Contradicting his campaign promises, President Trump backed away from labelling China a currency manipulator following his first summit meeting with President Xi Jinping. South Africa suffered a credit rating downgrade to junk status and a decline in the value of the Rand following the sacking of the country’s finance minister by President Jacob Zuma. Allied Irish Banks in Ireland sold 1,200 non-performing investment property mortgages to Goldman Sachs for roughly half of their face value. Audit firm KPMG fired six auditors who had improperly received advance warnings of inspections planned by the US Public Company Accounting Oversight Board. Below we set out the main stories from finance and regulation for the past two weeks.
The Central Bank published further research on mortgage switching, which showed that consumers who had switched reported a positive experience. However, it found that more could be done by lenders to facilitate switching mortgages, prompting a future consultation on regulatory measures. Specifically, lenders will be asked to provide greater clarity on switching and the potential costs and to introduce disclosure requirements at trigger points in a loan’s life cycle, such as at the end of a fixed-rate term.
The Data Protection Commission launched its 2016 Annual Report, which highlighted an increased level of complaints, suggesting a greater level of consumer awareness of the regulator. A new ‘Multinationals and Technology’ team had been established and 50 in-depth audits performed across a number of institutions, including state agencies. The Commission secured nine successful prosecutions for electronic marketing offences and a further two for breaches of access rights. The organisation is expected to continue to grow, with 100 staff predicted for the end of 2017.
A thematic inspection of regulatory reporting by international banks in Ireland was published by the Central Bank. The report noted a number of unacceptable findings which amounted to regulatory breaches. The banks covered were those labelled as Less Significant Institutions. Banks operating in Ireland have been warned to review their systems for reporting of items such as risk-weighted assets and liquidity coverage ratios.
The European Banking Authority published three sets of guidelines on bail-ins under the Bank Recovery and Resolution Directive. The new guidelines clarify how valuation information should help determine the terms of a bail-in. The sets cover conversion rates including debt-to-equity conversions, the treatment of shareholders in relation to dilution, cancellation or transfer of shares and the interaction of the BRRD with the Capital Requirements Directive and Regulation.
Two former employees of Worldspreads Limited (WSL) were banned and fined by the Financial Conduct Authority for market abuse. WSL, a spreadbetting business, collapsed in March 2012. Chief Financial Officer Niall O’Kelly was involved in drafting documents for the floatation of the company on the Alternative Investment Market of the London Stock Exchange, and that documentation was found to have contained materially misleading information and to have omitted key information. Mr O’Kelly and the Financial Controller Lukhvir Thind were found to have knowingly falsified critical financial information on WSL’s liabilities, including short-falls in client money positions. Mr O’Kelly was fined £11,900 and Mr Thind £105,000.
The Financial Conduct Authority proposed new rules to help customers in persistent credit card debt. A customer in persistent debt is defined as one who has repaid more in interest and charges than they have repaid of their borrowing over an 18-month period. 3.3m people are estimated to be in persistent debt. Firms will have to advise customers on making higher repayments, preparing repayment plans or suspending their cards. The proposals come at a time when the Bank of England warned over the size of Britain’s unsecured consumer borrowings.
The Bank of England instructed financial firms to provide details of how they are planning for BREXIT, warning them to be ready for all possible outcomes of Britain’s negotiations with the EU. Hundreds of banks, insurers and other financial firms are required to provide details by 14th July. The Head of the Prudential Regulation Authority added that planning was advanced at some firms, but was uneven across different sectors.
Barclays Bank issued a formal reprimand and promised a ‘very significant’ adjustment to the compensation of its chief executive Jes Staley, following his attempts to uncover the identity of a whistleblower. Both the Financial Conduct Authority and the Prudential Regulation Authority were investigating the matter. Mr. Staley had sought to uncover the identity of the author of a letter to the bank’s board of directors relating to the recruitment of a senior employee.
The use of discounts by the Financial Conduct Authority in relation to financial penalties drew criticism from Liberal Democrat peer Lord Sharkey. He noted that banks and financial services firms had been collectively pardoned £1.2bn of misconduct fines over the last four years by making early settlements, and called on the Government to change the rules. He was proposing that a discount should only be available where firms agree to hold someone personally responsible for the failings and take disciplinary action.
Shareholder resistance to increased pay for executives at financial institutions continued to increase, with Credit Suisse directors agreeing to a cut of 40% in their bonus payments. The Swiss bank experienced a ‘fierce backlash’ from shareholders and politicians, who cited the bank's SFr5.3bn settlement made with the US Department of Justice as a reason why the original bonuses were unjustified. Meanwhile the fall-out from Wells Fargo’s fictitious account scandal continued as shares fell to 12% below their mid-March price.
China launched a crackdown on the insurance sector following the detention of Xiang Jumbo, the Head of the China Insurance Regulatory Commission. The sector was considered to have been overlooked due to its influential political connections, but the anti-corruption campaign of Premier Xi Jinping was now focusing on it following years of deregulation. Critics argued that the insurance sector poses significant potential risks to the country. There were also reports of a further senior banking regulator being removed from his position.