Former Goldman Sachs board member charged in insider trading scheme

The Securities and Exchange Commission (SEC) has announced insider trading charges against Rajat K. Gupta a Westport-based business consultant who has served on the boards of directors at Goldman Sachs and Procter & Gamble for illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.

The SEC’s Division of Enforcement alleges that Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards. Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms. The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.

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Assessing the possible sources of systemic risk from hedge funds

The Financial Services Authority’s (FSA) has just published the results of its latest “Hedge Fund Survey” conducted in September 2010 and the “Hedge Fund as Counterparty Survey” conducted in October 2010.

These two surveys provide a basis to analyze the systemic risk posed by hedge funds and are conducted every six months as part of the FSA’s work in assessing risks to financial stability of the UK financial system from outside the boundary of prudential regulation.

The full report can be downloaded from the FSA website – CLICK HERE

“Retail Conduct Risk Outlook” published by FSA

The UK’s Financial Services Authority (FSA) has published its first Retail Conduct Risk Outlook (RCRO), which examines how a range of current, emerging and potential risks could impact retail customers.

RCRO is a key component in the FSA’s consumer protection strategy to identify risks earlier, proactively intervene earlier in the product chain and prevent consumer disadvantages.

The report’s analysis of current and upcoming risks informs how the FSA will set its priorities and deploy its resources. These will be outlined in the FSA’s Business Plan, due for publication next month.

The RCRO analyses the environment in which the FSA, authorized firms and consumers operate. It assesses the main macroeconomic trends, the changing regulatory landscape, developments in firms and markets, and key issues affecting consumers – and the risks these all pose.

Some of these are issues are current, and are subject to ongoing FSA activity, some are emerging, and others have yet to develop but could cause consumer detriment in the future.

Introducing the new publication, Adair Turner, FSA chairman said:

“The Retail Conduct Risk Outlook is a timely reminder of the consumer protection challenges facing the FSA, its successor bodies and financial firms over the coming years. It analyses how environmental trends may influence how firms treat their customers, and assesses the resulting potential for poor customer outcomes. The RCRO informs our dialogue with firms and consumer representatives on conduct risk and will play an essential part in our work to mitigate the potential risks to customers in the future.”

The Retail Conduct Risk Outlook, together with the Prudential Risk Outlook which will be published in March, replaces the Financial Risk Outlook Series. The Financial Risk Outlook has been published since 2002.

The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.

Card-to-card money transfer system introduced by Visa

Visa has launched a new person-to-person payment service that allows users to transfer funds other cards over the VisaNet network.

The service was activated for the first time by Russia's “1st Processing Bank” and Ukraine's largest bank, “PrivatBank” earlier this week.

Visa is in the process of rolling the service out internationally, with a view to capturing market share from PayPal, and other emerging mobile remittance platforms.

Using the new service is simple. Senders provide their bank with the recipient's Visa card number to initiate the payment. Visa says the process does away with the need for senders to fill out complicated forms and provide routing information such as bank codes and branch addresses.

When processed through VisaNet, funds are credited directly to the eligible Visa credit, debit or prepaid account within minutes, freeing recipients from having to visit agent locations to collect cash.

Vikram Modi, Head of Digital Money Transfer and Personal Payments for Visa’s international markets, said that this milestone for Visa in Russia and Ukraine is only the beginning of a new wave of personal payment services on Visa cards – including person-to-person payments, mobile money transfer, electronic bill pay, prepaid reloads and intra-account transfers.

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Financial Services Authority fines mortgage firm for irresponsible lending and poor treatment of arrears customers

The Financial Services Authority (FSA) has fined DB Mortgages, part of the Deutsche Bank Group, £840,000 for irresponsible lending practices and unfair treatment of customers in arrears, and secured redress of approximately £1.5 million for DB Mortgages’ customers.

On lending practices, DB Mortgages failed to show that customers could afford mortgages sold where the term continued after their retirement, failed to consider whether there were cheaper mortgages available for customers seeking self-certified mortgages, and failed to ensure that customers had thought about where they would live at the end of the term if they needed to sell their house to pay off an interest-only mortgage.

On treatment of customers in arrears, DB Mortgages did not consider customers’ individual circumstances or tell them about the range of options that were available to them, and applied charges that were unfair because they were charged repeatedly or did not accurately reflect the cost of administering an account in arrears.

Margaret Cole, the FSA’s managing director of enforcement and financial crime, said:

"Firms need to understand that we will not tolerate lax lending practices and unfair treatment of customers in arrears.

''Firms which fail in their obligations to customers should expect not only a substantial fine but also that they will have to pay back customers who have been disadvantaged by their failings''.

The FSA has taken into account that DB Mortgages worked in an open and co-operative way with the FSA and has made significant improvements to its arrears handling procedures. As a result of early settlement, the firm also qualified for a 30% discount under the FSA’s settlement discount scheme. Without the discount, the fine would have been £1.2 million.