the european union's mifid ii law is expected to expose...

SEPTEMBER 9, 2011

The European Union's MiFID II law is expected to expose stock exchanges to more competition in clearing and settlement, as well as bring in more regulation of high-frequency trading, according to a draft of the new law. In the U.S., the Securities and Exchange Commission embarked on a broad review of existing regulations to see if they place undue burdens on businesses. The Federal Housing Finance Agency launched lawsuits against 17 U.S. banks over misrepresentation of mortgage-backed securities, and the U.S. futures regulator said it might delay the implementation of some swaps rules until 2012.

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TOP STORIES EU plans big revamp of trading rules ............................................................................... 6 U.S. SEC conducts sweeping review of regulations ........................................................ 6 Banks face huge losses from FHFA lawsuits ................................................................... 7 CFTC may grant more relief from swaps regulations ...................................................... 7

FINANCIAL SERVICES

REGULATORY REFORM

UK banks face costly rewrite of "death plans" ................................................................. 8 UK bank ring-fence vital given market woes .................................................................... 8 U.S. bank regulators to unveil 'living will' plan ................................................................ 9 Republicans want list of streamlined US bank rules ....................................................... 9 Bank rules could hurt world economy - lobby group....................................................... 9 Barclays, RBS seen hardest hit by UK bank reforms..................................................... 10 EBA says capital supply is cause for concern -paper ................................................... 10 EBA won't seek disclosure of bank liquidity .................................................................. 10 EU's Almunia prudent on bank rescue plan rollout ....................................................... 11 Australia banks face tight timeline on global capital rules ............................................ 11

ENFORCEMENT

U.S. regulator defends suit against financial firms ........................................................ 11 SEC suspends destruction of enforcement records ...................................................... 12 Swift Trade's U.S. broker may face FINRA charges ....................................................... 12 Ex-Citigroup VP admits embezzling over $22 million .................................................... 13 Ex-Petters executives must face Ponzi claims lawsuit .................................................. 13 U.S. appeals court rejects mortgage database suit ....................................................... 14 U.S. mortgage cases target people, not just banks ....................................................... 14 MBIA settles lawsuit over mortgages for $68 million ..................................................... 15 U.S. judge rejects an HSBC settlement in Madoff case ................................................. 15 Judge thwarts Wells Fargo mortgage class-action ........................................................ 15 Billion Global executive fined by Hong Kong court ....................................................... 15

SUPERVISION

EU delays bank resolution plans to October .................................................................. 16 US widens scope of Libor probe - report ........................................................................ 16 SFO probing Deutsche Bank securities deal -report ..................................................... 16 UK FPC's Kohn calls for better banking data ................................................................. 17 UK starts probe on motor insurance sector ................................................................... 17 Murdoch's London lawyers study new U.K. bribery law ................................................ 17 U.S. tries new ways to stop terror financing .................................................................. 18 New York prosecutors widen Goldman probe - report .................................................. 18 Singapore tells banks to be on alert for illegitimate funds ............................................ 18 Kuwait financial sector may draw money launderers .................................................... 19 U.S. regulators seek high-frequency secret sauce ........................................................ 19

U.S. Fed asks BofA to list contingency plan –report ..................................................... 20 UK banking complaints soar as PPI disputes spread .................................................... 20 BoE was slow to see nature of crisis, says ex-minister ................................................. 20 Cameron wants to soften ICB bank reform -paper ......................................................... 20 Belgium probes billion-dollar diamond fraud ................................................................. 21

ACCOUNTING & FINANCIAL STANDARDS

SEC takes China-based Deloitte unit to court ................................................................ 21 Sino-Forest cease-trade order extended until January .................................................. 21

GOVERNANCE

SEC will not seek rehearing on proxy access rule ......................................................... 22 Legal surrender hurts SEC more than shareholders ..................................................... 22

DERIVATIVES

Italy court strikes down London derivatives trial ........................................................... 23 SEC explores role of ETFs in market volatility ............................................................... 23

FUNDS MANAGEMENT

Ex-Highbridge Asia head's fund launch delayed by SFC review ................................... 23

FINANCIAL CRISIS & ECONOMY

Little gain from US mortgage refinance plan .................................................................. 24 Fitch warns of downgrades for China, Japan ................................................................. 24

TAX

Switzerland resists US tax data call ................................................................................ 24 Switzerland plans to meet for tax talks with Italy ........................................................... 25 EU plans tax on stocks and bonds trading..................................................................... 25

CURRENCY

Swiss eye steps to check housing market ..................................................................... 25

TRADE & CROSS BORDER

Taiwan eases rules on bank operations in China........................................................... 26 Indonesia may restrict corporate foreign debt ............................................................... 26 G7 financial regulation on schedule: Canada official .................................................... 26

COMMODITIES & ENERGY

EU commodity regulation plans include flexibility......................................................... 27 UK's FSA censures trader for LME market abuse .......................................................... 27

PEOPLE

Senate panel backs U.S. bank regulator nominees ........................................................ 27 CFTC appoints new chief information officer ................................................................. 28 U.S. consumer agency debated as nominee looks on ................................................... 28

COMING UP

"If you take one of the large universal banks, at the moment their living wills will be predicated on them being one instititution. Once they are two institutions, they have to have two living wills. It's like a living will for suicide."

Peter Snowdon, a regulatory lawyer at Norton Rose, on UK plans for banks to draft living wills

"It is critically important that the macro-economic impact of additional regulatory measures under discussion, as well as the impact of approaches to implement measures already taken, be a major consideration for governments and regulatory authorities."

Deutsche Bank Chief Executive Josef Ackermann

"At the heart of the suits is FHFA's conclusion that the actual mortgages backing many of the securities had characteristics that differed in a material way from what had been represented in securities filings."

The Federal Housing Finance Agency explaining its lawsuits against 17 banks

"Because today's financial markets are dynamic and fast-moving, the regulations affecting the markets and its participants must be reviewed over time and revised as necessary so that the regulations continue to fulfill the SEC's mission."

The SEC, explaining why it is launching a review of market regulations

"In a world in which positions can be adjusted within minutes and soundness affected by daily economic and financial developments, even quarterly updates are not enough really to keep on top of a reporting institution."

Donald Kohn, external member of the Bank of England's interim Financial Policy Committee

"Although there is currently no evidence of significant money laundering in the country, Kuwait's financial sector is growing rapidly in terms of banking sector assets. This development has the potential of creating a suitable environment for money launderers and terrorist financers to exploit."

The IMF, saying Kuwait posed a potential laundering risk

"Compliance with an SEC subpoena is not an option, it is a legal obligation. Subpoena recipients who refuse to comply should expect serious legal consequences."

Robert Khuzami, director of the SEC's Division of Enforcement, on the agency's court action against the China unit of Deloitte Touche Tohmatsu

EU | REUTERS, SEPTEMBER 2

Vertically integrated stock exchanges would be opened to competition under draft European Union rules that will please countries such as Britain but pose a threat to powerful operators like Deutsche Boerse. The EU's executive European Commission is expected to unveil a draft law next month to toughen up and extend its markets in financial instruments directive (MiFID). A draft of one part of the proposed changes, circulating in Brussels and seen by Reuters, maps out "targeted by ambitious improvements" to the original near four-year old law. The Commission proposes tearing down barriers that prevent banks and investors from being able to choose where to clear or settle their securities transactions. MiFID II also proposes that any suspension of trading shares on one platform should trigger a suspension on all platforms, the draft proposes in a move to end confusion when one venue is hit by a technical glitch. The MiFID draft is being used as a vehicle to clamp down on high frequency trading, a form of ultra-fast trading which has come to represent large chunks of volumes on exchanges but for regulators represents new risks and a forum for potential market manipulation. "In particular, the proposals aim to bring all entities engaged in high frequency trading into MiFID," the draft says. Tougher scrutiny of "algos", or the computerised trading programs, is planned. The draft MIFID II law creates a new Organised Trading Facility category so that OTC derivatives are traded electronically in a transparent way. Corporate governance reforms have also been bolted on to MiFID II which proposes that board members at financial firms cannot combine more than one executive directorship with two non-executive roles to ensure they "commit sufficient time to perform their functions." The EU's Emissions Trading Scheme (ETS) would also be brought fully under MiFID and the separate, planned reform of the EU's Market Abuse Directive "thereby comprehensively upgrading the security of the market".

US | REUTERS, SEPTEMBER 6

U.S. securities regulators are soliciting comments to help them as they embark on a broad review to determine whether existing regulations may be placing undue burdens on American businesses. The announcement by the Securities and Exchange Commission comes after President Barack Obama issued an executive order on July 11 asking independent regulatory agencies, such as the SEC and Commodity Futures Trading Commission, to consider whether certain rules on the books need to be streamlined, updated or even repealed. Obama's July order seeking to help ease regulatory burdens for businesses was the second of its kind this year. In January, the president issued a similar executive order calling on government agencies to review existing regulations in light of the tough economic conditions that businesses are facing. The first order, however, did not apply to independent regulatory agencies like the SEC. Nevertheless, the SEC in March already started reviewing some existing rules governing private securities offerings and reporting. The review was launched after Goldman Sachs in January decided to limit Facebook's offering to foreign investors after intense media scrutiny spooked the bank into fears it could inadvertently violate dated securities rules governing investor solicitation. Also at issue was Goldman's attempt to legally circumvent a rule requiring companies to begin reporting financial details if they have

http://r.reuters.com/qus53s

more than 500 shareholders of record. The SEC rule counts all shareholders individually, but the method used by Goldman aggregated shareholders into one.


U.S. banks could face as much as $39 billion in losses if a series of lawsuits by the Federal Housing Finance Agency over soured mortgage bonds is successful, according to an analyst estimate. The early estimates highlight potentially billions in additional losses U.S. banks might incur from soured mortgages. The FHFA sued 17 banks, alleging misrepresentations involving about $196 billion of mortgage-backed securities sold to Fannie Mae and Freddie Mac, the U.S. government-run mortgage investors which it oversees. In the lawsuits, FHFA did not disclose what it was seeking in recoveries. The FHFA said in a statement it would be "premature and potentially misleading" to estimate any recoveries from the banks, but noted any amounts would be determined through the legal process. John McDonald, bank analyst at Sanford Bernstein, said in a research note the largest banks could face billions in additional costs in his worst case estimate. McDonald concluded the banks could face $39 billion in losses, including $11.5 billion at Bank of America Corp, $6.5 billion at JPMorgan Chase & Co and $700 million at Citigroup Inc.


The U.S. futures regulator looks set to grant the massive swaps market more relief from complying with new financial reforms until sometime in 2012 as the agency remains well behind in completing many of the largest and most contested rules. The U.S. Commodity Futures Trading Commission first voted in July to delay some swaps rules that had been set to go into effect. The new effective dates were set as late as Dec. 31, or until the agency had finalized the rules. CFTC Chairman Gary Gensler, who has noted before the agency would consider additional relief if it was necessary, said he had directed staff to "draft recommendations, with the relief appropriately tailored -- for instance, taking into account the possible completion of entity and product definition rules". The regulator so far has finalized nearly a dozen rules, but most of the high-profile and controversial rules remain. For the first time, Gensler outlined a timetable for the rules it expects to consider in 2011 and the first quarter of 2012. The agency expects to consider clearinghouse rules, end-user exception, position limits and real-time reporting this year, and rules for capital and margin, disruptive trading practices and swap execution facilities in 2012. The CFTC also voted 4-1 in support of a pair of proposals that outline when the market would have to comply with new steps designed to bring more oversight to the swaps market. The first compliance schedule outlines how documentation and margining requirements would be phased in. Under the proposed schedule, a swap dealer and major swap participant would be required to comply with documentation and margining requirements within 90, 180, or 270 days depending on the identity of its counterparty. The second plan includes a timeline for mandatory clearing and trading requirements. It follows a similar schedule depending on the market participant. The trade component would be phased in at the same time as clearing, or 30 days after the swap is made available for trading, whichever is later.

UK | REUTERS, SEPTEMBER 7

Britain's plans to shield taxpayers from the risk of possible future failures by high street banks will trigger a costly and fundamental rewriting of lenders' so-called "living wills." Formally known as recovery and resolution plans (RRP), the wills - also known as "death plans" - detail how a bank will survive a crisis, such as which assets or businesses would be sold off to improve capital. They also spell out how the bank would be wound up speedily without destabilising the broader financial system if it proves impossible to save. The Independent Commission on Banking (ICB) is expected to confirm that domestic banks must "ringfence" deposits with a bespoke capital cushion so that accounts are still safe if a bank gets into difficulties. Its final recommendations, due on September 12, will force a major reworking of living wills as they will effectively split lenders into a deposit taking arm separate from a unit for riskier, investment banking activities. The betting among lawyers is that even if the effective date of the ICB-led changes is pushed back to 2015 or later, UK regulators will pressure banks to rewrite living wills sooner rather than later to make them workable. The UK spent over a trillion pounds to shore up its banking sector and buy stakes in or nationalise lenders such as Northern Rock, Royal Bank of Scotland and Lloyds in the fallout from the financial crisis. This galvanised the UK Financial Services Authority to pioneer living wills well ahead of a global initiative which world leaders are expected to endorse in November 2011. The FSA has already forced six banks, including Barclays, HSBC, Lloyds and RBS, to submit living wills under a UK pilot programme.


The current market slump shows the need to ring-fence British retail banking operations, said Conservative Party politician Matthew Hancock, who added that a government-appointed commission's reforms for the industry could work without damaging the UK economy. "The eurozone crisis demonstrates why this is important," Hancock, who is a close ally of Finance Minister George Osborne, told Reuters late on Tuesday. The Independent Commission on Banking publishes a final report on Sept. 12 on ways to make Britain's banks safer and more competitive. Leading British bankers and certain politicians have said the current market turmoil, caused by fears over the global economy and the eurozone, means the ICB should either delay or tone down some of its proposals. Hancock said the ICB's final report should bear in mind "the national interest" and lay out a suitable timeframe for reforms but added he remained a supporter of the core idea of ring-fencing a bank's retail arm from the riskier investment banking division to protect ordinary savers from future crises. Hancock noted claims that excessively tough reforms could damage London's standing as a global financial centre and harm the broader economy. However, he said there was a need to

protect the economy and ensure "a viable system of financial stability." Hancock said he would not want to pre-empt the ICB's final conclusions but added that a strict ring-fence could still work, both to make British banks safer and to not hurt the City of London finance district.


U.S. regulators are set to vote on a final rule governing the plans large banks must draft on how they can be liquidated if they are heading toward failure. The 2010 Dodd-Frank financial oversight law requires these "living wills," which are part of the government's new power to seize and break up large, failing firms. The Federal Deposit Insurance Corp announced plans for its board to vote on the final rule on September 13. It is drafting the rule with the Federal Reserve. Regulators have to approve the plans once banks submit them. They can force changes to the structure of banks or other large financial companies if they believe the institution could not easily be liquidated once in trouble. Former FDIC Chairman Sheila Bair, who left her post in July, had stressed the need for regulators to force banks to simplify their operations, such as by creating more subsidiaries, if the plans could not be easily executed. The rule applies to banks with more than $50 billion in assets and to other large financial companies whose sudden failure could roil financial markets.


Republicans on the House Financial Services Committee are asking the U.S Treasury Department to identify financial regulations that have been eliminated or streamlined as a result of the 2010 Dodd-Frank financial oversight law. Committee Republicans wrote Treasury Secretary Timothy Geithner asking for a report by October 1 identifying rules that were in place before the law went into effect last summer that have now been "eliminated or modified to reduce regulatory burdens." "America's small community banks and credit unions are over-burdened and need relief," the committee Republicans wrote Geithner. In their letter, Republicans highlighted an August 2010 quote from Geithner saying the administration would work to streamline regulations.

GLOBAL | REUTERS, SEPTEMBER 6

New banking regulations being implemented around the world could significantly slow economic growth and hurt job creation, according to a report released by a lobbying group that represents international banks. Economic output could be 3.2 percent lower by 2015 than would otherwise be the case if rules such as tougher capital standards were not put in place, according to the Institute of International Finance, a Washington-based global banking lobby that represents more than 400 of the world's biggest banks. This would lead to 7.5 million fewer jobs being created over that time frame in the countries covered by the study, IIF said. The report focuses on the United States, the European Union, Japan, the United Kingdom and Switzerland. The latest assessment of government responses to the 2007-2009 financial crisis from IIF comes as regulators are putting into place, or will soon, major new rules the industry is lobbying against. IIF officials warned that with major world economies still struggling to recover from the crisis, regulators have to be careful not to go too far in trying to prevent another financial crisis. Regulators pushed back against a similar report from IIF released in June 2010 saying it overstated the impact of new rules and did not give enough credit to the greater financial stability

they could provide. In particular, banks are lobbying against new international capital rules for the world's largest banks that the heads of the Group of 20 leading and emerging economies are expected to endorse in November.


Britain is expected to announce measures on September 12 ordering banks to separate their retail operations from their riskier investment banking business, potentially hurting profits and forcing them to restructure. The government-commissioned Independent Commission on Banking (ICB) wants to ensure that banks rather than taxpayers -- who have already paid billions to keep the sector afloat -- will be liable for any future problems. The key issues to be resolved include the extent to which retail banks' deposits can be used to fund investment banking and will have big implications for their funding costs which will rise if they have to raise money from a much smaller base. Barclays and Royal Bank of Scotland are most at risk because they have the biggest investment banking operations out of Britain's big four banks. The reforms are likely to be costly for banks in other respects too, such as forcing them to hold more core capital and pay the expense of introducing the changes.


The European Banking Authority (EBA) has asked national watchdogs to keep a close eye on lenders' liquidity as the availability of capital is a cause for concern, a German newspaper cited EBA executive director Adam Farkas as saying. Financial Times Deutschland cited Farkas as saying that the availability of capital -- the opportunity for banks to get medium and long-term financing and get short-term credit – was a "cause for concern". However this did not yet present any risk and is not an emergency situation, Farkas said. Farkas said last week the EBA does not intend to have lenders lay bare their liquidity positions after revealing their capital positions in industry-wide stress tests. He told Financial Times Deutschland that the EBA would not be able to systematically examine banks' liquidity in stress tests until at least 2013.


Europe's banking watchdog does not intend to have lenders lay bare their liquidity positions after revealing their capital positions in industry-wide stress tests, a senior official said. The European Banking Authority also has yet to decide whether to propose that the euro zone's EFSF bailout fund be allowed to recapitalise struggling banks directly rather than via governments, Executive Director Adam Farkas said. Stress tests on European banks provided unprecedented transparency on banks' capital positions, he said. "We are not planning anything similar for liquidity." Farkas told reporters later he assumed the stress tests on banks' capital would be repeated next year but there was no formal decision yet while experts reviewed what went well and what they might need to change. Farkas denied reports that the EBA favoured letting the European Financial Stability Facility by-pass governments and fund struggling euro zone banks directly.


The new framework the European Commission is working on to avoid taxpayers having to bail out banks again might be delayed due to market conditions, Competition Commissioner Joaquin Almunia said. The European Commission presented a blueprint last year to boost the powers of the bloc's authorities to intervene in failing banks. Almunia said he will be discussing the issue at a meeting of euro zone finance ministers in November. Asked about the IMF's estimate regarding a 200 billion euro capital shortfall at European banks, Almunia said a set of rigorous stress tests on the banks had only recently been carried out and only nine had shown they needed capital.

AUSTRALIA | REUTERS, SEPTEMBER 6

Australian banks will need to meet new global capital rules ahead of the internationally agreed timetable under new proposals, although the move is unlikely to force any to raise any new equity immediately. The new Basel III rules, aimed at preventing another global banking crisis, require lenders to hold more capital aside in the form of equity, reserves and retained earnings in case of a sharp economic downturn. Australia joins a handful of other countries including Switzerland, China and Singapore in outlining how they would implement the new capital rules, ahead of most of their peers in Europe and the United States. The Australian Prudential Regulation Authority (APRA) said in a discussion paper that banks should meet the Basel minimum capital requirements by January 2013, two years ahead of the 2015 deadline set by global regulators. Australian banks should then have a capital buffer in place by January 2016, three years ahead of the Basel timeline. Basel rules call for a minimum core, or Tier 1, capital ratio of 4.5 percent, with a 2.5 percent capital buffer on top of that. Australia's top four banks -- National Australia Bank, Commonwealth Bank of Australia, Westpac and Australia and New Zealand Banking group -- have a core tier I capital ratio, including a capital buffer, of just under 7 percent now. APRA said it would also amend its current bank regulation policies in a number of areas, taking a stricter approach than at present in some but a less conservative approach in others. While the top four banks said they were still studying the proposals, the Australian Bankers Association, an industry body that represents the big banks, regional lenders and some foreign banks operating in Australia, said it wanted more time to meet the new rules.


The U.S. Federal Housing Finance Agency said it decided to file lawsuits against 17 financial institutions last week because the firms misrepresented the mortgages in securities filings. The lawsuits filed by FHFA accused lenders, including Bank of America Corp and its Countrywide and Merrill Lynch units, of misrepresenting the checks they had done on mortgages before bundling them into securities. The claims rely on provisions of federal securities law.

The regulator is seeking unspecified damages against the banks on about $200 billion in mortgage investments that were bought by Fannie and Freddie, mostly between 2005 and 2008. FHFA said in its statement that the amount that might be recovered would be determined by the courts, and that it was "premature" to estimate recoverable damages. However, it said the amount would be below $200 billion, since that figure represents the original amount of securities purchased, not the actual losses incurred.


The top lawyer at the U.S. Securities and Exchange Commission ordered the enforcement division to cease destroying all investigative records after an internal whistleblower complained the agency was wrongfully discarding important records. The order, which was disclosed in a Sept. 7 letter from SEC General Counsel Mark Cahn to the whistleblower's attorney Gary Aguirre, is the latest development in a saga that arose from allegations that the agency has been destroying important investigative files. The whistleblower, SEC attorney Darcy Flynn, first raised concerns about document destruction in July 2010. At the time, his concerns were focused on documents known as "matters under inquiry," or MUIs, which are preliminary investigative records. Flynn referred his concerns to the National Archives, which in August 2011 issued a statement saying the SEC had destroyed the records without the proper authority, but that it was working with the SEC to prevent future problems and was satisfied the destruction had ceased. But in a letter sent to SEC Chairman Mary Schapiro and SEC Inspector General David Kotz on September 6, Flynn's attorney raised new concerns that the SEC is still wrongfully destroying records. This time, however, the allegations extend beyond just preliminary investigative records to include documents from formal probes, such as records pertaining to closed investigations. In light of this latest complaint, Cahn decided to suspend the destruction of all investigative records until further notice.


A brokerage that handled U.S. trading for Swift Trade, a now defunct "day trading" company accused this year of market abuses in Canada and Britain, may soon face regulatory charges in the United States. The Financial Industry Regulatory Authority, an independent U.S. brokerage regulator, on July 6 slapped a "Wells notice" on Biremis Corp, a broker-dealer that once handled Swift Trade's buy and sell orders and shares with it a Canadian parent company called BRMS Holdings. FINRA made a "preliminary determination to recommend that disciplinary action be brought against Biremis" for 45 separate rule violations from 2005 through 2010, according to the Wells notice reviewed by Reuters. Such notices advise recipients that charges could be forthcoming, and allow them to mount a defense. The notice comes as regulators globally focus on market manipulation, and puts a spotlight on the conduct of Biremis when it was a top-ten participant in the trading of securities listed on the New York Stock Exchange. It is unclear precisely which alleged violations are covered in the Wells notice, which simply lists a series of numbered rules related to broad topics. But these topics run the gamut, including trading ahead of customer orders and front running; margin requirements; the filing of misleading membership or registration information; anti-money laundering compliance; and a U.S. Securities and Exchange Commission emergency order on short selling.

Swift Trade, which dissolved late last year, was a client of Biremis until May 2009, according to the Ontario Securities Commission (OSC). It had 4,500 traders globally including in China, India, Europe, Panama, and Russia, the OSC said in March.


A former vice president for Citigroup Inc pleaded guilty to embezzling more than $22 million from the company and funneling the money to his personal bank account. Gary Foster, 35, pleaded guilty to bank fraud, admitting that he took the money between 2003 and 2010. He appeared in U.S. district court in Brooklyn before Judge Eric Vitaliano. Assistant U.S. Attorney Michael Yaeger said the government will request a prison sentence of eight to 10 years. Foster will remain free on $800,000 bail until he is sentenced. Foster was arrested in June 2011 and at the time was charged with embezzling $19 million from the bank's accounts. He admitted in court to taking more than $22 million, although his total seized assets were estimated at $16 million, Yaeger said. The defendant, who worked for Citigroup for 10 years, said that between 2003 and 2010 he drafted emails and faxes directing the funds to his personal account. According to the government, Foster first transferred money from various Citigroup accounts to Citigroup's cash account and then wired the money to his personal bank account at another bank. He concealed his thefts by, among other methods, making false accounting entries to create the appearance that the bank's cash account was in balance. Foster used the money to buy real estate and luxury automobiles, including a Ferrari and a Maserati, the government said. Foster agreed to forfeit his interest in real estate and luxury cars, Yaeger said.


Two former executives who worked for convicted Ponzi scheme operator Thomas Petters can be sued by an investment firm victimized in his $3.65 billion fraud, a federal appeals court ruled. The 8th U.S. Circuit Court of Appeals in St. Paul, Minnesota revived a civil racketeering and fraud lawsuit against Mary Jeffries, who was president of Petters Group Worldwide Inc, and Camille Chee-Awai, who was chief executive of its Petters Capital LLC unit. Ritchie Capital Management LLC, a private equity and asset management firm, had accused the defendants of conspiring with Petters to fraudulently extract more than $100 million of loans. It said the defendants had represented that the money would be secured by assets of camera company Polaroid Corp, which Petters owned and where Jeffries was also chief executive. A federal judge in Minneapolis had dismissed Ritchie's case in 2010, citing a bankruptcy court ban on new lawsuits that interfered with the assets or documents of Petters' companies, which had been put in receivership. But Judge Kermit Bye wrote for the 8th Circuit that the ban was not meant to cover the lawsuit by Ritchie against other defendants it believed were actively involved in the fraud. Petters, 54, was sentenced to 50 years in prison in April 2010 after a St. Paul federal jury convicted him the prior December on all 20 criminal counts he faced, in one of the biggest Ponzi schemes on record. His appeal of his conviction and sentence is pending before the 8th Circuit.


A lawsuit accusing several mortgage lenders of fraud over home loans maintained within the industry's private electronic database cannot proceed, according to a U.S. appeals court ruling. The lawsuit targeted lenders, including Bank of America Corp, JPMorgan Chase & Co and Wells Fargo, over their use of the Mortgage Electronic Registration System. MERS, a unit of Merscorp Inc of Reston, Virginia, owns the computerized registry which tracks the transfer of the beneficial interest in home loans, as well as any changes in loan servicers. It was also a defendant. Mortgage loan giants Fannie Mae and Freddie Mac and several of the largest U.S. banks established MERS in 1995 to circumvent the costly and cumbersome process of transferring ownership of mortgages and recording the changes with county clerks. However, MERS's role in foreclosure cases has made it a lightning rod in recent months in other court decisions which have held that loan servicers' use of the registry violates basic real estate and mortgage laws. Bill Nebeker, an attorney for the plaintiffs, said they had not yet decided whether to appeal the ruling from the 9th U.S. Circuit Court of Appeals. A proposed class action in an Arizona federal court had alleged a conspiracy among MERS members to commit fraud and facilitate predatory lending practices. The MERS system made it impossible for borrowers or regulators to track changes in lenders, according to a court filing. A lower court judge dismissed the lawsuit, and the 9th Circuit upheld that decision.


By suing 131 individuals in its effort to recover losses on $200 billion of mortgage debt that went sour, the federal agency overseeing mortgage giants Fannie Mae and Freddie Mac is doing one thing that the U.S. government has largely left alone. It is trying to hold actual people, not just companies, responsible for their roles in the global financial crisis. The 18 lawsuits by the federal housing finance agency, including 17 filed last week and one in July, signal a change from prior federal efforts to punish banks and bankers for their roles in the financial crisis. That difference may stem in part from the FHFA's belief that it has enough evidence to pursue civil claims against banking executives. Its lawsuits draw on information generated by 64 subpoenas issued last year for details on pools of mortgage securities that Fannie Mae and Freddie Mac bought. They also draw on probes by a U.S. Senate investigation subcommittee and the financial crisis inquiry commission, among other sources. Sixteen of the FHFA lawsuits name two or more individuals as defendants, each of whom is said to have signed at least one regulatory filing that allowed the sale of the problem debt. Two people were sued in three different lawsuits. The lawsuit against JPMorgan Chase & Co names 38 individual defendants, including over alleged wrongdoing at Bear Stearns Cos and Washington Mutual Inc, which the bank bought. Three lawsuits targeting Bank of America Corp name 27 individual defendants. None of the individual defendants is a household name, though some hold high positions in finance. Former Countrywide Financial Corp president Stanford Kurland, for example, is now chief executive of Pennymac Mortgage Investment Trust. He is also a defendant in many other Countrywide lawsuits. In one case, the FHFA said former Bear Stearns mortgage executive and defendant Jeffrey Verschleiser "forcefully advocated" packaging loans into securities before homeowners started missing payments, triggering default provisions. And, in its lawsuit against Goldman Sachs Group Inc, the FHFA said Kevin Gasvoda, then head of residential whole loan trading, in February 2007 directed sales staff to sell mortgage debt as part of Goldman's push to offload "declining and defective" mortgage assets.


MBIA Inc and two top executives agreed to a $68 million cash settlement of lawsuits accusing the bond insurer of misleading investors about its exposure to risky residential mortgage debt. The mediated settlement also covers former Chief Executive Gary Dunton and current Chief Financial Officer C. Edward Chaplin, according to papers filed with the U.S. District Court in Manhattan. MBIA said its insurers have agreed to cover the full payment. Court approval is required. The litigation combined three investor lawsuits filed in 2008. These accused what was once the world's largest bond insurer of making materially false and misleading statements or omissions about its exposure to collateralized debt obligations backed by residential mortgage securities, and said MBIA's share price fell once the truth became known.


A Manhattan federal judge rejected HSBC Holdings Plc's proposed $62.5 million settlement with investors in an Irish fund that lost money in Bernard Madoff's Ponzi scheme. U.S. District Judge Richard Berman said the accord announced June 7 was "not fair, reasonable or adequate -- even at this preliminary stage" to investors in Thema International Fund Plc. HSBC said it had acted as a custodian to the fund, and provided administration and other services. It was sued in January 2009, one month after Madoff's fraud was uncovered. Berman said the accord had several "obvious deficiencies." Among these were inadequate disclosure of legal costs, and the setting aside of a $10 million "reserve" for legal fees and expenses for investors to pursue claims against non-settling defendants outside the United States. The judge said he would consider a revised accord, and "generally favors the voluntary settlement of matters before it, including the settlement of purported class actions." HSBC in June estimated that Thema investors lost about $312 million. It also said various funds it serviced transferred a net $4.3 billion to Madoff's firm during the period it serviced those funds.


Wells Fargo & Co won a court ruling denying class-action status to more than 1 million black and Hispanic borrowers in a lawsuit accusing it of discriminating on mortgage rates and fees. Citing a recent landmark U.S. Supreme Court ruling in favor of Wal-Mart Stores Inc, U.S. District Judge Maxine Chesney in San Francisco said the Wells Fargo borrowers had too many differences to justify grouping them together in a single lawsuit against the largest U.S. mortgage lender. The ruling could force borrowers to pursue their claims individually or in smaller groups, which could result in higher costs and lower recoveries, or cause some plaintiffs to drop their claims altogether.

HONG KONG | REUTERS, SEPTEMBER 7

Hong Kong's securities regulator said a local court had found Billion Global Asset Management Ltd and one of its directors guilty of three charges related to trying to solicit investments for, promote and operate a fund without a license. The Securities and Futures Commission (SFC)

said in a statement that Billion Global and Chan Chun Wai were fined HK$20,000 ($2,567) and ordered to pay $40,004 for investigation costs by Hong Kong's Eastern Magistracy. The charges stem from a case in 2010, when Billion Global advertised for a fund managed by Chan that posted returns of 45 percent between November 2009 and February 2010. The SFC said neither Chan nor Billion global were authorized to solicit investments for a fund that didn't exist.


A European Union draft law aimed at winding up ailing banks using senior bondholder funds has been delayed a month until October, partly because of jittery markets, the bloc's financial services chief said. The European Commission's framework on bank recovery and resolution was due to be published this month. EU states and the European Parliament will have the final say on EU Internal Market Commissioner Michel Barnier's plans, which aim to equip supervisors across the bloc with the same tools for handling ailing banks as cross-border lenders dominate the sector in Europe. Banks would also have to write a "living will" or a plan showing how they would be quickly wound up if they get into difficulty.


U.S. investigators probing the alleged manipulation of interbank lending rates are now focusing on possible violations of a commodities law that has previously been used to send financial executives to prison, the Financial Times said, citing people familiar with the probe. U.S. authorities are modelling their Libor probe on an earlier prosecution of three energy companies for violations of the Commodity Exchange Act, which resulted in criminal settlements and prison terms of up to 14 years, the paper said. The interbank lending probe, led by the U.S. Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ), is examining possible collusion between traders and bank treasury departments in 2007 and 2008, the paper said. The commission is examining whether traders placed bets on future yen and dollar rates and colluded with bank treasury departments, who help set the Libor index, to move the rates in their direction, FT said.


Securities packaged by Deutsche Bank are among half a dozen deals being examined by Britain's Serious Fraud Office (SFO), the Financial Times reported. The newspaper said the investigation is part of an evidence-gathering exercise into whether financial institutions fraudulently misrepresented deals to clients and counter-parties in Britain. The SFO has spent the last two years looking into sales of asset-backed securities after consulting senior financial figures about which areas the agency should be probing after the financial crisis.

The FT also reported that the SFO is making inquiries into Goldman Sachs, including the so-called Timberwolf deal, a mortgage security the bank underwrote in 2007 and which has been the subject of litigation and scrutiny in the U.S.


Britain's banks should spell out in greater detail to investors how they price assets on their books and calculate credit exposures to other institutions, a top policymaker said. The current practice of semi-annual reports and less complete interim statements may not give the public enough information to judge the strength of a bank, Donald Kohn, external member of the Bank of England's interim Financial Policy Committee (FPC) said. In a world where positions could be adjusted "within minutes" and soundness affected by daily economic and financial developments, even quarterly updates were not enough to keep on top of a reporting institution, he told an audience at the London School of Economics. U.S.-style detailed quarterly reports would allow more frequent benchmarking of assessments, Kohn, a former Federal Reserve vice-chairman, said in his first speech as an FPC member. "There is a lot to be done by the regulator. We are building a safer financial system but it's certainly not mission accomplished yet," Kohn said. At its first meeting it agreed to work with regulators to consider further extensions of bank transparency in future. Kohn also welcomed improved information on complex instruments that were found at the heart of the financial crisis but warned against complacency. So-called synthetic exchange traded funds were a concern, Kohn said, but he was not aware of any other instrument that is increasing in complexity. He also touched on the shadow banking sector, now the focus of global regulators who are trying to decide how this lightly regulated mix of money market funds, private equity and special investment vehicles should be regulated in future. Kohn suggested that rather than rushing headlong into regulation, better data collection and transparency "probably should be tried first."


Britain's Office of Fair Trading (OFT) has begun a probe into the country's motor insurance market to determine whether certain consumers are being treated fairly and if there can be more effective competition in the sector. The OFT said it had issued a call for evidence into how the sector operates, given that annual car insurance premiums in Britain were reported to have risen by as much as 40 percent in the year ending March 31, 2011. The OFT said it was interested in examining reports that car insurance premiums in Northern Ireland were significantly higher than they are in the rest of the UK, and understanding the reasons for any difference, it added in a statement.


Lawyers for Rupert Murdoch's UK newspaper arm have begun an examination of its responsibilities under a new British law intended to crack down on bribery, Reuters has learned. Two people briefed on internal matters at News Corp's News International unit said the bribery law review is being conducted by London-based Allen & Overy. Lawyers from the firm have been acting as News International's in-house counsel since the departures of the publisher's previous staff lawyers earlier this summer during public uproar over

questionable reporting practices at the company's now-shuttered News of the World. One of the sources said that Allen & Overy's assignment would be to look at the publisher's "obligations" under the new UK Bribery Act, which became law on July 1. The second source briefed on the matter said some senior executives on News International's editorial staff had already been contacted by the lawyers about the bribery issue. The examination by Allen & Overy of News International's obligations under the new British bribery law follows the company's acknowledgment last week that another set of outside lawyers are conducting a broad review of reporting practices at the company's three remaining U.K. newspapers: The Sun, a daily tabloid, and two upscale papers, the Times of London and the Sunday Times. A person briefed on this review said that the main law firm conducting the broad inquiry, Linklaters, was now being assisted by another large London firm, Olswang LLP.


Terrorists are increasingly turning to robberies and kidnappings to raise money, U.S. officials said on Thursday, posing problems for governments as they work to choke off funding for the groups. Al Qaeda has raised funds by robbing banks, and the group's North African wing, AQIM, has raised tens of millions of dollars since 2008 through kidnappings, officials said. The government is concerned that as terrorist networks come under more pressure, "they will turn increasingly to crime and criminal networks to help fund and facilitate their operations," said John O. Brennan, assistant to the president for homeland security and counterterrorism. Policymakers, including Treasury Secretary Timothy Geithner, have applauded the agency's efforts to shut much of the formal banking sector to terrorism financiers. But some say al Qaeda is making a greater effort to look elsewhere for cash.


New York prosecutors are widening their probe into the manner in which Goldman Sachs marketed certain mortgage-linked securities before the financial crisis, the Wall Street Journal reported, citing people familiar with the matter. The Manhattan district attorney's office began its probe into Goldman following the release in April of a U.S. Senate subcommittee report into the causes of the financial crisis, the paper said. The district attorney's office has issued subpoenas to Morgan Stanley and other investors in the deals. The prosecutor's requests to investors, including some hedge funds, concerned how Goldman sold the deals, the Journal said.

SINGAPORE | REUTERS, SEPTEMBER 6

Singapore warned banks to be extra vigilant to the risk of accepting assets that may come from potential tax evaders or the proceeds of criminal activities. The Monetary Authority of Singapore (MAS) issued guidelines reiterating its commitment to keeping its financial sector free from illegitimate funds. The regulator stressed that banks should be particularly wary of funds coming from countries which have recently signed deals to end tax disputes. Last month the UK and Switzerland struck a deal to tax money kept by British residents in secret Swiss bank accounts. "They should be alert to agreements between countries to resolve tax issues and undertake a

more critical review of any asset transfers into Singapore from such countries," the MAS guidelines said.

KUWAIT | REUTERS, SEPTEMBER 4

Rapid growth of Kuwait's financial sector could create an attractive environment for money launderers and terrorism financers, the International Monetary Fund said in a report. Although there was currently no evidence of significant money-laundering in the country, Kuwait's financial sector was growing rapidly in terms of banking sector assets and this had the potential of "creating a suitable environment for money launderers and terrorist financers to exploit," it said. The OPEC member has introduced an anti-money laundering law in 2002 regulating financial institutions, but does not criminalize financing of terrorism. A new draft law was sent to the national assembly in 2007 but has not yet been adopted. Banking assets in Kuwait almost doubled over the past five years to 42.1 billion dinars ($154.5 billion) at the end of June, the central bank's data showed. The IMF also said Kuwait's anti-money laundering framework showed weaknesses in the preventive measures for financial institutions and a lack of supervision and monitoring. "No major terrorist activity has been recorded in the country. Less serious terrorist activity has been noted," it said without giving details.


U.S. securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes. The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit. The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers. The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral. According to interviews with attorneys, traders, industry executives and regulators, the unusual requests for algo code and other computerized trading strategies ramped up this year and have targeted stock-trading firms such as broker dealers and hedge funds. It has alarmed some traders who are afraid their "secret sauce" -- intellectual property sometimes developed over years and at great cost -- could get into the wrong hands, especially when SEC and FINRA examiners leave for the private sector. The SEC's new focus on algo strategies will likely help inform any new structural rules the government agency applies to an electronic market, criticized by some as unstable or unfair, especially after the "flash crash" on May 6, 2010. While anything the regulators find could lead to legal action such as market manipulation suits, FINRA's effort appears more targeted at wrong-doing.


The U.S. Federal Reserve has asked Bank of America Corp to show what measures it could take if business conditions worsen, the Wall Street Journal said, citing people familiar with the situation. BofA executives recently responded to the unusual request from the Federal Reserve with a list of options that includes the issuance of a separate class of shares tied to the performance of its Merrill Lynch securities unit, the people told the paper.


Consumer complaints about British banks and other financial companies soared in the first six months of the year, driven by widespread disputes over controversial loan repayment insurance, the financial ombudsman said. The ombudsman, which acts as mediator when banks and their customers fail to resolve disputes, had a total of 149,925 complaints referred to it in the first half of 2011, a 54 percent increase compared with the previous six months. Complaints about payment protection insurance (PPI), which allows borrowers to keep up debt repayments in the event of a loss of income, accounted for two thirds of the total. Regulatory investigations have revealed that PPI, typically taken out alongside loans, was widely missold to consumers. Britain's leading banks this year took billions of pounds in charges to cover compensation payments to customers after losing a court appeal in April.


The Bank of England led by Mervyn King was slow to grasp the nature of the financial crisis in 2007, so much so that then-finance minister Alistair Darling wanted to force it to take action, he wrote in his memoirs. Unlike King's counterparts at other central banks, the BoE governor was at first reluctant to respond when markets seized up in August 2007. Some critics blamed the delay for the run on Northern Rock, Britain's first in more than a century, which led to the lender's nationalisation. Darling wrote in his memoir of the financial crisis that he wanted the BoE to pump more money into markets to unfreeze lending between banks but King disagreed, arguing that such an intervention would let the banks off the hook for their failure to hold enough capital and so create "moral hazard". Darling added that another problem at the BoE in 2007 was its acute lack of understanding of what was going on in the banking system "despite the fact it had responsibility for the financial stability of the system and had done since 1997". According to other excerpts from Darling's book cited in newspapers, King himself regretted failing to act swiftly enough to prevent the run on Northern Rock.


British Prime Minister David Cameron wants a major "watering down" of proposals from the Independent Commission on Banking (ICB) to ring-fence the retail arms of top UK banks, over fears it could hurt the economy, the Sunday Telegraph reported. The report, which cited government sources, said Cameron had told senior officials that he wanted to move the banking

debate on and that any proposals from the ICB to split retail and investment banks and increase capital requirements needed to be reviewed.

BELGIUM | REUTERS, SEPTEMBER 3

Belgian authorities are pursuing a billion-dollar diamond fraud case that is being billed as the biggest case to come to light in the country, Belgium's De Tijd newspaper reported. The case concerns a list of individuals -- including high-ranking diamond traders in Belgium's diamond centre Antwerp -- with secret accounts at a branch of a British bank in Switzerland, the paper reported. Antwerp tax authorities started investigating allegations of tax evasion in the diamond industry after obtaining from French authorities a list of individuals with bank accounts in Geneva, De Tijd said.


U.S. securities regulators asked a federal court to compel a Chinese unit of accounting giant Deloitte Touche to produce records in connection with possible accounting fraud at Longtop Financial Technologies Limited. The Deloitte unit abruptly resigned in May 2011 after uncovering "numerous improprieties" during its audit of the Chinese software company for the year ended March 31. The subpoena enforcement action by the Securities and Exchange Commission against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd marks the boldest move yet by the SEC against a big accounting firm in its crackdown on fraud at Chinese companies that list on U.S. exchanges. Subpoena enforcements by the SEC are relatively rare, the agency filing just 31 similar actions in the past five years. In papers filed in U.S. District Court in Washington D.C., the SEC said Deloitte had failed to meet a July 8 deadline to produce documents requested in a subpoena. The SEC said Deloitte failed to comply "in every respect." The SEC said Deloitte has argued it should not be required to produce documents that pre-date the 2010 Dodd-Frank Wall Street oversight law, and that producing any documents could subject it to sanctions under Chinese law.

CANADA | REUTERS, SEPTEMBER 8

Canadian regulators extended a cease-trade order on shares of Sino-Forest until January 25 as they investigate a short-seller's damaging allegations of fraud at the Chinese forestry firm. The Ontario Securities Commission, Canada's main securities regulator, said extending a 15-day trading halt imposed on August 26 was the best action for investors, who had no clarity to make informed trading decisions at this time. Lawyers for the OSC, the company and its executives had all argued in favor of extending the halt. The regulator said last month it had halted trade in Toronto-listed Sino-Forest after preliminary results of its own investigation determined that fraud accusations against the company appeared to have merit.


The U.S. Securities and Exchange Commission will not challenge an appeals court decision striking down the agency's rule to make it easier for shareholders to nominate directors to corporate boards. The announcement, made by SEC Chairman Mary Schapiro, marks a major blow to investor advocacy groups who had championed the so-called "proxy access" rule. It comes more than a month after the U.S. Court of Appeals for the District of Columbia Circuit rejected the rule, saying the SEC had failed to properly weigh the economic consequences of the rule. The defeat marked the first successful legal challenge to a provision in last year's Dodd-Frank financial overhaul law. In a statement, Schapiro said the SEC has no plans to seek a rehearing before the appeals court or a Supreme Court review. But she said she remains "committed to finding a way to make it easier for shareholders to nominate candidates to corporate boards." The SEC rule would have required companies to include a shareholder candidate on corporate ballots known as "proxies" provided that the nominating shareholders held at least 3 percent of the voting power in the corporate stock for three years.

US | BREAKINGVIEWS, SEPTEMBER 7

The white flag waved in court by the U.S. Securities and Exchange Commission may hurt the agency more than shareholders. The regulator said it wouldn't appeal a decision that blocked investors from getting more power to challenge corporate boards. That's understandable, considering the legal risks and alternative proxy options. But it preserves a precedent that makes it far more arduous for the SEC to implement new rules. The rejected proposal would have allowed shareholders owning at least 3 percent of a company for more than three years to put candidates on the company's proxy card. The SEC's chances of winning on appeal were slim. Even if the federal court agreed to hear the case, it would have needed to overturn a unanimous decision professing no doubt about the law. Shareholders will still have ways to oust directors. Recent changes to another rule allow small investors to propose bylaw amendments for putting their nominees on a company's proxy card. The rule was delayed pending the appeals court decision, but is scheduled to go into effect next week. The SEC, though, is in a pickle. It can rewrite the rejected regulation, but the standards are now so onerous that doing so may be impossible. The agency says it spent $2.5 million and 21,000 staff hours evaluating the costs and benefits of the initial rule. Yet the appeals court suggested that wasn't good enough, rejecting the watchdog's judgments about the quality of economic studies.

ITALY | REUTERS, SEPTEMBER 7

Italy's top administrative court has ruled that a trial over derivatives debt contracts be held in Italy, not in London as foreign banks had sought. The court, the Council of State, ruled that Italian administrative courts had jurisdiction in the suit involving the restructuring of 95.5 million euros ($134.3 million) of debt held by the province of Pisa by Ireland's Depfa Bank and Belgium's Dexia Crediop. The high court ruled that an administrative court had the power to nullify the deal since it involved a public contract between the province and the banks. Dexia and Depfa had argued that their 2007 contract with the province had provided that the case be heard at London's Commercial Court. The banks had swapped the debt for two derivatives contracts to protect against interest rate risk. Pisa alleges that the deal had hidden costs and suspended payments in 2009.


Officials at the U.S. Securities and Exchange Commission (SEC) have made inquires with firms that trade exchange-traded funds (ETFs) to assess if they had added to market volatility in August, the Wall Street Journal said, citing people familiar with the talks. SEC's scrutiny of ETFs follows chaotic swings in the stock market in August, as investors reacted to the Euro debt crisis, a weak U.S. economy and the downgrade of long-term government debt in the United States, the Journal said. ETFs track indexes or sets of stocks and offer cheaper access to asset classes than traditional mutual funds. They have grown hugely popular in recent years. SEC officials are zeroing in on "leveraged" ETFs, which amplify investor bets, the newspaper added.

HONG KONG | REUTERS, SEPTEMBER 5

Carl Huttenlocher, former Asia head of JPMorgan Chase & Co's Highbridge Capital, has delayed the September 1 launch of his hedge fund Myriad because of a regulatory review by the Hong Kong's Securities and Futures Commission, according to the Wall Street Journal. The regulator "is exploring allegations that Carl Huttenlocher, who left the bank's Highbridge Capital Management earlier this year, or others working for his fund improperly valued illiquid assets among other actions during the height of the financial crisis and its aftermath," the report said, citing unnamed sources. Huttenlocher's hedge fund was expected to start trading with about $300 million initially, two sources had told Reuters in July. The fund was expected to raise well above $1 billion early next year after opening to external investors, the sources had said.


An increased government effort to ease the way for refinancing mortgages would do little for the housing market, congressional budget analysts said in a report that could undercut an Obama administration push to do more for borrowers. Government plans to make refinancing easier would "not address many of the problems facing the U.S. housing market," the nonpartisan Congressional Budget Office said. The CBO argued that estimated benefits would be "small relative to the size of the housing market, the mortgage market, and the overall economy."

ASIA | REUTERS, SEPTEMBER 8

Fitch Ratings warned that it might downgrade China's credit rating within two years as the country's banks struggle with debt loads following a lending surge to help lift the economy during the 2008 financial crisis. It also said that Japan, weighed down by a public debt load twice the size of the $5 trillion economy, faced a greater-than-even chance of a downgrade in part due to a political impasse that is stalling plans to clean up its finances. Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, told Reuters in an interview that China's local currency debt rating could be downgraded over the next 12 to 24 months. Fitch downgraded the outlook on China's long-term local currency debt to negative from stable in April 2011 because of concerns about the country's financial stability following a lending surge encouraged by Beijing to help maintain economic growth during the global downturn. Japan's credit rating has already been cut this year by Fitch's rivals, Standard & Poor's and Moody's. Like Fitch, they cite the inability if Japan's leadership to come up with a plan to reduce the debt load over time.

SWITZERLAND | REUTERS, SEPTEMBER 7

Switzerland has not delivered any further data on possible tax cheats to the United States, Swiss Foreign Minister Micheline Calmy-Rey said, as the government resists pressure to bend its banking secrecy laws again. Micheline Calmy-Rey echoed comments made earlier by Finance Minister Eveline Widmer-Schumpf, saying Switzerland had not yielded to U.S. demands. Switzerland has so far resisted reverting to emergency legislation as it did to settle a U.S. investigation against UBS when it bent bank secrecy laws to reveal the details of some 4,450 UBS clients so that UBS would avoid criminal charges. The government is keen to find a solution that would not need approval from parliament, which only reluctantly agreed to the UBS treaty under emergency law last year. Last month Switzerland tried to kickstart talks to settle its impasse with U.S. authorities, offering to hand over data on groups of clients under a pending new bilateral tax treaty. The United States appears to be pushing for more information than currently allowed under Swiss law, seeking

details of all U.S. clients with accounts worth at least $50,000 between 2002 and 2010 at banks including Credit Suisse, Julius Baer and Wegelin as well as the Zurich and Basel cantonal banks.


Swiss and Italian officials may meet in coming weeks to discuss taxation problems, a spokesman said, which could pave the way for a tax deal similar to those Switzerland struck with other European countries. Switzerland signed tax deals with Britain and Germany last month, and other cash-strapped European governments may try to obtain similar deals as they seek to crack down on tax dodgers hiding money in secret Swiss accounts. Mario Tuor, a spokesman for the State Secretariat for International Financial Matters (SIF), said a date for a meeting could be set in the coming weeks. Tuor said double taxation and cross-border workers were among the problems that might be discussed at the meeting.


The European Commission is set to propose a tax on trading shares and bonds according to a senior EU official, who said it will proceed with its plans in the eurozone if Britain objects. The proposal for a 0.1 percent tax, which has drawn criticism from the European Central Bank and others who say it may drive trading out of countries where it applies, could prove impractical to introduce though. But if EU officials strike a formula to impose the charge without scaring off traders, it could be central to the bloc's bid to tax banking following the global financial crisis. Algirdas Semeta, the European commissioner in charge of taxation, told reporters that banks were able to pay "huge bonuses, despite difficulties, and chief executives are receiving huge compensation", adding the tax of 0.01 percent would also apply to derivatives, although it was unclear if currencies could be included. Tentatively, the tax would be tabled in early October, he said. Semeta has the backing of French President Nicolas Sarkozy and German chancellor Angela Merkel, who last month pledged support for such a tax. Both leaders have seen their popularity flag at home and such a move could help win it back. Semeta said an opinion poll carried out by the European Commission showed almost two-thirds of Europeans favour taxing financial transactions. In only a handful of countries, including Britain, do a majority of citizens oppose it.


The Swiss government reiterated it will take steps to prevent the Swiss housing market from overheating, as borrowers' appetite for property gets whetted by ultra-low interest rates. Concerns the situation could spin out of control have risen after the SNB on September 6 announced a minimum exchange rate target of 1.20 francs to the euro, moving to weaken the franc from close to parity to stave off the risk of recession. Regulatory steps that the government is eyeing include improving the SNB's access to bank

information and countercylical buffers for banks under the auspices of the new Basel III global rules to shield them from big mortgage writedowns. On August 17 the government said it would take measures to regulate the real estate market and also said it would boost unemployment insurance and aid the tourism sector.

TAIWAN | REUTERS, SEPTEMBER 2

Taiwan's regulator has relaxed rules on Taiwanese banks operating in mainland China to help them further expand business and compete with mainland and global financial institutions in the huge market. In the latest change, the Financial Supervisory Commission said it would scrap a rule that requires Taiwanese banks to choose two of three options for investing in China -- setting up branches, setting up subsidiaries, or investing in a Chinese bank.

INDONESIA | REUTERS, SEPTEMBER 7

Indonesia's government and central bank are considering regulations to limit foreign debt exposure by corporations and banks to protect Southeast Asia's largest economy should a change in global risk sentiment weaken its currency, said the finance minister. Any such move, if implemented, would cool a growing appetite by Indonesian corporates and banks to raise money in dollar-denominated bonds or loans to benefit from the weakening dollar . Low interest rates in developed economies have prompted Indonesian companies to raise more dollar debt. Bank Indonesia data shows local companies had total foreign debt of $4.18 billion in the first half of this year, nearly double the total for 2010. The economy is currently in good shape but capital inflows could reverse, Martowardojo said. He added that firms should be careful in managing currencies, such as avoiding loans in foreign currencies if revenues are not in foreign currencies, avoiding mismatches in loan tenors and terms.

GLOBAL | REUTERS, SEPTEMBER 6

The Group of Seven's efforts to reform global financial regulation are on schedule, a senior Canadian finance official said. The official said regulators have quickly come up with a comprehensive package of reforms, while areas that still need to be agreed on include liquidity, surcharges, systemically important financial institutions and over-the-counter derivatives. Talks on new rules for systemically important financial institutions are near conclusion, he added.


Market players are sanguine about draft European Union rules to adopt position limits on commodity trading because they allow flexibility. A draft seen by Reuters of the EU markets in financial instruments directive (MiFID) extends its scope to commodity markets and proposes that exchanges adopt position limits or "alternative arrangements". The EU's executive European Commission is expected to unveil the draft MiFID law next month. Under the draft, supervisors will have powers to impose position limits on markets and trading venues will have to provide "granular" data on positions in their markets. It was therefore proposed that all trading venues on which commodity derivative contracts are traded adopt "appropriate limits or alternative arrangements to ensure the orderly functioning of the market and settlement conditions for physically delivered commodities," the draft said. "Alternative arrangements" is a reference to position management as opposed to position limits, seen by many as a far more sophisticated approach to commodities regulation, market sources said.


The Financial Services Authority (FSA) has censured a metals trader, Jason Geddis, for committing market abuse by securing the price of lead contracts on the London Metal Exchange (LME) almost three years ago, the UK watchdog said. The FSA had originally proposed to prohibit and fine Geddis for the abuse, but a tribunal said a public censure was a more appropriate penalty, the FSA said in a statement. Geddis, who was a trader at Dresdner Kleinwort Limited, rapidly built up a position in a lead contract one morning in November 2008, and then unwound it in the open outcry session at rapidly increasing prices, the FSA said. In a January 2009 notice to LME members, the exchange said it had started disciplinary action against Dresdner for failing to comply with its rules. The two later reached a settlement, with Dresdner agreeing to pay a fine of 150,000 pounds.


The Senate Banking Committee approved the nominations of several financial regulatory nominees who will play key roles in implementing the 2010 Dodd-Frank financial oversight law. The nominees now must be confirmed by the full Senate. No schedule has been announced for those votes. Among the nominees approved were President Barack Obama's choices to head two banking regulators: Martin Gruenberg to lead the Federal Deposit Insurance Corp and Thomas Curry to lead the Office of the Comptroller of the Currency. The banking panel has yet to vote on former Ohio Attorney General Richard Cordray to head

the new Consumer Financial Protection Bureau. Republicans have said they will block a full Senate vote on Cordray unless there are changes to the structure of the bureau. Both Gruenberg and Curry are currently members of the FDIC board, with Gruenberg serving as the agency's acting director.


The U.S. Commodity Futures Trading Commission said it appointed John Rogers to serve as chief information officer and director of its new data and technology office that will help oversee the swaps market. Rogers started working at the CFTC in 2001, and was promoted in 2006 to the director of the office of information technology services. The CFTC said Rogers has more than 28 years of experience in the information technology field, covering both the private and public sectors. The new office of data and technology, which will open in October, is part of changes the CFTC is making to help it comply with the Dodd-Frank financial reform mandate that requires oversight of the once opaque $600 trillion over-the-counter derivatives market.


Republicans remained determined to block President Barack Obama's nominee to head the new Consumer Financial Protection Bureau but said it was nothing personal. Republicans are demanding the administration agree to change the structure of the agency before allowing the Senate to move forward with its consideration of former Ohio Attorney General Richard Cordray. Whether Cordray is the right man for the job has barely entered the discussion. Republicans have opposed the agency as an unchecked regulatory overreach since it was created as part of the 2010 Dodd-Frank financial oversight law. To underscore his objection to a hearing being held before Republican concerns are addressed, Shelby did not ask Cordray any questions. "You're caught between a big substantive debate," Shelby told Cordray. Democrats say the bureau is a much-needed check on lending abuses and have charged the Senate minority party with using the nomination process as blackmail to weaken the agency. The bureau, which opened its doors on July 21, will oversee products like credit cards and home loans. In order to allow a nominee to be confirmed, Republicans want three changes made to the bureau: Have it run by a board rather than a director; subject its budget to annual congressional approval; and give other regulators more authority over bureau regulations.

September 12 – UK Independent Commission on Banking publishes final recommendations on "ringfencing" retail banking operations with extra capital. September 12 - Shadow Financial Regulatory Committee holds press briefing to discuss Basel III, Systemically Important Financial Institution resolutions, Financial Stability Oversight Committee and other Dodd-Frank issues, and Securities and Exchange Commission issues discussed in recent closed meetings.

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