Weekly FS Regulatory News - 11 August 2017

Dhallu & Co.

Calls to Revise Rules on Winding Down Banks
There have been calls for the European Union to revise the state aid guidelines adopted by the European Commission in 2013 in the wake of the winding down of two Italian banks where state aid was delivered but senior bondholders were sparred losses.

Italy invoked the guidelines by providing 17 Billion Euros of state aid for the liquidation of Veneto Banca and Banca Popolare di Vicenza. Junior creditors and shareholders were wiped out before taxpayer money was used but senior bondholders were spared.

The treatment of providing state aid differs for systemically important banks where the Bank Recovery and Resolution Directive requires 8 per cent of an institutions liability, including senior bondholders, to be wiped out before state aid is used.

There have been calls for the two laws to be more in line and for the loophole to be closed. The EU Competition Commissioner provided a statement that there are no current plans for revising the rules.

FCA to Extend Responsibility for All in Finance
The Financial Conduct Authority (FCA) is proposing new conduct rules to extend some of the current Senior Manager’s Regime to all individuals working in the financial services industry.

Not many individuals were held accountable for the recent trading scandals where banks lost a lot trust from the public. This has prompted the regulators to hold individual accountability which may lead to criminal prosecutions for a breach of the rules.

CBA’s Breach of Money Laundering and Counter Terrorism Laws
The Commonwealth Bank of Australia (CBA) is facing legal action by the Australian Transaction Reports and Analysis Centre (Austrac), Australia’s financial crime fighting agency.

Austrac has accused CBA of more than 50,000 breaches of money laundering laws by failing to adequately monitor A$ 624.7 million of transactions over a three-year period. It is also alleged that CBA failed to adequately report unusual transactions equalling more than A$77 million, or monitor suspicious customers after it became aware of possible money laundering.

CBA said the issue began after a software update in late 2012. The coding error meant machines did not create suspicious transaction reports. CBA could face a maximum fine of A$18 million for each breach.  

Headwinds for Challenger Banks

Chief Executives of some of the U.K’s challenger banks have sounded alarms after rapid growth of consumer credit, slowdown in the housing sector and capital issues. The market is becoming crowded and some lenders are taking more risks for lower returns.

Mortgage rates have fallen partly as a result of new lenders entering the sector and because of BoE’s term funding scheme, which has provided cheaper funding to stimulate lending.

Smaller lenders that do not have current accounts or brand recognition of larger banks are having to pay more to attract customer deposits.

Newer banks may not have a diverse asset base compared with more established rivals where they may suffer hardship if the economy turns for the consumer. Personal loans and car finance have also been under the radar as new products such as 10 year personal financing has been compare to a mortgage without the risks being assessed as rigoursly as for a mortgage.