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Financial Regulation Roundup – May 18, 2018

Dmitriy Ioselevich

Here are the top stories on the financial regulatory landscape in the U.S., EU and around the world over the past two weeks.

U.S. News:

Libor Refuses to Die, Setting Up $370 Trillion Benchmark Battle

A struggle that will dictate the future of financial markets is brewing. Long beleaguered Libor is fighting to preserve its status as the premier global benchmark for dollar-based assets just as questions pile up over the credibility of its presumptive heir. It’s a clash with few equals in financial history. In one corner, the much maligned set of London-based rates that, even after being tainted by rigging scandals, still underpin more than $370 trillion of instruments across various currencies. In the other, a potential successor, conceived over the past four years by the Federal Reserve Bank of New York and the Fed Board of Governors, as well as a who’s who of Wall Street titans, from JPMorgan Chase & Co. and Goldman Sachs Group Inc. to BlackRock Inc. (Bloomberg: read more)

Should the Fed Create ‘FedCoin’ to Rival Bitcoin? A Former Top Official Says ‘Maybe’

Many enthusiasts of Bitcoin and other cryptocurrencies are motivated by deep skepticism of the central banks that control the world’s money supply. But what if central banks themselves entered the game? What would happen if the Federal Reserve, or the European Central Bank or the Bank of Japan used blockchain technology to create their own virtual currencies? Besides, that is, having some cryptocurrency fans’ heads explode? A former Fed governor — who was also a finalist to lead the central bank — thinks the idea deserves serious consideration. (The New York Times: read more, Forbes: read more)

SEC Shows Investors What a Cryptocurrency Scam Looks Like

Washington wants you to know what a cryptocurrency scam looks like—so regulators at the SEC made one up., set up to mimic other too-good-to-be-true coin offerings that have surged during the rise of bitcoin and other digital currencies, is a phony site intended to help investors recognize investment scams. The agency said it build the site in-house in very little time, demonstrating how easily someone can create a scam opportunity. (The Wall Street Journal: read more, CNBC: read more)

Finra sheds more light on how it determines fine amounts

Finra has begun to shed more light on how it determines the fines it levies on firms that violate its rules. In a case last week involving Fifth Third Securities Inc., the Financial Industry Regulatory Authority Inc., the broker-dealer self-regulator, outlined the factors that went into socking the firm with a $4 million fine over the sale of variable annuities. The explanation is part of Finra's effort to draw back the curtain on its enforcement actions. (InvestmentsNews: read more)

U.S. ETF providers cry foul over SEC’s fee experiment

A plan by the U.S. securities regulator to study how stock exchange pricing affects the market by creating different fee levels for different stocks and exchange-traded funds could stifle competition among ETF providers, according to some industry executives. The U.S. Securities and Exchange Commission is preparing a one-to-two-year pilot program to test in part whether the way stock exchanges charge fees and pay out rebates prompts brokers to send customer orders to exchanges with the biggest rebates rather than those that would get the best result for clients. The U.S. Treasury has backed the creation of the pilot as part of its overhaul of capital markets. (Reuters: read more)

EU News:

Banks abandon interest-only home loans amid FCA scrutiny of 'mortgage prisoners'

The number of households with interest-only mortgages has almost halved in six years as banks abandon this controversial corner of the home-lending market. City watchdog the Financial Conduct Authority (FCA) earlier this month began scrutinising the problem of “mortgage prisoners” - homeowners who are trapped on expensive loans and unable to remortgage. The FCA estimates there are 30,000 such “mortgage prisoners”, with those on interest-only deals thought to be among the worst affected. (The Daily Telegraph: read more)

Majority of companies unlikely to be GDPR compliant in time

With the General Data Protection Regulation (GDPR) coming into effect on 25 May, research from Capgemini suggests 85% of companies in Europe and the US will not meet the deadline for compliance. British businesses are the most prepared in Europe for GDPR, yet only 55% report that they will be largely or completely compliant, the research found. Of the UK companies surveyed, 15% said GDPR implementation is not a priority. (Research Live: read more)

International News:

Shorting China Stocks from New York Could get Easier

Short selling could get a little bit easier in China after the country’s domestic stocks join MSCI Inc.’s big index club. MSCI’s inclusion of onshore-listed Chinese shares next month will be a step toward increasing the pool of stock that’s available to borrow. Share lending in the country is virtually non-existent, compared to the U.S. or Europe where the practice often makes up about 20 percent of daily turnover. In just a few weeks, some $1.9 trillion of index-tracking money linked to MSCI is about to own equities in China for the first time. (Bloomberg: read more)

Australia Bank Probe Could Cut 8% of Finance Jobs, JPMorgan Says

Australia’s banking probe could see job cuts in the finance and real estate sectors equivalent to losses during the 2008 global financial crisis, according to JPMorgan Chase & Co. JPMorgan analysts led by Sally Auld see three main channels for the Royal Commission to exert influence on the Australian economy: tighter lending standards and slower credit growth; wealth effects through housing; and industry restructuring. “The finance and real estate sectors now represent 12 percent of gross domestic product,” said Auld, head of fixed-income and currency strategy for Australia at JPMorgan, noting both have been growing above their long-term trend. “So some consolidation seems likely. We think employment in these industries could contract by 8 percent from peak to trough.” (Bloomberg: read more)

China Collects Trove of 3 Trillion Financial Records in Bid for Tighter Control of Country’s Banks

China has amassed a dizzying collection of 3 trillion banking records in its drive to exert effective regulatory control over the nation’s financial institutions in the digital age. The big data mountain – made up of bank accounting records, transaction data and related information – is a powerful illustration of how Beijing is using information technology as a key tool in pursuit of regulatory effectiveness. The data trove was revealed on Wednesday in a speech delivered on behalf of Guo Shuqing, chairman of the country’s powerful new China Banking and Insurance Regulatory Commission (CBIRC), at a forum on financial stability in Hong Kong. (South China Morning Post: read more)

China’s New Systematic Risk Rules May Curb Giant Ant Financial

There’s no other company on Earth quite like Ant Financial. But Ant’s extraordinary reach may soon expose the company to a major challenge: Chinese policy makers, worried that Ant and other financial holding companies pose systemic risks to the nation’s $12.7 trillion economy, are drafting new regulations that could make it much harder for the companies to grow. The rules will force Ant and some of its peers that straddle at least two financial industries to obtain licenses from China’s central bank and meet minimum capital requirements for the first time, according to people familiar with the matter, who asked not to be identified discussing private information. The companies’ ownership structures and inter-group transactions will also be restricted, the people said, adding that the rules need approval from China’s State Council and are subject to change. (Insurance Journal: read more)

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