange houses in Mexico, mostly through wire transfers (Reuters, March 17) RUSSIA - RUSSIA CORRUPTION “MAY FORCE WESTERN FIRMS TO QUIT”

Extortion by corrupt officials in Russia has got so bad that some Western multinationals are considering pulling out altogether, the head of a U.S. anti-bribery group said in an interview. Alexandra Wrage, whose non-profit organisation TRACE International advises firms on how to avoid bribery, told Reuters the "rampant endemic" corruption in Russia was much worse than in other big emerging economies. She recommended companies “reconsider doing business in Russia.” Wrage declined to name firms considering leaving, but Swedish furniture retailer IKEA said last year it was halting further expansion in Russia because of "the unpredictable character of administrative procedures in some regions.” (Reuters, March 15) US/INDIA - US ACCOUNTING WATCHDOG SANCTIONS SATYAM'S AUDITORS

The U.S. accounting watchdog has imposed sanctions against two Indian auditors who were affiliated with PricewaterhouseCoopers after they failed to detect at multi-year fraud at Indian technology services company Satyam Computer Services Ltd. Satyam, since renamed Mahindra Satyam, was hit by India's largest corporate scandal when its founder and chairman quit in January 2009, revealing profits had been overstated for years. An Indian affiliate of PwC called Lovelock & Lewes had been Satyam's auditors at the time. The U.S. Public Company Accounting Oversight Board (PCAOB) said it would bar two accountants responsible for the Satyam audits from "being an associated person of a registered public accounting firm.” The board said the auditors, Siva Prasad Pulavarthi, 43, and Chintapatla Ravindernath, 38, had not cooperated with a PCAOB investigation into the fraud. Prasad and Ravindernath resigned from Lovelock in January 2010.(Reuters, March 18) (IV) ACCOUNTING AND FINANCIAL STANDARDS

UK - UK'S MYNERS SAYS CURBS NEEDED ON BANK MARGINS

Banks should not be allowed to continue chalking up very high margins after "gouging" customers for years, Britain's financial services minister said. Myners told a hearing on banking’s future that the industry had


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enjoyed an unrivaled level of public subsidy and should not be allowed to sustain a return on equity of more than 20 percent. An investor in bank shares over the past decade would have lost money but a trader working for a bank would have made millions, Myners added. However, he also said new bank capital rules being developed by the global Basel Committee of central bankers and supervisors must avoid harming economic recovery. Myners also said it was not the right time to have a fundamental review of the world's regulatory architecture as there was no inherently superior model. He recommended a return to a simpler, traditional banking model for serving consumers with more decisions taken at the branch level. (Reuters, March 18) GLOBAL - IASB: SINGLE SET OF ACCOUNTING RULES ON TRACK

The world's top accounting bodies remain on track to thrash out a common set of rules by the middle of next year, the International Accounting Standards Board said. The G20 group of countries set the ambitious deadline last year to make it simpler for cross-border companies and investors, but differences over how to value some complex assets have raised concerns about the timetable. Last month the U.S. Securities and Exchange Commission said it would commit to a new work plan that would delay any move to international standards until at least 2015. The IASB, whose rules are used by listed companies in over 115 countries, including the European Union but not the United States, said it has stepped up meetings with its U.S. peer the Financial Accounting Standards Board. IASB Chairman David Tweedie said the effort was on schedule to meet its June 2011 target. Tweedie put also forward a compromise position on provisioning requirments for banks to build up capital buffers for bad times, which has muddied the convergence effort. He said an additional “regulatory income statement" could be required, with language agreed between the IASB and financial regulators. The statement would show the adjustment to the net profit after tax for the items regulators require such as the build up or draw down on buffers. (Reuters, March 16) EU – EU CENTRAL BANKER BACKS HIGHER RISK MARGINS FOR LOW-RATED BONDS

European Central Bank Governing Council member George Provopoulos backed calls to consider higher risk margins for lower-rated bonds submitted by banks as security for loans. Fellow policymaker Axel Weber floated the idea earlier after criticism about the pivotal role assigned to ratings agencies in deciding which assets can be used as collateral for central bank loans. Analysts say the idea would make the ECB more flexible by easing dependency on a single credit rating agency. Currently, banks wanting to borrow money at ECB liquidity operations must deposit assets with their local central bank. These include bonds, securities and packages of loans. The ECB accepts debt rated as low as BBB- by one ratings agency as part of a temporary relaxation in its rules, due to expire at the end of the year. Next year, its regular threshold of A- is set to return and at least one credit ratings agency has to rate a bond above this level for it to be eligible. (Reuters, March 12) UK - UK'S FSA SEES BRITISH BANK CAPITAL LEVELS EASING

Britain's financial watchdog said banks will not have to hold such high levels of capital in future years as they do now. "We now quite overtly expect capital ratios to fall over the next few years," Financial Services Authority Chairman Adair Turner told a hearing on the future of banking that agency officials now “overtly expect” the ratios to fall. The FSA has introduced an interim requirements to hold much higher levels of capital than legally required under a global Basel accord that is now being reviewed. British Liberal Democrat lawmaker Vince Cable told the hearing that banks were saying they were in a "bit of a bind" by having to satisfy stricter capital requirements and continue lending to aid economic recovery.

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FSA Chief Executive Hector Sants said that until the end game of the Basel process of setting new capital requirements is known around year-end, banks are nervous about bringing down their capital levels. (Reuters, March 18) FRANCE - FRANCE SAYS NEW BASEL BANK PROPOSALS TOO SEVERE

New regulations that would force banks to raise their capital reserves could choke off lending and stifle economic growth, French Economy Minister Christine Lagarde said. Lagarde told the business daily Les Echos that France's European Union partners were also concerned that the proposals by the Basel Committee of central bankers and supervisors for an overhaul of the Basel II global bank capital accord were too restrictive. She hoped they could be revised by June in time to be adopted in an EU directive. Lagarde also said she was worried that the United States was lagging on commitments made at a meeting of the Group of 20 nations last year to force its banks to adopt the Basel II rules by 2011. She would discuss the issue with her U.S. counterparts later this month and if necessary pursue it when France takes over the G20 chairmanship next year. (Reuters, March 17) GLOBAL - REGULATION TO TRIGGER BANK M&A - ROTHSCHILD EXEC

Expected tighter capital restrictions on banks will likely trigger a wave of consolidation in the sector by pressuring firms to slim down, a managing partner of investment bank Rothschild & Cie told Reuters. The cost of carrying more capital will push banks to become more focused on their best-performing business lines, paving the way for asset sales and a move away from diversified business models, Francois Henrot said in an interview. (Reuters, March 17) (V) TAX

RUSSIA – RUSSIA PLANS CAPITAL-GAINS TAX BREAKS FOR INVESTORS – REPORT

Russia might introduce a zero tax for strategic investors on capital gains from shares not trading on stock exchanges to stimulate long-term investment in innovative companies, the business daily Vedomosti reported. The newspaper, citing unnamed government sources, said the tax incentives would affect stakes of 10 percent and more. (Vedomosti, March 16) GLOBAL - IMF'S STRAUSS-KAHN CASTS DOUBT ON TRANSACTION TAX

A tax on financial transactions to help pay for bailouts of failed banks would be difficult to devise and easy to avoid, said the International Monetary Fund's managing director, Dominique Strauss-Kahn. Strauss-Kahn, who is to present the G20 next month with proposals on making banks pay for financial bailouts, told the European parliament the technical sophistication of the finance industry had cooled the enthusiasm he held for a transaction tax in the 1970s. It would be easier now for the industry to structure derivatives to avoid such a tax, he said. Germany and France have pushed for a "Tobin" style tax on transactions, named after U.S. economist James Tobin who proposed it in the 1970s. The idea of a transaction tax is seen as effectively dead already as the United States and Canada have said they will not introduce one, giving banks an escape route. However Strauss-Kahn said there was still room for “some financial-sector tax.” Other ideas he is considering include a levy on a bank’s balance sheet. (Reuters, March 17) This Briefing is produced by Reuters News. Contact [email protected] for more information, or to be added to the distribution list. © Thomson Reuters 2010. All rights reserved. This information is being distributed free of charge. Thomson Reuters is not liable for any inaccuracies or other errors or delay in the information or for any reliance on it. This Global Regulatory Briefing contains headlines and summaries only and therefore you should refer for more detail or verification to the original sources. Republication or redissemination of this information without Thomson Reuters prior written consent is prohibited.

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US – IRS SAYS NEW UBS-STYLE FOREIGN BANK PROSECUTION "SHORTLY"

U.S. tax authorities are expected to "very shortly" launch another prosecution against a foreign bank similar to the tax evasion case they pressed against Switzerland's UBS AG , an Internal Revenue Service (IRS) agent said. Linda J. Osuna, IRS Special Agent in Charge of the Tampa Field Office, told Reuters the expected U.S. case against the foreign bank, which she declined to name, would be disclosed “within the month.” Last year, Switzerland's UBS, facing accusations that some of its bankers encouraged and helped U.S. citizens to try to conceal from the IRS assets held in overseas accounts with the Swiss bank, settled two U.S. government lawsuits against it. UBS paid $780 million in one case and also later agreeing to turn over 4,450 accounts to U.S. authorities, although this last deal was blocked after a Swiss court ruled in favor of a UBS client, saying her actions did not constitute tax fraud. (Reuters, March 15) SWITZERLAND – CREDIT SUISSE SEES WITHHOLDING TAX ON GERMANS' ACCOUNTS - PAPER

The chief of Credit Suisse's private bank is proposing a withholding tax on bank accounts held by Germans in Switzerland to help ease strained ties with Berlin, a newspaper reported. Such a withholding tax could mean outflows in the short term but would not greatly harm his bank's fortunes, Walter Berchtold told Germany's Handelsblatt. The German government has taken an increasingly tough line on tax evasion since the financial crisis broke and said last month it would pay for a CD of stolen Swiss bank data believed to be rich in detail about undeclared holdings. Swiss banks, which manage some $2 trillion in offshore funds, should not be asked to check their clients' tax compliance, Berchtold said. Instead, he said, a withholding tax on money held in Switzerland “may be perceived as unfair” but would help Germany raise money. (Reuters, March 15) US – U.S. TAX-CHEAT PROBERS LIKELY TO GET PEEK AT HSBC ACCOUNTS

The revelation that an ex-employee of HSBC Holdings Plc stole tens of thousands of its Swiss accounts is likely to give U.S. tax authorities fresh clues in their pursuit of wealthy tax cheats abroad. HSBC said theft by a former employee involved data on up to 24,000 Swiss client accounts that has wound up in the hands of authorities in France, where the ex-worker fled. The accounts were from a swath of international clients. U.S. authorities are likely negotiating with the French through a treaty request to get the names of any U.S. clients, lawyers said. That would provide leads as they seek tax evasion prosecutions beyond the UBS affair. Giant Swiss bank UBS AG admitted last year that it helped U.S. clients evade taxes and paid $780 million to settle a criminal probe. U.S. authorities have said they are exploring other banks' behavior. (Reuters, March 12) (VI) DERIVATIVES

EU - EU'S BARNIER PLEDGES TO TACKLE SPECULATORS

The European Commission plans to propose controls on certain government debt derivatives as soon as June in an effort to crack down on speculation blamed for aggravating Greece's borrowing problems. Michel Barnier, the European commissioner in charge of financial market regulation, told members of the European Parliament he would propose rules to control naked selling of credit default swaps -- the sale of the insurance contracts to buyers who do not own the debt -- as soon as June. France and Germany in particular have criticised naked selling of CDS, while the United States and Britain are among countries that oppose an outright ban on the trade although they favour regulation of derivatives' markets generally. Mario Draghi, chairman of the international Financial Stability Board and a key player in global moves to regulate financial markets, said this week he would outline in October how to tackle the off-exchange derivatives market.

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Draghi said the FSB would define which derivatives should be standardised and moved onto more transparent clearing houses. He said the first step would be centralizing CDS trading. (Reuters, March 17) (VII) EXCHANGES AND TRADING PRACTICES

UK – UK REGULATORY CHIEF DOUBTS VALUE OF HIGH-SPEED SHARE TRADING

Sophisticated forms of high-speed share trading have questionable value and may create risks for the market, Britain's top financial regulator said. Financial Services Authority Chairman Adair Turner told a hearing on the future of banking that not all trading activity was “equally important” and he said high-speed flash trading and algorithmic trading had only minimal social value. If such trading creates risks, regulators would be happy to abandon it, Turner said. (Reuters, March 18) US – U.S. REGULATOR TO PROPOSE NEW CO-LOCATION RULE

U.S. regulators will propose a rule, aimed at high-frequency traders, to ensure all market participants have equal access to market data, Commodity Futures Trading Commission Chairman Gary Gensler said. Gary Gensler, speaking to reporters, said the principle of “open and fair and consistent access,” should govern the co-location of traders’ computers near exchange servers. He declined to give a timetable on the co-location proposal, but market watchers scoffed at the possibility of curbing the growing practice. Imposing new rules could prompt high-frequency traders to move their trades to overseas exchanges, market participants have said. Big stakeholders in the U.S. futures industry appear confident that its regulator will see the value in high-frequency trading, even if it applies greater monitoring. Defenders have emerged to argue that all investors benefit from the liquidity, narrower spreads, and cheaper and easier trading that it yields. (Reuters, March 11) EU - EU'S BARNIER SAYS WILL TACKLE SHORT-SELLING

The European Commission will put forward rules to govern naked short selling and the market in credit default swaps or debt insurance, EU financial markets chief Michel Barnier said. Barnier told European parliamentarians at a special committee meeting that a structured package of reforms would be set out in June. (Reuters, March 17) EU - SPLINTERED EUROPE SHARE MARKET SEEN RIPE FOR ABUSE

The splintering of Europe's share markets into numerous trading platforms in recent years has created a fertile field for market abuse and made it more difficult to detect, a group of London market consultants said. The EU's Markets in Financial Instruments Directive (MiFID) in 2007 opened exchanges to competition from low-cost new rival platforms known as multilateral trading facilities (MTFs), which has fragmented the market. Brian Taylor, a member of the new Alliance of Independent Advisors to Financial Markets, or Avenues, told a media briefing that diminishing fairness and order in the markets could become a macro-economic issue if traders lose confidence. Taylor is managing director of bta Consulting, which joined forces with Bryok Consulting, Golden Advisors and Capstan Consulting, to form Avenues, and to design a system to comb through trade information to identify possible abuse. Before MiFID, national exchanges accounted for the large majority of trading. All UK trades had to be reported to London Stock Exchange , which was required to run surveillance for market abuse, for example. Now a stock such as Vodafone trades on 18 different venues including MTFs and dark pools, as well as by dealers over-the-counter, the consultant group said. The new MTFs and trade reporting firms are not obliged This Briefing is produced by Reuters News. Contact [email protected] for more information, or to be added to the distribution list. © Thomson Reuters 2010. All rights reserved. This information is being distributed free of charge. Thomson Reuters is not liable for any inaccuracies or other errors or delay in the information or for any reliance on it. This Global Regulatory Briefing contains headlines and summaries only and therefore you should refer for more detail or verification to the original sources. Republication or redissemination of this information without Thomson Reuters prior written consent is prohibited.

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to monitor trade data, which is left to regulators, it said. Furthermore regulatory surveillance has remained national, even while MiFID allows cross-border trading. Steve Leegood, of Bryok, said a single monitoring system was needed so all data could be brought together and monitored. (Reuters, March 16) EU - SMARTPOOL PLANS PAN-EUROPE DARK POOL DATA SERVICE

SmartPool is starting a service to provide real-time consolidated post-trade data on Europe's dark pools, the London-based dark pool said, in a move that may help ease controversy around the market sector. French economy minister Christine Lagarde has called for a toughening of rules on dark pools as part of a review of European market regulation this year, and officials have said it may become harder for brokers to win exemptions from the rules. SmartPool, created by NYSE Euronext in partnership with HSBC, JP Morgan and BNP Paribas , said its MatchView service would go live in the second quarter with SmartPool's own data. It plans to add information in the summer from other dark regulated venues, or multilateral trading facilities (MTFs), which are already required to publish immediate post-trade data. Lee Hodgkinson, SmartPool chief executive called the service a step to “improve transparency and liquidity discovery.” SmartPool is also negotiating with broker-dealers, which are not bound by the same rules and may provide data on over-the-counter trades hours or even days after the fact, to gain access to their data. Executives at other banks have said they plan to stay unregulated, because real-time post-trade reporting could tip their hands to the market. (Reuters, March 15) NIGERIA - NIGERIA COURT VOIDS ELECTION OF STOCK MARKET PRESIDENT

A Nigerian court overturned the election of one of the country's best-known tycoons as president of the stock exchange, almost a year after he was cleared of involvement in alleged share manipulation. The court nullified the election last August of billionaire Aliko Dangote as president of the Nigerian Stock Exchange (NSE) following an appeal by shareholders in African Petroleum (AP) , whose stock price he had been accused of manipulating. Nigeria's Securities and Exchange Commission (SEC) last April cleared Dangote of any involvement in manipulating shares in AP. Justice Lambo Akanbi of Federal High Court in Lagos upheld the appeal against Dangote's election and called the conduct of the election “reprehensible and highly condemnable." (Reuters, March 12) US - DIRECT EDGE SET TO BECOME 4TH U.S. STOCK EXCHANGE

Direct Edge said it had received approval from the U.S. Securities and Exchange Commission to operate two stock exchanges, in a decision that will make it the fourth U.S. equities exchange operator and likely boost its trading revenue and speed. Direct Edge, based in Jersey City, New Jersey, said it expects its EDGA and EDGX trading systems to begin functioning as exchanges this spring. It currently runs as an electronic communication network, or ECN, that matches equity trades. Becoming a full-fledged exchange will give Direct Edge a bigger cut of the market data fees trading venues collect from market participants and lower some of its costs, an analyst said. (Reuters, March 12) (VIII) FUNDS MANAGEMENT

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US - FDIC SETS PRIVATE-EQUITY RULES MEETING - SOURCES

U.S. regulators are set to hold a meeting on March 22 with private equity executives and advisors as they review rules put in place last year to govern private investment in failed banks, sources familiar with the matter said. The Federal Deposit Insurance Corp held a similar meeting last summer before setting tough guidelines in August 2009 for private equity firms looking to invest in banks. The rules include requirements that private investors hold a higher capital level than bank buyers. This has dampened private equity deals in the sector, investors say. The guidelines were to be reviewed after six months, and the meeting to be held Monday afternoon is a part of that effort, the sources said. FDIC Chairman Sheila Bair told Reuters earlier this month that it would include bidders, lawyers and accountants. The agency will issue "additional clarifications" about the rules in the next several weeks, Bair said. (Reuters, March 17) (IX) CURRENCY

US - US SENATE BILL THREATENS STIFF PENALTIES ON CHINA

Members of the U.S. Congress threatened Beijing with duties on some of its exports if it fails to revalue its currency, and pressured the Obama administration to label China a currency manipulator. The bipartisan bill in the U.S. Senate is the latest effort by lawmakers to press China to change policies that keep its yuan currency cheap, effectively subsidizing Chinese exports and taxing competing imports. It comes two days after Chinese Premier Wen Jiabao dismissed U.S. complaints about China's exchange-rate policy and one month before President Barack Obama's administration must decide again whether to label China a currency manipulator in a semiannual report. The United States has told China the issue was a “real concern,” and said that important talks loomed. China later in the week let the yuan climb and disclosed it was sounding out exporters on whether they could cope with a stronger exchange rate. The U.S. bill would authorize the Commerce Department to take currency misalignment into its calculation of import injury duties for specific products if a targeted country has not begun steps within 90 days to realign its currency, according to the draft text of the bill. The legislation crafted by Senators Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, would require the U.S. Treasury Department to identify countries with fundamentally misaligned currencies each September and March. (Reuters, March 16-18) CHINA - WORLD BANK TELLS CHINA TO TIGHTEN POLICY

The World Bank raised its 2010 growth and inflation forecasts for China and recommended a tighter monetary policy as well as a stronger exchange rate to restrain inflation expectations and asset bubbles. The bank revised its projection of gross domestic product growth this year to 9.5 percent from 8.7 percent in its previous China Quarterly Update in November and 9.0 percent in a regional report released in January. As for the yuan, a stronger exchange rate would help dampen inflation pressure by lowering the price of imports and toning down demand. It would also help rebalance China's growth towards services and consumption and away from industry and investment, the report said. (Reuters, March 17) CHINA - CHINA ADVISER PROPOSES FOREX TRANSACTION TAX - REPORT


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China should consider a tax on foreign exchange transactions to curb hot money flows, an adviser to the bank regulator said. Andrew Sheng, chief adviser to the China Banking Regulatory Commission, said the purpose of the tax was not to increase transaction costs but to identify who was speculating in the currency market, the China Business News reported. Indeed, China could initially set the mooted "Tobin" tax at zero to serve as a warning to speculators, Sheng, a former chairman of the Hong Kong Securities and Futures Commission, said. (Reuters, March 17) JAPAN – BANK OF JAPAN’S SHIRAKAWA SAYS LATEST STEP NOT AIMED AT FOREX

Bank of Japan Governor Masaaki Shirakawa said an expansion of the bank's fund supply operation was not directly aimed at influencing currency rates. The central bank chief was speaking after the BOJ decided to ease monetary policy further as expected, doubling the scale of the money supply tool it adopted in December, though it left the duration of fixed-rate loans to banks at three months. Two of the seven board members dissented, suggesting the board may have had difficulty justifying the move as the economy is recovering. (Reuters, March 17) POLAND - POLISH REGULATOR MULLS LIMITS ON FOREX LENDING

Poland's financial regulator KNF is mulling putting limits on mortgages in foreign currencies, fearing that their re-emergence could some day lead to a wave of defaults, one of its officials said. Before the collapse of many of Europe's emerging market currencies, some 70 percent of mortgages were denominated in foreign currencies, mainly the Swiss franc. The ratio to loans in Polish zlotys reversed last year, but many banks are again keen to lend in foreign currencies. Andrzej Stopczynski, the head of KNF's banking division, said “loans in foreign currencies are not a product for a normal client.” He said prohibiting such loans is one of the tools regulators have for restraining risky lending, but such a step would be a last resort if other regulations failed to stem the tide of foreign denominated credits. Poland's banking lobby group ZBP expects Polish lenders to provide 45-50 billion zlotys ($15.8 billion-$17.5 billion) this year, some 15 percent more than in 2009, with loans in euros becoming increasingly popular. (Reuters, March 11) SOUTH AFRICA - S.AFRICAN CENTRAL BANKER WARNS ON CARRY TRADE

South Africa's deputy central bank governor expressed concern over the impact of interest rate carry trades on the rand and said the phenomenon could constitute a big challenge in the future if not properly managed. He told a leadership conference that there had been “significant capital flows” coming to countries such as South Africa, seeking higher returns than in low-interest-rate advanced economies. The rand's gains have raised concerns that it could undermine the manufacturing sector, a key sector in the economy. (Reuters, March 18) INDIA - INDIA TO GRADUALLY MOVE TO RUPEE CONVERTIBILITY- FINANCE MINISTER

India will take gradual steps to full convertibility of the rupee but not in one go, Finance Minister Pranab Mukherjee told parliament. Mukherjee said full convertibility was the ”ultimate destination,” which would be reached through a “calibrated approach” to minimise the risks of a sudden full opening of the Indian economy. India has drafted a plan on fuller capital account convertibility. This includes a three-phase plan extending to 2010/11 and would allow greater movement of capital in and out of the local currency, but progress has been limited so far. Issues related to the full convertibility of the rupee were one of the roadblocks in a scuppered deal with Indian telecom Bharti Airtel and South Africa's MTN. The rupee has been convertible on current account since 1994, meaning it can be changed freely into foreign currency for purposes like trade-related expenses. But it cannot be converted freely for activities like acquiring overseas assets. (Reuters, March 12) (X) TRADE & CROSS BORDER


SAUDI ARABIA - SAUDI ARABIA APPROVES FIRST ETF OPEN FOR FOREIGNERS

Saudi Arabia has approved the Gulf Arab state's first exchange-traded fund, which will be accessible to foreigners as part of efforts to open up the biggest Arab bourse. Saudi financial firm Falcom Financial Services won approval to list the "Falcom Saudi Equity ETF" on the bourse, the Capital Market Authority said. The world's top oil exporter has been trying to encourage more foreign money to its bourse, having recently allowed indirect foreign ownership via so-called swap agreements. (Reuters, March 16) JAPAN/TAIWAN – TAIWAN EXCHANGE EYES ETF CROSS-LISTING WITH TOKYO – REPORT

The Taiwan Stock Exchange plans to introduce cross-listings of exchange-traded funds with the Tokyo Stock Exchange, Jiji Press reported, citing a senior official at the Taiwan market. Jiji cited Taiwan exchange senior vice president Chen Shin-chung as saying it aims to create an ETF of Taiwanese stock to trade on the Tokyo exchange, and it also wants to list major ETFs that now trade on the Tokyo exchange. (Jiji, March 15) AUSTRALIA - AUSTRALIA TELLS BEIJING TO STAY OUT OF IRON ORE TALKS

China's steelmakers should not try draw their government into iron ore price talks with Australian miners, Australia's trade minister Simon Crean told reporters. Any overt efforts by Beijing to influence iron ore prices would likely deal the coup de grace to the decades old annual benchmark pricing mechanism, already teetering on the brink of collapse due to increasingly volatile market conditions and the growth in the spot market. The China Iron & Steel Association (CISA) and the heads of more than 10 mills wrote a joint letter to Premier Wen Jiabao on March 11, the official China Securities Journal has reported, asking him to take up the issue of rising iron ore import prices at a national level. China's steel industry is worried about exploding costs that they say cannot be passed onto users. The annual negotiations have previously taken on a political angle, with relations between the two countries strained by the arrest last year of four members of Rio Tinto's iron ore negotiating team, and often contentious Chinese bids for stakes in Australian producers. Some of the strain was eased by a report this week by China clearing Rio Tinto and Australian government of blame for the collapse of a $19.5 billion tie up between Rio and Chinalco last June. (Reuters, March 15) ZIMBABWE - ZIMBABWE CENTRAL BANK HEAD ATTACKS PLANNED COMPANY SEIZURE

Zimbabwe's central bank governor attacked as "reckless" a drive by President Robert Mugabe's party to force foreign-owned companies to cede majority shareholdings to local black businessmen. Gideon Gono, a close ally of Mugabe whose position at the central bank is opposed by the president's rival Prime Minister Morgan Tsvangirai, said in a newspaper interview the move was scaring off investment badly needed to revive a battered economy trying to recover from a decades-long crisis. Gono told privately-owned weekly Financial Gazette newspaper that the black empowerment drive smacked of racism, and would hurt efforts by a power-sharing government formed by Mugabe and Tsvangirai a year ago to fix the economy. The central bank governor called for protection for foreign-owned banks like Barclays, Standard Chartered, Central African Building Society and MBCA, which he said were targets of "vulture-style" seizures by some cartels of black businessmen. Gono said the central bank was ready to award new licences to blacks to run their own banks, and suggested Zimbabwe could empower historically disadvantaged blacks by giving them preference in government contracts while allowing some joint ventures with foreigners on a willing-seller-willing buyer basis. Tsvangirai's Movement for Democratic Change (MDC) says it is trying to persuade Mugabe's ZANU-PF party This Briefing is produced by Reuters News. Contact [email protected] for more information, or to be added to the distribution list. © Thomson Reuters 2010. All rights reserved. This information is being distributed free of charge. Thomson Reuters is not liable for any inaccuracies or other errors or delay in the information or for any reliance on it. This Global Regulatory Briefing contains headlines and summaries only and therefore you should refer for more detail or verification to the original sources. Republication or redissemination of this information without Thomson Reuters prior written consent is prohibited.

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to shelve the empowerment law, and Gono said he hoped current public consultations on the programme would also inform the government. (Reuters, March 18) TAIWAN - TAIWAN APPROVES CHINA FINANCIAL INVESTMENT RULES

Taiwan's top financial regulator has formally announced guidelines on investments between local and Chinese financial institutions, boding well for acquisition opportunities in cross-strait financial industries. The Financial Supervisory Commission said in a statement that among the guidelines, single mainland banks would not be allowed to take more than a 5 percent stake in any Taiwanese bank, while Taiwan banks would not be allowed to invest more than 15 percent of their book value in Chinese banks. Thirteen local financial holding companies, including Cathay Financial Holding and Chinatrust Financial Holding, were qualified to invest in China, the commission told reporters. The guidelines follow a historic financial services pact with China that took effect in January. (Reuters, March 16) TAIWAN - TAIWAN TO SEEK TAX-FREE STATUS FOR LCD PANELS IN CHINA TALKS

Taiwan will seek duty-free status for LCD panel exporters under a proposed economic cooperation framework agreement with China, three government sources in Taipei said. LCD panels made by Taiwan's AU Optronics and Chi Mei among others currently face 3-5 percent import duties in China. The two countries will meet this month for more talks on the deal, known as ECFA. It was not clear whether the proposal will be made at those talks. (Reuters, March 15) (XI) STATE ENTERPRISES

UK - MANDELSON: UK SHOULD CONSIDER STATE INVESTMENT FUND

Britain should examine the case for setting up a government-backed investment fund to help finance infrastructure projects, business minister Peter Mandelson said. Mandelson said in a speech that Britain may need to source as much as 500 billion pounds ($758 billion) for future projects to remain competitive and spur growth, with the bulk of that cash probably coming from private investors. There has been speculation that the government's budget on March 24 could contain details of such a venture. (Reuters, March 12) SINGAPORE - EX-MORGAN STANLEY BANKER TO STEP DOWN AS TEMASEK SENIOR MD

Singapore state investor Temasek's senior managing director Michael Dee will step down from his current role on April 30, the second high-profile foreigner to leave the sovereign wealth fund in less than a year. Temasek said that Dee, who was part of a drive to internationalise the fund, will remain in an advisory role as senior director until the year-end, but declined to give reasons for his departure. Melvyn Teo, associate professor at Singapore Management University, said Temasek appears to be focusing on “home-grown talent” in keeping with a recent investment strategy more focused on the region. Temasek has said it plans to cut exposure to developed markets and sees potential in Asia, Latin America and Africa, as sovereign funds around the world cautiously emerge from the financial crisis. Dee's departure comes after last year's failed experiment to bring in former BHP Billiton head Chip Goodyear as Temasek chief executive. (Reuters, March 16) CHINA - CHINA STATE SEEN FUND OPEN TO SHORTING STOCKS

China's $300 billion sovereign wealth fund is looking at directly investing in funds that could benefit from falling equity prices, a top manager at Pyramis Global Advisors said. China Investment Corp spent last year diversifying its investments into commodities, real estate and other asset classes, though the ability to short stocks means the state-backed investor would employ a strategy traditionally used by hedge funds.

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"China has opened up its receptivity to looking at and understanding the benefits of long/short types of capabilities," Young Chin, Pyramis chief investment officer, said in an interview that China is seeking to learn about the “benefits of long/short types of capabilities” and that "the dialogue has just started.” Pyramis, which has $152 billion in assets under management as the institutional focused unit of Fidelity Investments, offers a suite of long/short equity funds, or so-called market neutral strategies, that try to profit from both increasing and decreasing prices in one or more markets. (Reuters, March 15) (XII) COMMODITIES & ENERGY

INDIA - INDIA PUTS OFF NUCLEAR BILL AFTER OPPOSITION PROTESTS

India's government shelved for now a crucial nuclear energy bill after opposition protests, a move likely to delay the entry of U.S. firms into India's $150 billion nuclear market. The decision is the latest in a series of setbacks for the Congress party-led coalition which, has sometimes also given in to opposition pressure on moves entailing painful adjustments to free markets. The government backed off from introducing in parliament the bill to limit nuclear firms' liability in the case of industrial accidents. Opposition parties say the bill favours private players as it seeks to put a maximum liability of about $450 million on the state-run reactor operator without placing any compensation burden on private suppliers and contractors. Ratifying the Civil Liability for Nuclear Damage Bill is imperative for private U.S. firms reluctant to do business in India without legislation that underwrites their compensation liability in the case of industrial accidents. (Reuters, March 15) CANADA - MORE REGULATION NEEDED FOR CANADA OIL SANDS - REPORT

Steam-driven projects to extract crude from Canada's oil sands, often held up as more environmentally friendly than mining, have major drawbacks of their own that require more stringent regulation to fix, an environmental think tank said. The Alberta-based Pembina Institute compared nine projects that employ "in situ" extraction methods -- where steam is pumped into the earth to liquefy the extra-heavy crude so it can be pumped to the surface -- and found all need to make improvements to varying degrees. Simon Dyer, one of the authors of the report, said “we don’t have half the regulations” needed to make the projects more environmentally sound. Alberta Energy Minister Ron Liepert said he had not seen the report, but said Alberta's energy industry needs fewer regulations. (Reuters, March 17) CHINA/ARGENTINA - CNOOC TO BUY STAKE IN ARGENTINA'S BRIDAS

China National Offshore Oil Corp, China's biggest offshore oil explorer, plans a joint venture with Argentina's Bridas Energy Holdings, paying $3.1 billion to take a 50 percent stake in a subsidiary, Bridas Corporation, the company said. Bridas Corp, currently wholly-owned by Bridas Energy, will become equally owned by the partners and could have its name changed once the transaction is completed, CNOOC said in a statement to the Hong Kong stock exchange. CNOOC’s president, Yang Hua, called Bridas “a very good beachhead for us to enter Latin America." CNOOC has been a noticeable absentee from overseas M&A since it paid $2.7 billion for a stake in French oil major Total's African Akpo field in 2006. A year earlier it was bumped by a U.S. political backlash from buying U.S.-based oil company Unocal. Recently, however, the company has been involved in several deals, including a possible partnering London-based explorer Tullow Oil in an expansion of its interests. (Reuters, March 14)


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CZECH REPUBLIC - CZECHS SEEK TO TEMPER SOLAR INVESTMENT BOOM

An over-used Czech subsidy scheme has created a bonanza for solar power that has ignited fears of a spike in energy prices and grid instability. Lawmakers are now gearing up to cut the country's generous solar incentives, which investors say is needed to cool off the boom that made the Czechs the third-largest builders of solar capacity behind Germany and Italy last year. This year, new projects will dwarf those of last year before cuts in feed-in tariffs -- which are currently up to 469 euros per megawatt hour -- push some investors further south to sunnier places than the central Euroepan Czech Republic, such as Bulgaria, investors said. (Reuters, March 16)

(XIII) ISLAMIC FINANCE

MALAYSIA - MALAYSIAN BODY CREATES NEW ISLAMIC REINSURANCE MODEL

Islamic finance researchers backed by the Malaysian central bank have developed a new wadiah retakaful model which could boost protection for Islamic-finance sharia insurers. The structure aims to address some of the sharia objections to the popular wakala, mudaraba and hybrid models currently used by Islamic reinsurers who play a key role in the $14 billion takaful insurance industry. Based on the contracts of wakala and wadiah yad dhamanah, the concept devised by the International Sharia Research Academy for Islamic Finance (ISRA) states that takaful players own the surplus from contributions paid into a fund. ISRA Executive Director Mohamad Akram Laldin told Reuters that the wadiah fund is owned by the takaful companies, eliminating ownership issues. Under the pure wakala and mudaraba models now used, there are differences in opinions as to who is entitled to the surplus in the funds, with some companies sharing it with participants while others returning it to the participants only. Under the new model, takaful companies would contribute to a fund managed by an Islamic reinsurer. The reinsurer is paid an agent's fee and invests the fund or uses it for other purposes. The retakaful firm gets the profits earned from investments. Reserves and claims are deducted from the fund and the surplus is returned to the takaful companies. (Reuters, March 18) INDUSTRIAL POLICY

MALAYSIA - MALAYSIA PLANS NEW ECONOMIC MODEL FOR GROWTH

Malaysia is considering proposals to end its subsidy regime and phase in a new goods and services tax as it begins dismantling a four-decade race-based economic system that has deterred foreign investment. The economic regime adopted after race riots in 1969 has given a wide array of economic benefits to the 55 percent Malay population, but investors complain it has led to a patronage-ridden economy that has resulted in foreign investment increasingly moving to Indonesia and Thailand. The cabinet has seen the reform proposals, which will be reviewed again before Prime Minister Najib Razak presents them at the "Invest Malaysia" conference this month, a government source who has seen the plans told Reuters. An aide to Najib said the plans, which will be open to public discussion before taking effect in June, would be unveiled only at the end of this month. Last week, a finance ministry source told Reuters Malaysia would delay introducing laws to bring in a goods and services tax. Over the past three weeks, Malaysia's government has postponed electricity price rises and ended plans to hike subsidised petrol prices, part of measures planned to reduce a budget deficit that stands at a 20-year high. (Reuters, March 18) SOUTH AFRICA – SOUTH AFRICA LAND NATIONALIZATION CALLED THREAT TO INVESTMENT

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South Africa's plan to nationalise all farmland and limit the amount of land owned by farmers will seriously harm investment in agriculture, the country's biggest farmers' grouping said. The land affairs department in Africa's biggest economy recently published a strategic plan for the years 2010-2013, in which it proposes two options to speed up land transfers to landless blacks. Under the first option, all productive land would become a national asset with farmers paying taxes to lease land from the state. A second option would be for limits to be imposed on landowners, curbing the amount of land that they can own, land affairs Director General Thozi Gwanya says in the document. But the plan, which still has to go before parliament, has angered farmers and opposition political parties, who say it could dent both foreign and local investment and food security in one of the continent's most developed farming sectors. Theo de Jager, Deputy President of farmers' grouping Agri SA, told Reuters in an interview that damage to agricultural investment would be “vast” . Pretoria has vowed that its own land reform will be orderly, in contrast with Zimbabwe, but critics say many of the same problems faced by Zimbabwe, including lack of proper support for new farmers and inadequate farming skills, are likely to stymie South Africa's programme. (Reuters, March 16) TELECOMS & INTERNET

US - US BROADBAND PLAN AIMS TO BOOST SPEED, WIRELESS

U.S. regulators released a blueprint for upgrading Internet access for all Americans, with Internet speeds up to 25 times the current average, expanded coverage and more airwaves for mobile services. The U.S. Federal Communications Commission plan, requested by Congress, aims to have 100 million American households get Internet speeds of 100 megabits per second (Mbps) by 2020. As an interim goal, the plan calls for 100 million U.S. homes have 50 Mbps Internet speeds by 2015. The current household average speed is about 4 Mbps. Under the plan, a Connect America Fund would receive up to $15.5 billion over the next decade, using money shifted from the Universal Service Fund that currently supports telephone service for the poor and rural areas. The plan stresses a need to devote more airwaves to the anticipated explosion of handheld devices capable of playing movies and music in addition to handling emails and voice calls. The agency says it is seeking expanded authority from Congress