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Trawling through yesterday’s Bobsguide, I came across this piece reporting on an FSA release on the costs of compliance with the new Markets in Financial Instruments Directive (MiFID) for UK banks and other market participants. Essentially, the FSA is estimating the up front costs to be between GBP 870 million and GBP 1 billion, with ongoing costs of GBP 100 million. The benefits, apparently quantifiable, are calculated at GBP 200 million per annum.

If we use the upper figure (has anyone ever seen a project of this nature come out at the lower figure?) and, assuming this is correct, it gives us a 10% internal rate of return for this project. In other words, if this was not a compliance project no bank would do it, as none of them would set an IRR threshold of 10% for a large and complex project.

Who, then, benefits from this? Read the rest of this entry »

APRA today announced that the start date for their revised outsouring approach (discussed here) would be pushed back from 1 January 2007 to 1 April 2007. For details, see here (banks), here (general insurance) or here (life assurance).

Why is this? APRA do not seem to say, but my best guess is that the insurers are not ready and were not going to be in a position to state that their existing outsourcing arrangements were in “general compliance” with the new standards. For the banks, this is unlikely, given the paucity of the changes, but, as the application to the insurers is new, this was always going to be a big step.

If anyone would like to let me know otherwise, please do.

When dealing with some of the less sophisticated treasury operations I occasionally come across some fairly, well, unconscionable behaviour by the banks. This is normally where the bank has given the client some heavily off-market rates for whatever business they are doing.

A good example might be forward foreign exchange deals. A normal forward is priced based on the spot rate current at the time of the deal, plus (or minus) the forward points, which are calculated based on the differential interest rates between the two currencies involved. The scope for going wildly off-market on these rates is limited – the forward points are published and easy to calculate, so any excess margin has to be easy to justify to the (bank’s) client. Read the rest of this entry »

For those lucky enough not to have to deal with CLERPs 1 through 9 (the Australian Corporate Law Economic Reform Program), apart from having one of the worst sounding acronyms known, these programs have represented some of the largest expansions of regulation in Australian corporate history, with CLERPs 3, 6 and 9 being particularly noteworthy.

Much of it did not relate to other parts well and, considering the volume of some of these changes it is probably suprising that they actually fitted together at all. Anyway, some of the bigger anomolies finally have proposals to address them, in this proposals paper.

To be honest, this is really not that exciting. For example, the changes will not make it easier to get an Australian Financial Services License, or reduce the compliance burden once you have one. What it will do is allow you, in certain circumstances, not to have to hand out the pieces of paper that very few read any way.

There are a total of 35 proposals in here – each seems sensible but a comprehensive reform program, designed to lift some of the real weight of compliance from financial services companies this is not.

It has been a fairly quiet last few days in the bank regulation world. Even the speech count out of the BIS is down to only a few this week. Despite that, there has been the release of the semi-annual derivative trading statistics. There were the, by now, usual large amounts of compound growth in totals outstanding. Credit default swaps were the largest growth market, with growth climbing from 36% to 46% in nominal face value terms. This would have been larger if early terminations had not also increased. The notional outstanding on these is now over USD 20 trillion (yes, with a “T”) – a very big number. This shows the true importance of this market now, up from virtually nothing only a little while ago. Read the rest of this entry »

Today’s Bobguide reminds me why I subscribe to it. Normally it is just a list of corporate advertisements – but today’s was a real pearler. As regular readers here will remember, I maintain an interest in overseas Basel II implementation – in particular the US, where it has been just plain barmy at times.

The discussion at the AEI looks like about one of the first “full and frank” discussions between the regulators and the regulated in this process, as the comment from Gary Wilhite (Wachovia) shows. As noted in the Bobsguide piece, this was an important piece of the discussion.

…the CCO of one of America’s largest banks [Wachovia] read through the list of collaborative working groups established between the EU regulators and the institutions they supervise to work though the details of Basel II implementation. He then noted quite sadly that no such cooperative effort exists between US bank regulators and the institutions which they oversee.

Any wonder why the rest of us are just shaking our heads? If they are not talking there is no chance of getting it right.

Thanks to Bruce for the information on the release of the new FSA Prudential sourcebooks on 25 October. Access to them can be gained here. The actual instruments go under the rather glamourous names of GENPRU and BIPRU. GENPRU is, as the name suggests, general prudential requirements and so apply across the industry and BIPRU apply only to those known, in Australia, as ADIs (Authorised Deposit-taking Institutions).

They are 227 pages and 709 pages long respectively – so I would only download them over a fast internet connection and even then only if you need to.

That said – on a quick look they seem to have used the huge weight of paper well. The BIPRU gives good, clear examples of who regulates who in a multinational banking conglomerate, giving some clarity over the home / host issues and, as Bruce said, it looks like it is a clearer read.

I will probably wait until tonight to print them out though and do not expect a thorough summary any time soon.

APRA released a discussion paper yesterday updating us on their proposed approach to several issues on Basel II that remained open. These areas are:

  • Securitisations;
  • Credit derivatives under the standardised approach; and
  • A few regulatory discretions

The section on securitisations is particularly important, considering their popularity in the Australian market and also for the changes proposed. Read the rest of this entry »

This is the last in this series. I hope you have found it useful and informative. 

Since the late 1990s the Islamic banking world has stepped up efforts to standardize regulation and supervision. The Islamic Development Bank is playing a role in developing internationally acceptable standards and procedures and strengthening the sector’s architecture in different countries. Several other international institutions are working to set Shari’a-compliant standards and harmonize them across countries. These include the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Finance Service Board (IFSB), the International Islamic Financial Market, the Liquidity Management Center and the International Islamic Rating Agency. Read the rest of this entry »

Just a quick note on the almost equally quick Senate enquiry on the anti-money laudering / counter-terrorism financing bill currently before the Senate. If you want to make a submission, you only have a few days left – go here.

Submissions from the original draft have been carried over with the revived sittings concentrating on the changes between this one and the previous exposure drafts. Submissions need to be in by 17 November.

Usefull links

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