EU agrees financial supervision overhaul

EU regulators have reached a landmark accord that will change the way financial supervision takes place in the bloc.

Starting in 2011, new supervisory authorities will oversee the banking, insurance and securities industries, with regulators granted the power to investigate financial products and activities and temporarily ban them if necessary.

The new systemic risk watchdog will also be created to issue government warnings on potential economic risks. It will be headed by the president of the European Central Bank, who is currently Jean-Claude Trichet.

Meanwhile, credit ratings agencies will come under scrutiny from the European Securities and Markets Authority.

Michel Barnier, financial services commissioner for the EU, said: "We have reached a crucial milestone.

"We will have the control tower and the radar screens needed to identify risks."

In July, Mr Trichet called for the rest of the international community to follow Europe's lead in embarking on deficit reduction programs that cut public spending and raise taxes.

SEC charges investment adviser with $11m fraud

Sandra Venetis, an investment adviser from New Jersey, has been accused of leading a Ponzi scheme which saw $11 million stolen from clients.

According to the Securities and Exchange Commission (SEC), the accused misled investors through fake promissory notes issued via three associated firms. She is also alleged to have promised investors that their capital would be used to fund loans to doctors.

Instead, the money was given to relatives of Ms Venetis as well as being used to pay off a range of debts gained from travelling and gambling.

Bruce Karpati, co-chief of the SEC's Asset Management Unit, said: “Venetis abused her position of trust to target older investors who were the most vulnerable to her egregious lies and misrepresentations.

“The SEC's enforcement action and the settlement reached ensure that she will never work in the securities industry again."

Ms Venetis agreed to settle by way of a court order from the SEC which will freeze her assets as well as ensuring fines are imposed at a later date.

The order also means the accused is banned from future interactions with brokers, dealers or investment advisers.

Payment systems and the role of the Eurosystem

The European Central Bank (ECB) has just published a new book entitled “The payment system – payments, securities and derivatives, and the role of the Eurosystem”. The book provides a comprehensive insight into the handling of financial transactions and the functioning of the related financial market infrastructure – a core component of the financial system. It also explains the role and policies of the Eurosystem – which comprises the ECB and the 16 national central banks of the euro area – in this field.

The book is in three parts.

1. Providing an insight into the market infrastructure of modern economies with a view to examining key concepts which have general validity and are thus applicable around the world. Emphasis is placed on the principles governing the functioning of the relevant systems and processes and the presentation of the underlying economic, business, legal, institutional, organizational and policy issues. 
2. Focusing on issues concerning the market infrastructure for the handling of euro-denominated payments, securities and derivatives, as well as the most important EU legislation. 
3. Explaining the operational, oversight and catalyst roles of the Eurosystem and the policies established by the Governing Council of the ECB in this field. It also considers the legal basis for the Eurosystem’s involvement and describes the transparent and cooperative approach adopted by the Eurosystem with a view to pursuing its public policy objectives while acting within a modern market economy environment.

The book can be downloaded free in PDF fromat from the ECB’s website – CLICK HERE.

New Namibian bank for mobiles only

The central Bank of Namibia has authorized the establishment of a new mobile-only bank to be operated by local m-payments operation MobiCash.

The new “MobiCash” bank will target the rural unbanked population. Users of the service will have to open an account and deposit a cash balance at a network of local agents and stores. The cash account is registered on the user's phone and can be used to make person-to-person, utility and merchant payments.

In granting the license, the Bank of Namibia says the extensive costs of establishing branch networks obstructs the penetration and reach of conventional banks into remote areas.

"In view of these challenges, the Bank of Namibia regards this initiative as a truly innovative solution towards promoting financial inclusion to cover the unbanked and under banked population in Namibia," says the bank in a statement.

Enhancing financial stability

The sweeping overhaul of the US’s financial regulatory system that was signed into law in July last, will touch virtually every aspect of American financial markets. The October issue of the “Chicago Fed Letter” focuses on the various provisions in the “Dodd–Frank Wall Street Reform and Consumer Protection Act” that affect “financial market utilities,” critical behind-the-scenes institutions and arrangements that will ensure the smooth functioning of financial markets. Anna L. Paulson, vice president and senior financial economist, and Kirstin E. Wells, lead technical expert both from theat the Chicago Fed have authored this informative article.

Download this article HERE.

New Zealand central bank designates third settlement system

The Reserve Bank of New Zealand and the country’s Securities Commission has announced that the newly established “NZCDC Settlement System” has been declared a designated settlement system in terms of the Reserve Bank of New Zealand Act.

The Reserve Bank and Securities Commission are joint regulators of designated settlement systems. The NZCDC Settlement System is operated by New Zealand Clearing and Depository Corporation, a wholly-owned subsidiary of NZX Limited.

Reserve Bank Head of Prudential Supervision Toby Fiennes, and Securities Commission Chairman Jane Diplock said the designation gives statutory backing to the finality of settlement and netting of transactions through the system so that in the event of failure by a participant, transactions cannot be unwound. Designated settlement systems are subject to ongoing oversight by the Securities Commission and the Reserve Bank. However, it is not compulsory for settlement systems operating in New Zealand to be designated.

New Zealand has two existing designated settlement systems: the Reserve Bank’s Exchange Settlement Account System and the Continuous Linked Settlement System operated by CLS Bank International.

A settlement system will only be recommended for designation after a thorough assessment by the regulators, they said. The regulators assess, amongst other things, the clarity and legal certainty of the rules of a system, its financial soundness and risk management policies, and the capability and capacity of the operator.

"Ransomware" scam in Russia

Russian police have launched an investigation into a criminal gang that installed malicious "ransomware" programs on thousands of PCs and then forced victims to send SMS messages in order to unlock their PCs. According to local reports that scam may have netted Russian criminals millions of dollars.

Russian police seized computer equipment and detained a Russian "crime family" in connection with the crime. 10 people are expected to be charged. Tens of thousands victims affected by the scam live in Russia, Ukraine, Belarus and Moldova.

The scam ring worked this way: they used news sites to spread their malicious software, known as WinLock, which disables certain Windows components, rendering the PC unusable, and then displays pornographic images.

To unlock the code, victims must send SMS messages that cost between 300 rubles (US$9.72) and 1,000 rubles.

The scam is "very popular" in countries such as Russia at the moment, antivirus vendor Kaspersky Lab said in an e-mailed statement.