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South Africa’s central bank has disagreed with a ratings decision by Moody’s to downgrade Capitec Bank Limited (Capitec) by two notches, and place it on review for a further downgrade. The central bank says it respects the independent opinion of rating agencies but that it does not “agree with the rationale given in taking this step”. Two reasons are given for the rating action: a lower likelihood of sovereign systemic support based on decisions recently taken in relation to African Bank Limited (African Bank), and heightened concerns regarding the risk inherent in Capitec’s consumer lending focus. “With regard to the first point, it is important to reiterate that the approach taken by the SARB to any resolution to address systemic risk will always be based on the circumstances and merits of the particular prevailing situation. Decisions will also be informed, as was the case with African Bank, by principles contained in the Key Attributes for Effective Resolution Regimes proposed by the Financial Stability Board (FSB), which have the objective that a bank should be able to fail without affecting the system,” notes the central bank in an official statement. “This is in keeping with evolving international best practice. In the case of African Bank bond holders and wholesale depositors are taking a 10% haircut, which is generally regarded as being very positive given that the trades following the announcement of African Bank's results were taking place at around 40% of par. Therefore in fact substantial support was provided, not reduced. Moreover, all retail depositors were kept whole and are able to access their accounts fully,” it adds - According to the Hong Kong Monetary Authority (HKMA) credit card receivables increased by 2.1% in the second quarter to HKD112, after a reduction of 6.7% in the previous quarter. The total number of credit card accounts edged up by 0.7% to around 16.8m.The rollover amount, which reflects the amount of borrowing by customers using their credit cards, increased by 2.9% during the quarter to HKD19.2bn. The rollover ratio also rose marginally from 17.0% to 17.1% in the same period. The charge-off amount increased to HKD569mduring the quarter from HKD528m in the previous quarter. Correspondingly, the quarterly charge-off ratio rose to 0.51% from 0.46% in the previous quarter. The amount of rescheduled receivables transferred outside the surveyed institutions’ credit card portfolios reduced to HKD94m from HK$109m in the previous quarter. The delinquent amount increased to HKD249m at end-June from HKD239m at end-March. However, the delinquency ratio remained the same at 0.22% because of an increase in total card receivables. The combined delinquent and rescheduled ratio (after taking into account the transfer of rescheduled receivables mentioned above) edged up to 0.29% from 0.28% during the same period - Harkand has been awarded a contract to support Apache with inspection, repair and maintenance work (IRM) as well as light construction (LC) across their assets in the North Sea, following completion of a competitive tender exercise. The award includes the provision of vessels, ROV and diving services for a three-year period, plus two one-year options. The firm will also support offshore marine construction contractor EMAS AMC who have been awarded a separate contract for pipe lay and heavy construction as part of the same tender process. Harkand Europe managing director, David Kerr, said: “This contract is an important step in strengthening our close working relationship and growing our North Sea business with Apache.

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Regulatory Update

Management in the bull’s eye

Tuesday, 23 July 2013 Written by 
Management in the bull’s eye Today, managers are operating in a world of changing expectations. They are expected to do more to ensure that employees act appropriately and that fund and firm governance are firmly grounded. For those who miss the mark, the personal consequences can be serious. http://www.ftseglobalmarkets.com/

Today, managers are operating in a world of changing expectations. They are expected to do more to ensure that employees act appropriately and that fund and firm governance are firmly grounded. For those who miss the mark, the personal consequences can be serious.

The UK, at the forefront recently in defining expectations of management, this week established greater personal responsibility for senior bankers—including criminal liability for "reckless misconduct” and a burden of proof that will hold senior bank officers accountable "unless they can demonstrate that they took all reasonable steps" to prevent misconduct. The possibility of extending these provisions to other sectors of the financial services industry is explicitly discussed in the directive. Over time, the forces moving the banking industry in this direction will likely affect the alternatives space as well.
 
In the US, the SEC has openly stressed that senior management will be held responsible for creating, managing and maintaining an effective control environment. A conference for senior management was held in February 2012 precisely to drive this point home. And, senior staff frequently emphasize the point in speeches. Most recently, Drew Bowden, the Director of the SEC’s Office of Compliance Inspections and Examinations, reiterated the message and told investors that a portfolio manager who dominates his firm “in the old style” is a “warning indicator” to the SEC. (Other “warning indicators” include a lack of an adequate process for the investment and risk management functions.)
 
The CFTC's actions against Jon Corzine, former CEO of MF Global, epitomize the shift. According to the CFTC, Corzine's behavior led employees to dip into segregated customer accounts. Echoing the spirit of the CFTC's actions, there are calls in the press for personal liability for officers when lower-level employees violate segregation laws. And Senator Elizabeth Warren recently questioned the Federal Reserve, the Treasury, the FDIC and the Office of the Comptroller of the Currency about why they were settling so frequently with those who may have broken the law. 
 
In today’s environment, senior management may be well advised to revisit governance issues. Clarity about rules and expectations is necessary—both internally at their firms and at the funds they manage. Based on what investors are saying, managers with first-class infrastructures might even enjoy a marketing boost. A recent survey by the Cayman Islands Monetary Authority notes that a majority of the investors are not satisfied with the status quo in corporate governance. 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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