The Financial Services Authority launched a consultation on 3 December 2012 on the FCA’s use of temporary product intervention rules. The press release is here and the consultation document is here. The consultation closes on 4 February 2013.
The Financial Services Authority, in its guise as the UK Listing Authority, has published issue 4 of its Primary Market Bulletin.
This issue is entirely taken up with discussing how the UKLA has compiled the contents of its new “Knowledge Base“, which is “the UKLA’s repository of available technical guidance. The information is designed to assist both issuers and practitioners advising issuers in interpreting the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules”. The notes in the Knowledge Base constitute formal FSA guidance.
Summary of industry stance and the Treasury / FSA consultations promised in the New Year, from Pinsent Masons.
4 December 2012 speech by Jamie Symington, Head of Wholesale Enforcement at the Financial Services Authority; covers:
- The FSA’s policy of “credible deterrence:
- Rising number of STRs;
- SMARTS software to improve surveillance and detection of market abuse;
- Build-out of enforcement capability;
- Decline in suspicious activity pre-announcement of takeovers, to 20% in 2011;
- Market abuse successes;
- An overview of the Einhorn / Greenlight Capital case;
- Thematic and educational work; and
- The future approach of the FCA.
See also: Einhorn / Greenlight Capital posts.
The Financial Reporting Council and the The Institute of Chartered Accountants of Scotland launched on 20 November 2012 “a major project that will investigate the competencies and professional skills of auditors”. Press release here and project document here.
…in connection with the spate of accounting misdemeanours involving Chinese companies listed on US capital markets, of which the Sino-Forest scandal has been the most high-profile. SEC press release here.
On the same day, Canada’s stock market regulator has accused Ernst & Young LLP of failing to conduct a proper audit of Sino-Forest.
The NYT Dealbook’s overview of the SAC / Martoma insider dealing case explains controlled-liability theory:
“…the S.E.C.’s warning is the boldest regulatory shot yet across SAC’s bow. The commission filed a parallel civil suit last week alongside the Justice Department’s criminal charges that named Mr. Martoma and CR Intrinsic, the SAC unit that employed Mr. Martoma, as defendants.
A person briefed on the investigation said that an additional action against SAC, or even Mr. Cohen, could involve accusations of fraud based on the so-called controlled-liability theory, meaning that it was in “control” of Mr. Martoma when he engaged in insider trading.”
See also: Expert network firms
Andrew Ross Sorkin on hedge funds and the perils of expert network firms, as exemplified by ongoing the SAC / Martoma insider case.
The Government published on 22 November 2012 its response to the The Kay Rcview of UK Equity Markets and Long-term Decision Making. The Kay Review – which we discussed in this post – made 17 specific recommendations aimed at, in the Government’s words, “reversing the culture of short-termism and restoring relationships of trust and confidence in the investment chain”; the Government response sets out its (overwhelmingly supportive in principle, if not in detail) stance on each of those recommendations
UBS sound pretty clueless by this account from the FSA (our emphasis added):
“The Financial Services Authority (FSA) has fined UBS AG (UBS) £29.7 million (discounted from £42.4 million for early settlement) for systems and controls failings that allowed an employee to cause substantial losses totalling US$2.3 billion as a result of unauthorised trading. The trader, Kweku Adoboli, has been convicted of two counts of fraud by abuse of position and sentenced to seven years’ imprisonment. The systems and controls failings revealed serious weaknesses in the firm’s procedures, management systems and internal controls.
On 14 September 2011 UBS became aware that unauthorised trading had been carried out between 1 June 2011 and 14 September 2011 (the Relevant Period) on the Exchange Traded Funds Desk (the Desk) in the Global Synthetic Equities (GSE) trading division conducted from the London Branch of UBS.
The losses were incurred primarily on exchange traded index future positions. The underlying positions were disguised by the use of late bookings of real trades, booking fictitious trades to internal accounts and the use of fictitious deferred settlement trades.
During the Relevant Period, there was insufficient focus on the key risks associated with unauthorised trading within the GSE business conducted from the London Branch. The significant control breakdowns allowed the trading to remain undetected for an extended period of time.read more »
Jessica Mang and Christina Weckwerth were, unknown to each other, the girlfriends of Thomas Ammann. Today they were found not guilty of insider dealing. Mr Ammann was found guilty of two counts of insider dealing and two counts of encouraging insider dealing. The tone of the FSA’s press release suggests disappointment at the acquittal of the girfriends:
The EU short selling regime came into force on 1 November 2012, as we discussed in this post.
The Financial Services Authority has now published the first list of short positions disclosed to it under the new regime. The list can be downloaded here (box at bottom right of page).
The largest short position is Greenlight Capital’s 4.37% short in Daily Mail & General Trust plc.
For the FSA’s factsheet on the Short Selling Regulation, see here.
On 1 November 2012 the Financial Services Authority issued a Policy Statement ”summarising the responses to our consultation on the proposed changes to the Handbook we need to make to comply with the EU Short Selling Regulation (SSR) from 1 November 2012, as well as our policies regarding the exercise of the discretions the SSR gives us”, and also published the changes to the FSA Handbook necessary to give effect to the SSR.
PRA should have to approve major bank M&A, says Treasury Committee in report on the FSA’s failures on RBS/ABN Amro
In its report on “The FSA’s report into the failure of RBS”, the Treasury Committee recommends that:
“that Government include an explicit requirement for the Prudential Regulation Authority to approve major bank acquisitions and mergers in forthcoming legislation and that HM Treasury, working with the relevant public bodies, report on the legislative or other changes it proposes to make to the current regime regulating acquisitions in the banking sector”.
Excerpts from the summary:
Government accepts Wheatley recommendations on LIBOR in full; section 397 FSMA to be amended to widen criminal regime
HM Treasury has today announced that the Government is accepting the recommendations of the Wheatley Review of LIBOR in full. The Treasury’s press release is here and the ministerial statement is here (pdf). We covered the Wheatley recommendations in this post.
Section 397 of the Financial Services and Markets Act 2000 will be extended to capture the making of misleading statements to manipulate benchmarks such as LIBOR. From the ministerial statement:
The FSA has today published a document, “Journey to the Financial Conduct Authority“, setting out how the UK’s new financial services conduct and markets regulator will operate when it comes in being in 2013. An accompanying speech from Martin Wheatley, CEO-designate of the FCA, is here. Excerpts from the speech:
The Bank of England (in its guise as the Prudential Regulation Authority) has published an document setting out its approach to banking supervision.
“Next year, the Prudential Regulation Authority (PRA) will take up its responsibilities as part of the new approach to financial regulation in the United Kingdom. The PRA, which will be responsible for the prudential regulation of deposit-takers, insurers and major investment firms, will be part of the Bank of England and will make an important contribution to the Bank’s core purpose of maintaining financial stability in the United Kingdom.
This document sets out the PRA’s intended approach towards regulating deposit-takers and investment firms. A companion document covers insurers.”
PRA approach document to banking supervision here (dated October 2012)
PRA approach document to insurance supervision here (dated October 2012).
On 15 October 2012 the Financial Reporting Council published a discussion paper ‘Thinking about financial reporting disclosures in a broader context’. The FRC press release is here and the discussion paper is here.
From the FRC press release:
“The paper aims to improve the quality of financial reporting disclosures. The paper sets out a road map for a disclosure framework for financial reporting aimed at improving the quality of disclosure and their value to the users. In particular, the paper covers the reduction of clutter in financial reports by avoiding duplication in disclosures and using tests of materiality more rigorously.”
The consultation period on the paper closes on 31 January 2013.
The Financial Services Authority yesterday published a consultation paper (CP12/26) on some proposed changes to the existing regulatory rules and guidance relating to approved persons. These changes are part of the creation of the new regulatory framework for financial services in the UK, to be effected by the Financial Services Bill and which will see the Prudential Regulation Authority and the Financial Conduct Authority take over the responsibilities of the FSA.
The consultation paper sets out proposed changes to the approved persons regime, to:
In a new consultation paper published today, the Financial Services Authority – in its guise as the UK Listing Authority – has announced that it is consulting on:
- changes to the free float requirements for both the premium and standard listing segments on the Main Market; and
- introducing a new controlling shareholder concept.
read more »
“Two senior city professionals at leading city institutions” arrested in “the FSA’s largest ever operation against insider dealing”
“In the first operation carried out jointly between the Financial Services Authority (FSA) and the Serious Organised Crime Agency (SOCA), 16 addresses have been searched this morning in London, the South East and Oxfordshire in the FSA’s largest ever operation against insider dealing.read more »
The Financial Reporting Council confirmed on 28 September 2012 that it is going ahead with changes to the UK Corporate Governance Code and the Stewardship Code. These changes were consulted on in April 2012, as we discussed here. The changes to both Codes are ”intended to increase accountability and engagement through the investment chain”. The FRC’s press release is here.
The FRC has also published an updated edition of its Guidance on Audit Committees to reflect the changes to the UK Corporate Governance Code, and will carry out further consultation on whether changes are needed to those parts of the UK Corporate Governance Code dealing with remuneration when the Government’s legislation on remuneration reporting and voting has been finalised. Any changes following this consultation will be effected in the next edition of the Code.
UK Corporate Governance Code
Here is the FRC’s summary of the changes to the Governance Code:
The Upper Tribunal has confirmed the FSA bans and (in two cases) fines on Stefan Chaligné, a Swiss-based hedge fund manager, Patrick Sejean, a former senior salesman on Cantor Fitzgerald Europe’s London-based French desk and Tidiane Diallo, a former junior trader on the same desk, for what the Tribunal described as “as serious a case of market abuse of its kind as one might conceive” (in this case, the limb of the market abuse offence at section 118(5) FSMA 2000). The Tribunal’s decision is here. From the FSA press release:
“Chaligné, a French National who was both the fund manager of, and a shareholder in, the Cayman Islands based “Iviron” hedge fund deliberately manipulated the market in a total of nine securities traded on a number of different European and North American exchanges. He did so by placing orders, through CFE, which were designed to increase the closing price of the securities, and thereby increase the value of the hedge fund, on two key portfolio valuation dates for the fund.
The practice of manipulating share prices on portfolio valuation dates (month and year ends) is known colloquially as “window-dressing the close”. Having manipulated the price of eight securities on 31 December 2007, Chaligné then also manipulated the price of two securities on 31 January 2008.
The increases in the valuation of the fund enabled Chaligné to present a positive view of the performance of the fund, at a time of difficult market conditions, to current and prospective investors, and thereby present himself as a competent fund manager. The practical effect of his market abuse was to increase the performance and management fees paid to him by the beneficiaries of the hedge fund.
Sejean and Diallo effected and executed Chaligné’s orders for the purpose of achieving Chaligné’s objective. Diallo was involved on one of the dates. Sejean was involved on both dates and deliberately influenced and involved more junior members of staff, including Diallo, in the misconduct. They both understood the manipulative nature of the orders.”
More market abuse here.
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HM Treasury today published the Wheatley Review of LIBOR (and press release here), commissioned by the Government as a response to the Barclays LIBOR manipulation affair. The recommendations of particular interest from a legal perspective are that (see section 2 of the Review):
- “administering LIBOR and submitting to LIBOR become regulated activities under the Financial Services and Markets Act 2000 (Regulated Activities Order);
- controlled functions are created in connection with both of these activities;
- the UK supports efforts in the EU to proceed swiftly with developing and implementing a new civil market abuse regime and open and transparent access to benchmarks; and
- section 397 of the Financial Services and Markets Act 2000 is amended to enable the FSA to prosecute manipulation or attempted manipulation of LIBOR”.
read more »
In a speech on 21 September 2012 Clive Gordon, Head of Conduct Risk at the Financial Services Authority, gave some guidance on the regulator’s approach to using digital media for making financial promotions. Mr Gordon specifically discussed Facebook, risk warnings (particularly “roll-over” risk warning), image advertising, the absence of a “one-click rule” and the unsuitability of Twitter for many financial promotions. Excerpt (our emphasis added):
Peer-to-peer lending and equity platforms: no new regulation for crowdfunding, confirms the Government
In a paper published today by BIS, “Removing Red Tape for Challenger Businesses”, the Government confirms that it will not introduce a new regulatory regime for peer-to-peer platforms. The industry will instead be encouraged to self-regulate by asking the Peer-to-Peer Finance Association to increase membership and continue to build its voluntary code. A Government and agency working group will be formed to “monitor the appropriateness of the current regulatory regime”.
The following excerpt from the BIS paper succinctly describes the existing regulatory regime and why BIS has decided – for the time being – not to change the existing rules around peer-to-peer lending and crowdfunding:
“This document seeks comments on the Government’s intention to:
- make the FPC responsible for setting the level of the UK’s counter-cyclical capital buffer;
- provide the FPC with a direction-making power to impose sectoral capital requirements; and
- provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards.
The document contains draft secondary legislation that will provide the FPC with its directive tools, and an Impact Assessment that contains illustrative estimates of the net benefits of the FPC’s macro-prudential tools.”
The consultation closes on 11 December 2012.
On 17 September 2012 ESMA issued a consultation paper on proposed remuneration guidelines for MiFID investment firms. ESMA press releases are here and here, and the consultation paper is here. From the press releases:
“The Guidelines aim to strengthen investor protection by seeking to improve the implementation of the MiFID rules on conflicts of interest, and thereby preventing mis-selling of products. The Guidelines will apply to investment firms, credit institutions, fund management companies when providing investment services, and to competent authorities. Firms must ensure that they have appropriate remuneration policies and practices in place, bearing in mind the obligation on firms to act honestly, fairly and professionally in the best interests of their clients.”
The consultation closes on 7 December 2012.
The new EU short selling regime will come into force on 1 November 2012, with the existing UK rules on short selling being abolished at the same time. We described the new EU regime in this post.
On 13 September 2012 ESMA, the EU securities and markets regulator, published a set of Q&As “to promote common supervisory approaches and practices amongst the EU’s national securities markets regulators on the requirements of the short selling regulation once it comes into force on 1 November 2012″. The Q&As can be read here and the accompanying ESMA press release is here.
The Q&As cover issues related to:
The new Prudential Regulation Authority and Financial Conduct Authority authorisation and supervision regimes: consultation paper 12/24
The Financial Services Authority issued a consultation paper (CP12/24) on 12 September 2012 on changes to the FSA Handbook that will will result from the ongoing reform of the UK’s financial services regulatory regime, and specifically the creation of the new Prudential Regulation Authority and Financial Conduct Authority.
The FSA’s press release is here, more background on the consultation paper is here and the consultation paper itself is here. The most interesting part of the CP is the proposed changes to the skilled persons report regime.
From the FSA’s background release:
Cummings goings: former head of HBOS Corporate division fined and banned by the FSA for “culture of optimism”
leOn 12 September 2012 the Financial Services Authority announced that is fining Peter Cummings – former head of the HBOS Corporate division - £500,000 and banning him from holding any senior position in a UK bank, building society, investment or insurance firm. As the FSA said, “this is the highest fine imposed by the FSA on a senior executive for management failings”.
The FSA press release is here and the Final Notice for Mr Cummings is here. Mr Cummings’ very punchy rejoinder is here, his objections focusing on (i) the FSA’s apparent conflict of interest in being both the regulator responsible for HBOS during its downfall and the body standing judgement over Mr Cummings, and (ii) the seeming unfairness of Mr Cummings having been the only HBOS executive punished by the FSA in connection with its collapse.
The action against Mr Cummings follows the regulator’s public censure of Bank of Scotland in March 2012 when, as we discussed here, it found that between 2006 and 2008 HBOS’s Corporate division lost control, didn’t know what it was doing and continued with a flawed strategy as competitors exited and markets worsened.
The completion of enforcement action against Mr Cummings means that the FSA will now commence work on its report into the causes of the failure of HBOS in 2008, the purpose of which report will be to:
- “explain why HBOS failed and cover the FSA’s supervision of HBOS and explain the focus of the enforcement actions; and
- inform a wider internal and public understanding of the causes of failure during the crisis (to the extent not already covered by the RBS report)”
From the FSA’s press release on its banning of Mr Cummings: