Reducing Risk in Over-the-Counter Derivatives

International supervisory authorities and major market participants met this week at the Federal Reserve Bank of New York to discuss ongoing efforts and future priorities for improving infrastructure and reducing risk in the over-the-counter (OTC) derivatives markets. The meetings between the OTC Derivatives Supervisors Group (ODSG) and major market participants have served as a venue for open dialogue and collective action to effect practical improvements in these global markets.

"As market participants begin operating in a more regulated environment, supervisors of major market participants must continue to work cooperatively and proactively to drive structural improvements, monitor emerging risks, and support consistent supervisory approaches across jurisdictions. The ODSG will continue to play a key role in meeting these objectives," said William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York.

Market participants provided supervisors with updates on recent work and agreed to commit to further improvements in support of G-20 objectives for reducing risks in global OTC derivatives markets. Participants agreed to communicate next steps and commitments in a collective letter to the ODSG by March 31, 2011, in accordance with the recommendations of the Financial Stability Board (FSB) in its October 2010 report entitled "Implementing OTC Derivatives Market Reforms."

Industry commitments to the ODSG will continue to focus on increasing standardization and transparency, as well as the further development and innovation of central clearing facilities to reduce counterparty credit risk among a broader set of participants in the OTC derivatives markets. "We must continue to advocate for solutions that will extend central clearing benefits to a broader set of participants in a safe and sound manner," said Mr. Dudley.

Mercator Advisory Group publishes new report “Debit Cardholders: Calm Before the Storm"

The Mercator Advisory Group has published the fourth in a series of eight topical consumer survey reports examining payment and banking topics. The report “Debit Cardholders: Calm Before the Storm” highlights consumers growing use of debit cards, just prior to the significant impending changes to debit pricing for consumers, issuers, and merchants.

Based on a national US sample of 1,009 online consumer survey panel survey responses focused on payment topics completed during May 2010, the report outlines consumer patterns of debit card ownership, usage, preferences for PIN versus signature transactions, awareness of overdraft reform legislation, participation in alternative and decoupled debit programs, and participation in debit card rewards programs.

Key items in the report include:

• This 2010 consumer survey documents a sort of high-water mark for consumer debit programs, as the Durbin Amendment to the Dodd-Frank Act begins to re-write program economics for debit issuers, and pricing changes begin to affect consumers and merchants.
• At the same time general purpose credit card ownership by households dropped, debit cards became the most widely held type of payment card.
• Cardholders are almost evenly split in their preference for PIN transactions, signature transactions, and no preference." But when requested by the merchant, a majority say they comply with a request to enter their PIN.
• Private label (decoupled) debit programs sponsored by retailers have gained just a small foothold among debit cardholders.
• Debit reward program participation is not dominant among cardholders, and a minority of participants have ever redeemed rewards.

Barclaycard set to launch UK's first commercial contactless mobile payments

Everything Everywhere and Barclaycard today announced the first contactless mobile phone payment operation for UK consumers. This will launch by early summer.

Barclaycard and Orange, who announced their strategic partnership to bring contactless mobile payments to market in 2009, believe this will be the biggest revolution in payments since credit cards were introduced in the UK over 40 years ago.

Working with the world’s leading handset manufacturers, the new offering from Orange and Barclaycard will enable customers to use their mobiles to pay for goods and services at more than 40,000 retailers that use contactless technology, by simply waving their mobile phone against a contactless reader.

The new contactless mobile payment technology has been developed to ensure customers’ transactions and personal data will be protected and secure. The new service will focus on an industry backed, SIM-based approach to payments ensuring enhanced security for customers, as well as to initially provide a single point of customer care contact. MasterCard will provide the payment capability for the contactless mobile transactions.

Contactless mobile phone payments will feature as part of the wider Orange portfolio of products, developed in conjunction with Barclaycard, and which already features a contactless co-branded credit card as well as the forthcoming contactless Orange Cash prepaid payment card.

Cosmetic firm attacked by hackers

Lush Cosmetics has revealed that its website has been the victim of hackers and that there were continuing attempts to re-enter. To counter this, the firm took down their website.

The hacker compromised clients who placed online orders with the firm from October last year until just a few days ago. Customers who may have been exposed have been requested to contact their banks for advice. These clients were contacted by e-mail on 20 January.

A full external Forensic Investigation of the security breach has been started.

The firm has announced that a completely separate, temporary website will be launched in a few days - initially taking PayPal payments only.

Lush Cosmetics also posted a message to the hacker stating “If you are reading this, our web team would like to say that your talents are formidable. We would like to offer you a job - were it not for the fact that your morals are clearly not compatible with ours or our customers”.

Firm fined £490,000 for failing to provide accurate transaction reports

The Financial Services Authority (FSA) has fined City Index Limited (City Index) £490,000 for failing to provide accurate transaction reports to the FSA.

Firms are required to ensure they submit data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate suspected market abuse including insider trading and market manipulation.

Between November 2007 and September 2009, City Index failed to submit accurate transaction reports in respect of approximately 2 million transactions, representing nearly 60% of its reportable transactions. It failed to report approximately 55,000 transactions and reported approximately 1,970,000 transactions with one or more data fields completed improperly.

City Index was also found to be in breach of FSA Principles as the firm failed to put in place a mechanism for ensuring the accuracy and validity of its transaction reports, and failed to identify fundamental errors in its transaction reporting process upon the implementation of a new trading platform.

These breaches occurred despite the FSA sending repeated reminders to firms of their obligations to provide accurate data and of the importance of compliance with the FSA rules on transaction reporting.

Margaret Cole, managing director of enforcement and financial crime, said:

"City Index failed to report accurately a high proportion of its transactions for almost two years. This failure is a serious breach of our rules because it can have a damaging impact on our ability to detect and investigate suspected market abuse.

"Firms and their management must ensure they submit quality transaction reporting data and we encourage all firms to review the integrity of this data on a regular basis. We will continue to monitor the quality of firm reporting and we are committed to taking action where necessary to ensure firms comply with their reporting obligations."

The firm has taken a number of steps to address the concerns raised including commissioning a formal review of its transaction reporting processes by external consultants and implementing a comprehensive remediation project.

Jail for manager convicted of insider trading and money laundering

Neil Rollins, a former senior manager of PM Onboard Limited, a waste industry firm, has been sentenced to 27 months in prison for insider trading and money laundering. Rollins was also ordered to pay £197,000.66 in confiscation.

On 26 November 2010, after a trial, Rollins was found guilty of five counts of insider dealing and four counts of money laundering after he traded on the basis of information he obtained as a result of his senior position and laundered the proceeds.

Based on his knowledge of the company’s worsening financial position he sold his entire shareholding in PM Group. This took place in August and September 2006. Rollins realized £173,875 from the sale of his shares.

When information about the company’s worsening financial position was announced to the market the share price fell immediately by 17% and then continued to fall over a two week period so that by selling his shares when he did he avoided substantial losses.

When Rollins became aware of the Financial Services Authority’s (FSA’s) interest in his dealing he laundered the proceeds to try to hide his conduct. He did this by transferring the proceeds of his crime into accounts that he had set up in the name of his father, David Rollins.

In passing sentence the presiding judge said:

“You sold when you knew it was folly to buy. Every pound you saved was a pound someone else spent […] by selling early you broke the trust of your employer [and] you broke the trust owed to the market”

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

"By pursuing a criminal prosecution in this case, the FSA has shown that it will take tough action against those who abuse positions of trust by dealing on the basis of inside information. Rollins’ crime was aggravated by the fact that he sought to hide his conduct from the FSA by laundering the proceeds.

"The guilty verdicts and sentence in this case send a message, loud and clear, that insider dealing and money laundering are serious crimes."

Mobile Banking - A look into the future

Dr Patrick Dixon is often described in the media as Europe's leading Futurist and has been ranked as one of the 20 most influential business thinkers alive today (Thinkers 50 - 2005).

In this video Dr Dixon takes a look at where mobile banking could be heading and paints an interesting picture.

Who is going to win the coming battle between banks and mobile phone operators?

Photographing a cheque – innovation or a waste of money?

Mobile banking in some banks means throwing the latest in technology at an age-old banking problem and coming up with a time wasting and expensive method which solves nothing. Banks need to get rid of cheques, not take photographs of them. To get the details CLICK HERE.

Barclays fined £7.7m for mis-selling funds

Barclays has been fined £7.7 million for failures related to the sale of investment funds to more than 12,000 investors. The bank did not ensure that two of the funds were suitable for clients when selling the products between 2006 and 2008, the Financial Services Authority (FSA) explained. The funds are Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund.

Barclays sold the funds to a total of 12,331 investors, most of whom were retiring or nearing retirement age - with a total investment value of £692 million.

The regulator’s investigation found that one in seven has complained to the bank about the investment advice it provided, meaning Barclays has paid out £17 million in compensation.

However, the FSA estimated that a total of £42 million could potentially be paid to investors who received poor advice.

Margaret Cole, the FSA’s managing director of enforcement and financial crime, said: “The FSA requires firms to have robust procedures in place to ensure any advice given to customers is suitable.

“Therefore, when recommending investment products, firms should take account of a customer’s financial circumstances, their attitude to risk and what they hope to achieve by investing.”

The £7.7 million fine is the highest given out to a bank for failings in its retail operations.