Auditors under FSA fire

Auditors were just too willing to follow management's line before the crisis the UK Financial Services Authority has charged. Now the FSA has outlined plans to bring auditors under closer supervision, arguing that they had failed to challenge dubious accounting practices in the run-up to the financial crisis, in a discussion paper published this week with the Financial Reporting Council, the UK accounting regulator.

As examples of recent accounting failures, the FSA said, "A credit institution incorrectly netted down derivatives in the balance sheet leading to a misstatement of circa £900 billion... A thematic review recently undertaken on arrears reporting revealed errors by 29 out of 30 of the credit institutions investigated."

Most auditors had done decent jobs, the regulator wrote, but it reiterated that "it is the auditor's responsibility to challenge management when it believes the disclosures are inappropriate". The FSA listed several areas where, it said, auditors had been too ready to accept management's accounts at face value.

Its own research, the FSA said, "has led it to question whether auditors are sufficiently skeptical when challenging management's basis for determining the models and assumptions used to derive ranges of fair-value estimates - in particular, the selection of particular estimates from within such ranges of probable estimates - where key inputs may be unobservable." In particular, fair-value accounting and the calculation of credit valuation adjustments showed more variation between and even within firms than was justifiable. "This diversity should trigger auditors to be more skeptical and to challenge management's judgments about modeling approaches and inputs," the FSA added.

In loan-loss provisioning, too, the FSA said it had seen more variation than seemed justified, adding: "Bank auditors should have placed greater importance on the disclosure requirements in 2007 and 2008. This could have mitigated some of the uncertainties that unsettled the markets."

In future, the FSA suggested, it could impose stricter reporting requirements on auditors, including more frequent meetings, higher transparency requirements, and trilateral meetings between auditors, bank audit committees and the FSA. It might also require all regulatory returns to be audited - it noted that the rate of errors is significantly lower in the returns of insurers, for whom this is already a requirement.

EU and US sign SWIFT bank data deal to curb terrorism

An agreement has been made between the European Union (EU) and authorities in the US to allow the sharing of bank data via the SWIFT network as part of a wider anti-terrorism strategy.

The deal, which is still awaiting approval from the European Parliament (EP), will allow financial data to be passed to the Treasury Department in the US to facilitate the tracking and potential prosecution of supposed terrorists.

Subject to EP approval, the agreement will initially last for five years before being renewed on an annual basis.

Michael Dodman, US Embassy's economic officer to the EU, said negotiations behind the agreement had been “very long and intense”.

“It is a very solid agreement and we want it to be applied fully as it is important for the security of the EU and the US,” he explained.

Alfredo Perez Rubalcaba, Spanish minister for home affairs, signed the agreement on behalf of the EU while Mr Dodman represented the US in the agreement. The arrangement has been provisionally drawn up following the rejection of a similar working relationship by the EP in February of this year.

Many of the contentious issues, which concerned privacy and data protection, have been removed from the new deal, the body explained.

MBNA unveils mobile banking to 5 million card-holders

Credit card provider MBNA has launched a new account facility enabling customers to check their balance using a mobile phone.

A new system from the Bank of America subsidiary has been rolled out to all UK customers that allows the checking of balance, transaction and bill details through the use of short-code text number 83838.

The Mobile Banking Text service is the first of its kind in the UK and comes as demand for mobile banking continues to gather pace. Speaking about the new account feature, Ian Craig, Sales, Service and Operations executive for Bank of America Europe Card Services, said: “Our customers’ needs and expectations are changing — they want greater control and choice in managing their finances, and they want to do so in a way that fits their lifestyles.

“Newer technology, including mobile phone functionality, SMS, the Internet and voice recognition systems are transforming the way our customers expect us to interact with them. The Mobile Banking Text service is one of a number of exciting new improvements we will be making to our services.

“With this service, we are able to provide our customers with another way to bank that is simple, straightforward and puts their credit card information at their fingertips whenever they need it.”

Previously, only MBNA customers who own an iPhone or Blackberry were able to use their mobile phone to view account information, but with the introduction of the Mobile Banking Text service, all card-holders now have access. In total, over 5 million UK based account customers will be able to use the service that will be available on all cards provided by MBNA.

Societe Generale to set up Obopay m-banking solution in Senegal

Societe Generale is using a mobile banking solution from Obopay to offer banking services in Senegal. The technology-agnostic solution being used by Societe Generale marks the fourth country where Obopay’s m-banking solution are being used. Obopay also offers m-banking solutions in the United States, partnering with MasterCard and Citibank, as well as Verizon Wireless and AT&T Mobility, with Nokia in India and with a mobile operator in Kenya.

“In Senegal, traditional banking services are typically very limited; people can spend an entire day each month standing in line to pay for things like their utility services in cash,” said Richard Hababou, managing director of Societe Generale Innovations Group. “Yoban’tel by Obopay allows us to establish innovative and convenient mobile money transfer and payments for those Senegalese who have previously not had access to such services.”

Societe Generale also broadened its distribution channels with the Obopay solution, adding Credit Mutuel du Senegal, a micro-finance agency; Tigo, a mobile operator; and a satellite TV provider Canalsat Horizons. Users can enroll for a mobile payment service and load or pick up cash at these retail outlets as well as banks. “Eighty percent of the population has not had access to a bank account before,” said David Schwartz, head of product and corporate marketing at Redwood, Calif.-based Obopay. The solution uses SMS to enable mobile-phone users to transfer money or make payments.

Each one of Obopay’s deployments is a little different, as each one has a different regulatory environment, and each partnership is slightly different, which shows the flexibility of the solution. In Senegal and the United States, the major partnerships are with financial institutions, in Kenya, a mobile operator is the primary provider; in India, handset maker Nokia is the primary partner and as such, the solution comes preloaded on Nokia handsets, Schwartz said.

Other French-speaking countries could benefit from the service because Societe Generale has such a large reach, Schwartz said. The banking institution employs 157,000 people worldwide. Mobile banking solutions are expected to transform the way people work and live in developing countries because they will have access to cheap financial services. The Bill and Melinda Gates Foundation earmarked $12.5 million to power Mobile Money for the Unbanked, a program that works with industry players to overcome barriers in deploying m-banking services to the reported 1 billion users worldwide who have phones but no bank accounts.

Morgan Stanley decides to pay $102 million to stop investigation

Morgan Stanley has agreed to pay $102 million to end an investigation launched by Massachusetts prosecutors into the company’s unfair and deceptive lending practices.

According to the statement by Martha Coakley, the Massachusetts attorney general, Morgan Stanley which funded subprime loans throughout the US, improperly loaned billions of dollars to New Century which then sold loans to unqualified borrowers in the state. Morgan Stanley also packaged these risky loans and sold them to big investors like pension funds.

Coakley said that the settlement is ‘unprecedented’ and added that the amount would be divided between homeowners, taxpayers and state pension funds. Apart from this Morgan Stanley is also forced to overhaul parts of its lending practices by requiring more disclosure and demanding that the company stop funding "unfair subprime loans in Massachusetts," Coakley said.

Under the terms of the settlement Morgan Stanley will pay $58 million to affected Massachusetts borrowers and $23 million will go into an independent fund which will then cover the losses suffered by the Massachusetts Pension Reserves investment Trust and the Massachusetts Municipal Depository Trust funds. The state's taxpayers will receive $19.5 million, and $2 million will go to nonprofit groups that work with victims of subprime foreclosure in the state.

Massachusetts did not sue Morgan Stanley when it launched its probe. Under terms of the settlement, Morgan Stanley admitted to no wrongdoing.

"This has become an all-too-familiar pattern in which the deceptive practices of Wall Street devastated homeowners and investors, and ultimately contributed to the collapse of our economy," Coakley said in a news conference on Thursday.

She said that her investigation into unfair lending practices is continuing and that Morgan Stanley will provide information and materials needed by the office's investigators.

Bank of England publishes Financial Stability Report

The Bank of England published its bi-annual Financial Stability Report on 25 June. The Report is part of the delivery of the Bank’s strategy for its financial stability work, as set out in the Bank’s Annual Report 2010. The Report concentrates on the Bank’s assessment of conjunctural risks to financial stability. It was largely prepared ahead of the recent announcement by the Chancellor of the Exchequer of the Government’s plans to change the UK’s system of financial regulation.

The Financial Stability Report aims to identify key risks to UK financial stability and to stimulate debate on policies needed to manage and prepare for these risks. The Report is produced half-yearly by Bank staff under the guidance of the Bank's Financial Stability Executive Board, whose best collective judgment it represents, and following review by the Financial Stability Committee of the Court of Directors of the Bank of England.

Under the Banking Act, 2009 the Bank's financial stability objective is 'to contribute to protecting and enhancing the stability of the financial systems of the United Kingdom'. The Report is one vehicle to help it meet that objective.

In relation to current conditions, the Report notes that since December markets have focused increasingly on strains placed on sovereign balance sheets. In April, concerns over Greek sovereign risk spilled over to other European countries and developed rapidly into a generalized retreat from risk-taking. Inadequate transparency about sovereign exposures led to counterparty concerns and renewed strains in bank funding markets. In response, the IMF and European authorities put in place a substantial package of support. While these measures helped to stabilize conditions, market pressures have not yet abated. EU leaders also recently announced plans to publish the results of stress tests conducted on the largest European banks; this will be another important step.

In terms of resilience, the Report says that UK banks have raised their capital and liquidity buffers substantially, which has helped them weather recent tensions. But, in common with their peers, they face a number of challenges in the period ahead. UK banks need to maintain resilience in a difficult environment, while refinancing substantial sums of funding; they have a collective interest in providing sufficient lending to support economic recovery; and they will need over time to build larger buffers of capital and liquidity to meet more demanding future regulatory requirements. The new Basel regulatory regime will be agreed in the autumn. An extended transition to this new regime would enable banks to build resilience through greater retention of earnings, while sustaining lending. The new regime should include a buffer of capital which banks can use to absorb stresses, as well as a hard minimum. That buffer might need to vary over the cycle.

You can download the report at; http://www.bankofengland.co.uk/publications/fsr/2010/fsrfull1006.pdf

Barclays adds enhancements to its mobile banking service

To celebrate the first anniversary of Barclays.mobi service, Barclays provides a series of further enhancements to its UKs mobile phone banking service. The service is said to attract more than four million hits a month.

The updated service now includes:

• Currency conversion calculator as the summer holiday season kicks off
• 'At a glance' balance screen has been updated for easier customer views
• Introduced 'tappable' bars to support finger friendly principles for mobile phones
• Bookmarks feature - customers can save the mobi link to support access and navigation; IPhone users can also save the link as a Barclays icon 'lozenge'
• Introduced a mobile business site specifically for business customers.

Sean Gilchrist, Barclays Digital Banking Director, said: "In just over a year we have grown the service from nothing to over 4 million hits a month which is just phenomenal. The feedback from our customers is very much around 'snack banking' on the move, it's clear they want to see their balance, recent transactions and make payments whilst out and about. We believe the interest in banking through mobile hand-sets is market-driven and the iPhone has been a catalyst for it, as people use their phone to do more things. In addition we're also seeing an increase in terms of bandwidth that the phone can operate at and availability of Wi-Fi hotspots, so all in all people are getting a much better experience and prepared to use their phones to do more."

These latest enhancements build on a year of several key developments to the Barclays.mobi service which give customers a web application service operating on all of the main mobile platforms. Customers including those with Apple, HTC, Nokia, Motorolla, Blackberry etc mobiles have a user friendly mobile experience with access to the full range of services without having to scroll around.

The full range of services on offer includes:

• Balances
• Mini-statements
• Transfers between Barclays accounts
• Third party payments 
• Branch and ATM locator' using maps that specifically fit mobile handsets
• Mobile frequently asked questions and answers
• Currency conversion tool
• Free mobile security software from Kaspesky
• 'Layar' collarboration with Barclaycard which allows customers using iPhone or Android (but also comes pre-installed on the Samsung Galaxy S) to use a touch-screen device to find the nearest Barclays ATM, shop that accepts contactless - it integrates with google maps to help you find out just how to get there.

Barclays also offer a text banking service where customers can register to receive weekly balance, mini-statement, limit and transaction alerts for a small monthly fee of £2.