Monday 8th February 2016
NEWS TICKER: Friday, February 5th: According to Reuters, Venezuela's central bank has begun negotiations with Deutsche Bank AG to carry out gold swaps to improve the liquidity of its foreign reserves as it faces debt payments of some $9.5bn this year. Around 64% of Venezuela's $15.4bn reserves are held in gold bars, which in this fluid market impedes the central bank's ability to mobilise hard currency for imports or debt service. We called the central bank to confirm the story, but press spokesmen would not comment - The Hong Kong Monetary Authority (HKMA) says official foreign currency reserves stood at $357bn (equivalent to seven times the currency in circulation or 48% of Hong Kong M3) as at the end of January, down compared with reserve assets of $358.8bn in December. There were no unsettled foreign exchange contracts at month end (end-December: $0.1bn) - BNP Paribas today set out plans to cut investment banking costs by 12% by 2019 to bolster profitability and reassure investors about the quality of its capital buffers. The bank is the latest in a line of leading financial institutions, including Credit Suisse, Barclays and Deutsche Bank which look to be moving away from capital intensive activities. BNP Paribas has been selling non-core assets and cutting back on operations including oil and gas financing for the last few years as it looks to achieve a target of 10% return on equity. Last year the bank announced a €900m write-down on its BNL unit in Italy, which pushed down Q4 net income down 51.7% to €665m - Johannesburg Stock Exchange (JSE)-listed tech company, Huge Group, will move its listing from the Alternative Exchange (AltX) to the JSE main board on March 1st - Moody's says it has assigned Aaa backed senior unsecured local-currency ratings to a drawdown under export credit provider Oesterreichische Kontrollbank's (OKB) (P)Aaa-rated backed senior unsecured MTN program. The outlook is negative in line with the negative outlook assigned to the Aaa ratings of the Republic of Austria, which guarantees OKB’s liabilities under the Austrian Export Financing Guarantees Act – As the first phase of talks between Greece and its creditors draws to an end, International Monetary Fund chief Christine Lagarde stressed to journalists in Greece that debt relief is as important as the reforms that creditors are demanding, notably of the pension system. "I have always said that the Greek program has to walk on two legs: one is significant reforms and one is debt relief. If the pension [system] cannot be as significantly and substantially reformed as needed, we could need more debt relief on the other side." Greece's pension system must become sustainable irrespective of any debt relief that creditors may decide to provide, Lagarde said, adding that 10% of gross domestic product into financing the pension system, compared to an average of 2.5% in the EU, is not sustainable. She called for "short-term measures that will make it sustainable in the long term,” but did not outline what those measures might be. According to Eurobank in Athens, IMF mission heads reportedly met this morning with the Minister of Labour, Social Insurance and Social Solidarity, Georgios Katrougalos, before the team is scheduled to leave Athens today. According to the local press, it appears that differences exist between the Greek government and official creditors on the planned overhaul of the social security pension system. Provided that things go as planned, the heads are reportedly expected to return by mid-February with a view to completing the review by month end, or at worst early March. In its Winter 2016 Economic Forecast published yesterday, the European Commission revised higher Greece’s GDP growth forecast for 2015 and 2016 to 0.0% and -0.7%, respectively, from -1.4% and 1.-3% previously - Fitch says that The Bank of Italy's (BoI) recent designation of three banks as 'other systemically important institutions' (O-SIIs) has no impact on its ratings of the relevant mortgage covered bond (Obbligazioni Bancarie Garantite or OBG) programmes. Last month, BoI identified UniCredit, Intesa Sanpaolo. and Banca Monte dei Paschi di Siena as Italian O-SIIs. Banco Popolare and Mediobanca have not been designated O-SIIs. This status is the equivalent of domestic systemically important bank status under EU legislation. Fitch rates two OBG programmes issued by UC and one issued by BMPS, which incorporates a one-notch Issuer Default Rating (IDR) uplift above the banks' IDRs. The uplift can be assigned if covered bonds are exempt from bail-in, as is the case with OBG programmes under Italy's resolution regime and in this instance takes account of the issuers' importance in the Italian banking sector – Meantime, according to local press reports, Italian hotel group Bauer and special opportunity fund Blue Skye Investment Group report they have completed the rescheduling and refinancing of Bauer’s €110m debt through the issue of new bonds and the sale of non-core assets, such as the farming business Aziende Agricole Bennati, whose sale has already been agreed, the Palladio Hotel & Spa and a luxury residence Villa F in Venice’s Giudecca island – Meantime, Russian coal and steel producer Mechel has also agreed a restructuring of its debt with credits after two intense years of talks. The mining company, is controlled by businessman Igor Zyuzin - Asian markets had a mixed day, coming under pressure. Dollar strengthening worries investors in Asia; from today’s trading it looks like dollar weakening does as well. Actually, that’s not the issue, the dollar has appreciated steadily over the last year as buyers anticipated Fed tightening; but it has hurt US exports and that has contributed to investor nervousness over the past few weeks, which is why everyone is hanging on today’s The nonfarm payrolls report, a bellwether of change – good or bad in the American economic outlook. Back to Asia. The Nikkei 225 ended the day at 16819.15, down 225.40 points, or 1.32%; and as the stock market fell the yen continued to strengthen. The Nikkei has shed 5.85% this week. The dollar-yen pair fell to the 116-handle, at 116.82 in afternoon trade; earlier this week, the pair was trading above 120. It is a hard lesson for the central bank, whose efforts to take the heat out of the yen by introducing negative interest rates has done nothing of the sort. Australia's ASX 200 closed down 4.15 points, or 0.08% after something of a mixed week. The index closed at 4976.20, with the financial sector taking most of the heat today, with the sector down 0.7%. In contrast, energy and materials sectors finished in positive territory, buoyed by gains in commodities. The Hang Seng Index closed at 19288.17, up 105.08 points (or 0.55%) while the Shanghai Composite was down 0.61%. down 17.07 points to 2763.95. The Shenzhen composite dropped 20.36 points (1.15%) to 1750.70, while the Kospi rose marginally by 0.08% to 1917.79. Today is the last day of trading on the Chinese exchanges for a week.

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Regulatory Update

Protect Your Firm... And Your Personal Assets!

Monday, 30 July 2012 Written by 
Protect Your Firm... And Your Personal Assets! Hoping for a respite from regulatory change?  Think again.  Gathering forces may create a regulatory storm that is even more difficult than the one faced in the 2007-2009 financial crisis.  In this tempest, both the regulated and the regulators will have bull’s-eyes on their backs.  Regulators are likely to become more conservative in their analysis and more active.  It is therefore imperative to assess your firm now and prepare yourself to withstand regulatory inquiries.  You can also expect more scrutiny from investors who will seek to allocate funds only to those firms that they believe are fully complying with applicable laws and regulations. http://www.ftseglobalmarkets.com/

Hoping for a respite from regulatory change?  Think again.  Gathering forces may create a regulatory storm that is even more difficult than the one faced in the 2007-2009 financial crisis.  In this tempest, both the regulated and the regulators will have bull’s-eyes on their backs.  Regulators are likely to become more conservative in their analysis and more active.  It is therefore imperative to assess your firm now and prepare yourself to withstand regulatory inquiries.  You can also expect more scrutiny from investors who will seek to allocate funds only to those firms that they believe are fully complying with applicable laws and regulations.

What fuels this gathering storm?  Outright major misappropriations by the likes of Madoff and Peregrine's Wasendorf are part of the equation.  In addition, events such as the LIBOR-fixing scandal at Barclays, J.P. Morgan’s “London Whale” trading losses, and MF Global’s failure to segregate customer funds serve as cautionary examples.

These stories highlight that a firm’s assets, reputation, and in some cases, even the firm’s fundamental viability are at stake when things go awry.  As if that weren’t bad enough, senior executives face additional consequences.  In these and other similar incidents, personal assets can be at stake even when others are the primary wrongdoers.  



Think you are immune from these risks?  Think again.  Labaton Sucharow LLP, a plaintiff's law firm, recently published a unsettling study indicating that one in four financial industry professionals in the U.S. and U.K. believe wrongdoing is necessary for success.  If this study is credible, the message it sends to the general public is highly negative.  It speaks to senior management of alternative investment firms loud and clear: sometimes the best-intentioned executive may have an employee who hears an "unintended message" and veers off course.  Intended or not, the executive may ultimately bear responsibility. 

The first line of defense for an investment advisory firm and its executives is to build a culture in which the firm’s standards clearly and consistently meet all applicable regulatory and ethical expectations.  It is particularly important for firm leaders to reaffirm these standards and expectations during times of economic and operational stress, when legal and internal requirements may appear to conflict with business drivers (such as maximizing short-term results).  Employees must internalize that senior management will take the ethical route in order to maximize the long-term value of the firm—and expects them to do the same.

The second line of defense, at least in the U.S., is to develop a governance structure that satisfies the requirements specified in the U.S. Attorneys’ Manual.  This manual offers incentives to companies that adopt a comprehensive compliance and ethics program (and take certain actions upon the occurrence of alleged missteps).  A program that satisfies these requirements will contain elements in addition to those required by the SEC and CFTC.  Complying with the U.S. Attorneys’ Manual can be an invaluable safeguard that reduces the likelihood of an executive or his firm being charged with criminal violations.

The third line of defense is to undertake an honest self-assessment, and to consider the types of pressures that senior management and employees will encounter should the weakened state of the global economy continue.  Topics in the regulatory spotlight should be included in this assessment.  The intent here is to prepare for the possible pressures employees and senior management might face, thereby reducing the chance that hasty decisions are made in the heat of the moment. Ill-considered actions can carry serious penalties and act as a lightning rod for litigation by regulators, investors, and other third parties (such as credit providers).  Advance preparation will help your staff make faster and better decisions if the need should arise. 

You can't always remove that bull’s-eye on your back, but you can at least make the target less bright.

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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