New City Agenda - Culture of Banking Report

This report on the culture of British retail banking is the first comprehensive study of what British retail banks have done, and are doing, to tackle the cultural shortcomings which led to the financial crisis and subsequent other scandals. Produced in collaboration with Cass Business School, it has come to the following conclusions:

• Poor Culture has cost customers and banks dearly: Scandals stemming from poor culture in retail banking have cost banks and building societies at least £38.5 billion in fines and redress. Banks have received 20.8 million complaints since the financial crisis, and Which?’s annual aggregated analysis of the results of customer satisfaction surveys – which ask consumers from the general public about their providers – sees Britain’s biggest four banks outranked by smaller, mutual banking providers.
• At the current rate, it will take the entire sector a generation to completely overhaul its culture and practices: The sector is currently dominated by four big banks. Given the current rate of change, a radical overhaul will take a generation. An entire generation of staff have been raised, and some instances promoted, in an aggressive sales culture. There outlooks must be changed. The ‘tone from the top’ is more positive, but many outside observers were sceptical that the ‘tone from the top’ has trickled down to branch level. There was concern about ‘the message getting lost in the middle’, and some staff reported the pressure to sell products persisted in subtler forms.
• Banks are trying to change, with some progress made: Most banks have implemented top-down culture change initiatives, with performance frameworks significantly altered. As a result, banks report that frontline staff are no longer incentivised purely on sales, and some major banks tell us they are training their staff to only sell products they’d be happy selling to their grandmothers. A lot of time has been spent on changing the outlooks and actions of senior executives.

Mauritius: Speech of FSC Chief Executive - Initiatives under the Consumer Education and Financial Literacy Programme

Ladies and Gentlemen

Good Afternoon

It is with great pleasure that I welcome you all to the FSC House today in the context of our Consumer Education and Financial Literacy Programme.

For the soundness and stability of our financial system, FSC Mauritius believes in promoting initiatives that create an enabling environment to make the on-boarding process of all consumers of financial services and products simpler.

As the financial marketplace constantly evolves, investment products are becoming increasingly complex and financial services increasingly diverse. Information is considered as a public good, yet because of increased information asymmetries, I quote Mr David Wright, SG of IOSCO, 'Consumer education has become more important – in fact vital - than ever in order to better balance the huge differences between consumers – dispersed and fragmented – and the financial industry'.

The recent financial crisis has questioned how well businesses deliver consumer financial services and how good regulatory institutions address problems in financial markets – i.e. whether they were fit-for-purpose? Unfortunately the crisis has shown that many were not.

Today, consumers need to have a better understanding of key financial concepts to better comprehend and evaluate the choices available to them as well as to avoid frauds. According to the IMF, “Effective consumer protection and market conduct regulations are key aspects of a responsible finance agenda.”

FSC Mauritius is mandated under Section 6 (f) of the Financial Services Act (FSA) 2007 “to promote public understanding of the financial system including awareness of the benefits and risks associated with different kinds of investment and to take measures for the better protection of consumers of financial services.”

Research and new behavioural economics show that consumer protection can work only if we have long term and sustainable programmes. Given the complexity of today’s financial products, investor education requires a multitude of tools to be a successful and efficient undertaking. Thus those running the financial education programmes must also be innovative, dynamic, flexible and with tremendous staying power.

Section 32 (1) of the FSA 2007 stipulates that the FSC Mauritius “may develop and promote such programmes and initiatives, where it deems it necessary in collaboration with financial institutions or bodies representing the financial services industry, to inform and educate consumers or potential consumers of financial products and financial services.”

At FSC Mauritius, we believe that informed consumers make better financial decisions. Since 2011, when we launched the FSC Young Talent Competition, we chose to adopt an incremental approach to our Consumer Education and Financial Literary Programme. Today, this programme has become an important part of the FSC Mauritius initiatives, leveraging on diverse means and methods to be able to reach out to a maximum number of consumers and potential consumers of financial services and products.

I would like to this opportunity to thank our stakeholders, industry associations and professionals who have provided valuable support as members of the jury panels or entertaining queries from students and also, of course, schools and students for their participation.

FSC Mauritius will continue to enhance these initiatives and ensure that we deliver on our objective of better consumer protection.

The choice of the appropriate media for delivering investor education and financial literacy programmes usually depends on the target audience. In order to achieve the widest exposure, many regulators use all available media.

To reach a wider audience, the FSC Mauritius has created a series of Consumer Education Posters - with our own, specially created characters and Kreol as the chosen language. The first in this series of posters was launched on 12 December 2013 and was on how to protect yourself against financial scams. Since then, other posters have sensitised people on licensing and investing. We distributed these posters in secondary schools, community centres and had them displayed in public places and on our website.

Today, we thank you for being in our midst as we unveil the latest developments under our Consumer Education and Financial Literacy Programme.

To start with, we are launching ProtectYourFinance.com, the dedicated FSC Mauritius consumer education website, to reach out to current and potential consumers of financial services of all ages and income groups, in a medium which is becoming more popular (incontournable) day by day. As pointed out by the IMF 'Technological innovation is perhaps the most promising way to advance financial inclusion.'

Other initiatives we will be sharing with you today include:

• A Financial Literacy Snake and Ladders Game – we have customised the Snake and Ladders Game concept to pass on key messages on financial terms and what to do and not to do, in particular in respect of investment (more traditional but still as enjoyable and fun - for all ages); and
• The Launch of our fourth poster on how to deal with Insurance Complaints (connaissance pour empêche li faire la liane)

Going back to www.protectyourfinance.com, we believe that the website’s simplicity, ease of use and most importantly, our friendly mascot whom we refer to by the initials:- O.W.L. will appeal to the public. Our Mascot's initials O.W.L. stand for (you have probably already guessed since it is very intelligent) One Who Learns. It is worth noting that the website is not intended to give legal or  professional advice but to provide general guidance so that consumers can make informed decisions about their finance.

We hope you will add www.protectyourfinance.com to your ‘favourites' as well as regularly provide us with your feedback.

On this note, I would like to thank the whole team - the staff at FSC, our trainees, the young IT specialists (Aeris and CodeVigor) and artist Laval Ng (Aztlan) - behind the initiatives that we are launching today. I wish you a nice browsing on protectyourfinance.com and Be Wise with Your Money.

Clairette Ah-Hen

24 November 2014

Sebi reprimands HSBC Securities, India Star in Global Offshore case

The Securites and Exchange Board of India (Sebi) reprimands a Mauritius GBC 1 for failing to reach the standards of disclosures expected under the SEBI Circular dated March 08, 2004. 

UK NAO: The effective management of tax reliefs

HM Treasury and HMRC have not established a framework or principles to guide the administration of tax reliefs, according to today’s report from the National Audit Office.

This reflects the Exchequer Departments’ view that tax reliefs do not have administrative implications that differentiate them from other parts of the tax system. The NAO concludes that the Departments’ defence of this principle, coupled with the desire not to be more accountable for reliefs, is costing the exchequer money.

Tax reliefs are diverse in nature, serving a variety of needs. Some are structural parts of the tax system, to improve ‘progressivity’ or to ensure the correct calculation of profits. Other reliefs, sometimes described as ‘tax expenditures’, are designed to encourage a particular behaviour towards a social or economic policy objective.

The NAO today reveals that HM Treasury and HMRC have not identified which tax reliefs are intended to change behaviour in order to deliver targeted policy objectives. They also do not monitor or report their costs and benefits in a way that would allow wider government, Parliament or the public to know if such reliefs are working as intended. Not all reliefs lend themselves to such analysis, but some do. The NAO believes this creates a significant gap in accountability to Parliament for administrating public finances effectively.

This also means that significant risks can go undetected: that tax reliefs cost more than expected; that they are used in ways not intended by Parliament; or that they do not bring about intended behaviour change.

The spending watchdog looked specifically at how HMRC administers 10 tax reliefs, and found that in three of those cases the Department responded with varying degrees of urgency to the evidence of abuse.

HMRC detected large-scale abuse of share loss relief in 2006-07 but did not check the total amount of claims in 2006-07 or subsequent years to check whether there were other unexplained surges. In 2006-07, the cost of claims against income tax for share loss relief rose from £385 million to £1,206 million in real terms. HMRC is investigating 80% of the 2006-07 claims by value (£964 million). Avoidance activity has continued and HMRC has detected 20 undisclosed schemes between 2005-06 and 2011-12. It has opened investigations into 60% of all claims. The amount of relief that HMRC is considering in tax terms over that period is £780 million.

HMRC has carried out only limited analysis to investigate why the cost of entrepreneurs’ relief has significantly outstripped its forecast, increasing over 500% from £500 million in 2008–09, to an estimated £2.9 billion in 2013-14 and whether the cost increase might be influenced by misuse of the relief.

Business culture in banking industry favors dishonest behavior

Bank employees are not more dishonest than employees in other industries. However, the business culture in the banking industry implicitly favors dishonest behavior, as an economic study at the University of Zurich indicates. A change in norms would thus be important in order to improve the battered image of the industry. 

In the past years, there have often been cases of fraud in the banking industry, which have led to a considerable loss of image for banks. Are bank employees by nature less honest people? Or does the business culture in the banking sector favor dishonest behavior? These questions formed the basis for a new study by Alain Cohn, Ernst Fehr, and Michel Maréchal from the Department of Economics at the University of Zurich. Their results show that bank employees are in principle not more dishonest than their colleagues in other industries. The findings indicate, however, that the business culture in the banking sector implicitly favors dishonest behavior. The results suggest that the implementation of a healthy business culture is of great importance in order to restore trust in the banking industry.

Occupational norms implicitly favor dishonest behavior in bankers

The scientists recruited approximately 200 bank employees, 128 from a large international bank and 80 from other banks. Each person was then randomly assigned to one of two experimental conditions. In the experimental group, the participants were reminded of their occupational role and the associated behavioral norms with appropriate questions. In contrast, the subjects in the control group were reminded of their non-occupational role in their leisure time and the associated norms. Subsequently, all participants completed a task that would allow them to increase their income by up to two hundred US dollars if they behaved dishonestly. The result was that bank employees in the experimental group, where their occupational role in the banking sector was made salient, behaved significantly more dishonestly.

A very similar study was then conducted with employees from various other industries. In this case as well, either the employees’ occupational roles or those associated with leisure time were activated. Unlike the bankers, however, the employees in these other industries were not more dishonest when reminded of their occupational role. “Our results suggest that the social norms in the banking sector tend to be more lenient towards dishonest behavior and thus contribute to the reputational loss in the industry,” says Michel Maréchal, Professor for Experimental Economic Research at the University of Zurich.

A change in norms is needed in the banking industry

Social norms that are implicitly more lenient towards dishonesty are problematic, because the people’s trust in bank employees’ behavior is of great importance for the long-term stability of the financial services industry. Alain Cohn, who recently joined the Booth School of Business at the University of Chicago as a postdoctoral scholar, suggests concrete measures that could counteract the problem: “The banks could encourage honest behavior by changing the industry’s implicit social norms. Several experts and supervisory authorities suggest, for example, that bank employees should take a professional oath, similar to the Hippocratic Oath for physicians.” If an oath like this were supported with a corresponding training program in ethics and appropriate financial incentives, this could lead bank employees to focus more strongly on the long-term, social effects of their behavior instead of concentrating on their own, short-term gains.

Literature:

Alain Cohn, Ernst Fehr, and Michel André Maréchal. Business culture and dishonesty in the banking industry. Nature. November 19, 2014. doi: 10.1038/nature13977

2016 Mercedes-Maybach S600

With the world premiere in Guangzhou and the presentation in Los Angeles, the new Mercedes-Maybach S-Class will be unveiled almost simultaneously in its two key markets of China and the USA. At 214.6 inches long and with a wheelbase of 132.5 inches, the flagship of the Mercedes-Benz model range is 8.1 inches larger in both dimensions than the S-Class Sedan. Rear passengers benefit from this increased size as well as from standard equipment that includes executive seats on both the left and right sides and other exclusive details. In the rear, the Mercedes-Maybach S-Class is also the world's quietest production sedan.

Press Release

Appleby Mauritius selects Linedata to support growth in fund and private equity administration

Linedata (NYSE Euronext: LIN), the global solutions provider dedicated to the investment management and credit industries, today announced that Appleby Management (Mauritius) Ltd (Appleby) has selected Linedata Admin Edge to run its administration services in Mauritius as it gears up for expansion into new markets.

Appleby chose to switch to Linedata for its superior client service and excellent ROI, as well as a need for platform flexibility and breadth of coverage to enable it to meet its growth plans.

Appleby is one of the world’s largest providers of offshore legal, fiduciary and administration services, with a presence in twelve jurisdictions around the world. Appleby Mauritius has increasingly expanded into private equity funds and closed-end vehicles, with a focus on Africa, whilst retaining and growing its current administration business. The firm sought an integrated fund administration platform which could cover traditional, hedge and private equity funds, with sufficient breadth of instrument coverage, flexibility and scalability to meet its immediate and future needs. The fact that Linedata Admin Edge had a record of being regulation-ready well in advance of deadlines, including for FATCA, was important, as was the flexible, multi-lingual investor reporting and web portal.

Malcolm Moller, Managing Partner – Mauritius of Appleby commented, “Although changing systems can potentially be an onerous task, we took a strategic view. Linedata Admin Edge can support us in our current business and our immediate future needs as we expand our fund administration services. Not only that, but the flexibility, scalability, web-readiness and automation capabilities of the platform mean that we are confident of Linedata’s ability to continue to support us as we further expand Appleby’s client base in the region.”

Linedata and Appleby worked together to ensure that Linedata Admin Edge was fully implemented and live within eight weeks for Appleby’s fund accounting and transfer agency business.

Thierry Soret, Head of Back Office Asset Management at Linedata, remarked, “We are delighted to welcome Appleby as a client. We are seeing many more fund administrators taking on private equity business as they broaden their portfolios in line with changing client requirements. This previously niche market is growing, moving more into the mainstream and Linedata is well placed to serve it. Linedata Admin Edge can handle traditional, hedge and private equity funds, coupled with excellent client support in all time zones and great cost effectiveness.”

NYDFS Announces Bank Of Tokyo Mitsubishi UFJ To Pay Additional $315 Million Penalty For Misleading Regulators, Individual Bank Employees Will Resign And Accept Bans

BTMU Pressured its Consultant, PwC, to Remove Key Warnings to Regulators on Bank’s Transactions with Sanctioned Countries, Including Iran, Sudan, Myanmar

PwC Previously Received 24-Month Consulting Ban, Paid $25 Million for Misconduct in This Case Under August 2014 DFS Order

Benjamin M. Lawsky, Superintendent of Financial Services, today announced an enforcement action – including an additional $315 million monetary penalty, and disciplinary action for individual Bank employees – against Bank of Tokyo Mitsubishi UFJ (BTMU) for misleading regulators regarding its transactions with Iran, Sudan, Myanmar, and other sanctioned entities. A year-long New York State Department of Financial Services (DFS) investigation uncovered that BTMU employees pressured the Bank's consultant, PricewaterhouseCoopers (PwC), into removing key warnings to regulators in a supposedly "objective" report that the Bank submitted to DFS. That report related to the extent of BTMU’s illicit conduct on behalf of those sanctioned countries and entities.

Superintendent Lawsky said: "BTMU employees pressured PwC into watering down a supposedly objective report on the Bank's dealings with Iran and other sanctioned countries, thereby misleading regulators. It is clear that we – as a regulatory community – must work aggressively to reform the cozy relationship between banks and consultants, which far too often has resulted in shoddy work that sweeps wrongdoing under the rug."​

Under today’s DFS order, BTMU will pay an additional $315 million monetary penalty – beyond a $250 million penalty BTMU paid in a previous June 2013 DFS agreement over its sanctioned transactions. As such, the total monetary penalty that BTMU has paid in this case is $565 million. Additionally, at the direction of DFS, the Bank will also take disciplinary action against individual BTMU compliance personnel involved in the watering down of the PwC report.

• After demands from DFS that BTMU terminate his employment, Tetsuro Anan (Manager, Anti-money Laundering Compliance Office, Compliance Division) has resigned from BTMU. On multiple occasions, despite being responsible for anti-money laundering compliance, Tetsuro Anan asked PwC to remove from its report specific issues of material concern to regulators about the Bank's misconduct.
• Additionally, two former Bank compliance employees who now work at BTMU affiliates – Akira Kamiya (Deputy President, Mitsubishi UFJ Securities Holdings) and Tetsuji Kamisawa (Executive Deputy President, Defined Contribution Plan Consulting of Japan)  – will be banned from conducting business involving any New York banks (or other financial institutions) regulated by the Department, including BTMU's New York branch.

Superintendent Lawsky continued: “We continue to believe that fines – while often necessary – are not sufficient to deter misconduct on Wall Street. We must also work to impose individual accountability, where appropriate, and clearly proven, on specific bank employees that engaged in wrongdoing.”

BTMU Pressured PwC to Alter Report Bank Submitted to Regulators

PwC – under pressure from BTMU executives – improperly altered an "historical transaction review" (HTR) report submitted to regulators on wire transfers that the Bank performed on behalf of sanctioned countries and entities. During the last month of a year-long engagement, PwC found that BTMU had issued special instructions to Bank employees to strip wire messages of information that would have triggered sanctions compliance alerts – after the Bank denied having such a policy only weeks before in a meeting with regulators. PwC understood that this improper data manipulation could significantly compromise the HTR’s integrity and PwC inserted into an earlier draft of the report an express acknowledgement informing regulators that "had PwC know[n] about these special instructions at the initial Phase of the HTR then we would have used a different approach in completing this project." Specifically, PwC would have conducted a more in-depth, forensic investigation into the Bank's scheme – rather than simply a more rote, mechanical review of the transactions provided to it by the Bank. In other words, the discovery of the Bank's scheme to falsify wire transfer information cast doubts on whether PwC had a complete set of data to review (among other issues).

However, at the Bank’s request, PwC ultimately removed the original warning language from the final HTR Report the Bank submitted to regulators and, in fact, inserted a passage stating the exact opposite conclusion: "[W]e have concluded that the written instructions would not have impacted the completeness of the data available for the HTR and our methodology to process and search the HTR data was appropriate." Moreover, also at the Bank’s request, PwC removed other key information from drafts of the HTR Report, including:

• deleting the English translation of BTMU’s wire stripping instructions, which referenced the Bank doing business with "enemy countries" of the U.S.;
• deleting a regulatory term of art that PwC used throughout the report in describing BTMU’s wire-stripping instructions ("Special Instruction") and replacing it with a nondescript reference that lacked regulatory significance ("Written Instruction");
• deleting most of PwC’s discussion of BTMU’s wire-stripping activities;
• deleting information concerning BTMU’s potential misuse of OFAC screening software in connection with its wire-stripping activities;
• deleting several forensic questions that PwC identified as necessary for consideration in connection with the HTR Report; and
• deleting a section of the HTR Report that discussed the appearance of special characters (such as "#" "-" and ",") in wire transfer messages, which disabled PwC’s filtering system from detecting at least several transactions involving Sudan and Myanmar. (e.g. SUD#AN).

BTMU Violations of Law 

In today’s order, BTMU admits that it misled DFS and that it:

• failed to maintain or make available at its New York Branch true and accurate books, accounts and records reflecting all transactions and actions in violation of Banking Law § 200-c; and
• knowingly violated the Department’s regulation 3 NYCRR § 300.1, which requires BTMU to submit a report to the Superintendent immediately upon the discovery of fraud, dishonesty, making of false entries and omissions of true entries, and other misconduct, whether or not a criminal offense, in which any BTMU employee was involved; and
• knowingly made or caused to be made false entries in its books, reports and statements and omitted to make true entries of material particularly pertaining to the U.S. dollar clearing business of BTMU through its New York Branch or other New York-based financial institutions, misleading the Superintendent and examiners of the Department who were lawfully appointed to examine BTMU’s conditions and affairs.

Extension of Independent Consultant

Under the previous June 2013 settlement, DFS ordered BTMU to install an independent consultant (IC) to conduct a review of the Bank’s sanctions compliance programs, policies and procedures. Under today's order, at the conclusion of the IC’s engagement in March 2015, the Department shall in its sole discretion, determine if an extension of the engagement is required for a period of up to 18 months. This consultant has and will adhere to the code of conduct, anti-tampering provisions and other reforms that DFS has outlined for consulting engagements following the Department’s June 2013 enforcement action against Deloitte. That code of conduct is designed to help ensure the independence and autonomy of the consultant from the bank, and to make explicit that the consultant works for DFS rather than BTMU.

The Bank further agrees to relocate its U.S. Bank Secrecy Act/Anti-money Laundering Compliance (BSA/AML) and Office of Foreign Assets Control (OFAC) sanctions compliance programs to New York, and agrees that these programs will have U.S. compliance oversight over all transactions affecting the New York Branch, including those transactions performed outside the U.S. that affect the New York Branch.  The IC will oversee, evaluate, and test the implementation of those programs, as well as the BSA/AML and OFAC sanctions compliance programs that operate outside the U.S. and relate to transactions affecting the New York Branch. 

View copy of NYDFS order today regarding BTMU

FCA: The vital relationship between the regulator and the advisory industry

Speech by John Griffith-Jones, Chairman of the FCA, at The Association of Professional Financial Advisers (APFA) Annual Gala Dinner delivered at Banking Hall, London. This is the text of the speech as drafted, which may differ from the delivered version.

Ladies and gentlemen, it’s a great pleasure and privilege to join everyone this evening.

A pleasure because I am a great believer in the importance of APFA and the advisor community and a privilege because, as I’ve discovered to my cost over  the last year and half or so, when you become a regulator, good dinner party invitations are rather few and far between.

The relationship between the FCA and the advisory industry is a vital one, and has arguably never been more important than now to get right.

For consumers to access wisely such a competitive market it is essential that there are experts available to help them navigate the array of complex decisions that face them.

When I first arrived at the FCA, I made it my business to find out how the organisation was viewed not only by the largest firms, but also by the smaller ones, which include many, many advisory practices.

The most mentioned messages I got back from the advisory community around the country were threefold.

We want to do the right thing, we certainly don't want to get into trouble with you or the FOS, but your rules are complicated.

We want to have access to you when we need to understand something, particularly new rules.

And, the commonly understood meaning of the words "advice" vs "guidance" and "restricted" vs "independence" has been severely stressed.

I have appreciated the first, worked at the second, and have to acknowledge the third is an issue we have sought to address.

The message I did not get was a rejection of RDR overall.

Having said that I also rather vividly recall my first meeting with a senior politician who rather forcefully suggested to me that the whole thing should be delayed by a year for fear of the industry being unable to cope, and that we risked some kind of market failure.

Eighteen months on, and you all look remarkably alive and well.

And as it has turned out, the reforms to the at-retirement market that will come into play next year will only increase the need and value of quality financial advice from you.

Out of potential adversity comes opportunity. So, we both share the common and urgent aim of helping consumers to achieve their financial goals and to plan for their long term futures.

For many people, the best way to do this will be through the assistance of an advisor.

It is perhaps because the industry is so important that we have been talking about ways it could be improved for so long, and that so much well intentioned (and for the most part good natured) debate has been generated.

It is now over 8 years since my predecessors (officially) began talking about the need for a collective shift away from product and provider bias, toward an appropriately regulated distribution system.

In the past 5 years we have seen significant change - in the main for the better – from an industry where there was reliance by many advisory firms on product providers for remuneration by commission, for training and for other support, to one that is more resilient, and more transparent with its customers in terms of price and services.

In many respects the early days of change were all about distribution, hence the name, Retail Distribution Review, however alongside these changes we have seen an equally significant shift toward an industry with increased standards of professionalism.

This is important, because the old FSA always saw the RDR as creating the framework for the industry to turn itself into a profession.

We are seeing this transformation happening in practice, and we want to support and encourage this transformation.

And for us, when we talk about professionalism, we mean something more than just professional qualifications and certificates.

Rather we mean a state of mind that dictates how you conduct yourself and how you conduct your firm when dealing with customers.

We have all learnt somewhat painfully from the banking sector that tone at the top is no substitute for tone at the till in the eyes of the public.

I am sure the same is true for financial advisors.

The questions we therefore ask ourselves in conducting our work are:

• What is the firm’s business model? 
• What is the culture of the firm?
• How does it run its business?
• And does it keep the client at the heart of its business, in practice as well as in theory?

This is our focus and this is very different from what you may have seen in the past. It is a focus that permeates the whole of the firm, from advisers through to office managers, compliance and senior management.  

Less on what compliance boxes the firm ticks, more on whether it is putting professionalism into practice at the interface with the client.

And we see it as very much our role to facilitate this transition from industry to profession.

The message from me is that we very much want you to succeed in this journey.

Indeed, we can only fully meet our objective if you do.

So just like firms we must be open and transparent.

In this spirit of openness, we recently published the outcomes of our work on the perceived ‘expectations gap’ between regulators and industry.

This work considered how any differences in understanding between regulators and industry might affect the quality of products and services that consumers receive, or inhibit consumer-friendly innovation.

We have asked the industry whether market development was being held back by uncertainty around our rules, or concerns over retrospection.

We have launched Project Innovate, and we are consulting on guidance on what is, and what is not, a personal recommendation.

We have carried out two 'cycles' of thematic work looking at how firms are adapting to the post-RDR rules. A third cycle is currently under way.

So is our post-implementation review which I look forward with some combination of nervousness and optimism.

After all RDR has not been cost free. It will be important to make as thorough an assessment as we can of whether the exercise has been worthwhile at this stage of its journey.

We as your regulator must be big enough to admit that we may not always get it completely right, and that when we don’t, we make sure we listen to common sense.

In this vein and in response to industry feedback, we have recently clarified our rules on independent financial advisers using internal specialists, and have made our data reporting less burdensome.  

Equally, there remains much talk of the number of people who do not have access, for one reason or another, to advice.

The reasons for this are well rehearsed, if not universally agreed.

We are very sensitive to this point, not least because our objective is to make markets work well, not just to stop them working badly, which can be achieved by preventing them from working at all!

We are particularly interested in the use of technology to lower the cost of appropriate advice or guidance to those whose assets are insufficient to meet economically current typical charges.

The FCA was born just after the RDR came into effect and I would be understating the case if I were to say that the RDR did not receive universal support among advisers, when first discussed.

Given the scale of these reforms, it is hardly surprising that they elicited what I will generously describe as a "mixed response".

However, it is difficult to disagree with the reforms’ broad aims.

Indeed, over the coming years MiFID II will help embed the principles of transparency, bias-free investment advice and professionalism, which were central to our RDR reforms, across Europe.

While we have come a long way, we still have a way to go yet. While we will not always agree on everything, I can assure you that we will always listen and that our door is always open.

It is through discussions with bodies like APFA that allow us to hear from the industry and to sense check our thinking.

Taxing across Borders: Tracking Personal Wealth and Corporate Profits

This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world's personal financial wealth is held offshore, costing more than $200 billion to governments every year. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising.

Taxing Across Borders: Tracking Personal Wealth and Corporate Profits, Journal of Economic Perspectives, 2014, 28(4): 121-148. [Appendix]. [Data].

Mauritius: FSC Mauritius issues FAQ on Funeral Plan

FREQUENTLY ASKED QUESTIONS (‘FAQs’)

FUNERAL PLAN

1. Why is the Financial Services Commission, Mauritius (the ‘FSC Mauritius’) issuing an FAQ on Funeral Plan?

The FSC Mauritius is issuing this ‘FAQ on Funeral Plan’ following several requests received from members of the public enquiring as to whether the FSC Mauritius regulates Funeral Plans.

The FSC Mauritius wishes to inform the public that Funeral Plans, as currently being offered in Mauritius, do not fall under the definition of financial services. Therefore, Funeral Plans are not regulated and/or supervised by the FSC Mauritius.

2. What is a Funeral Plan?

A Funeral Plan is a method used for planning and paying in advance for a funeral.

Funeral Plans may be proposed under different names. Some Funeral Plans available on the market are known as ‘Memorial Service’, ‘Burial Plan’, ‘Funeral Scheme’, ‘Funeral Insurance Plan’ and ‘Life Celebrations’.

A Funeral Plan is a legally binding contract between the funeral service provider and the planholder. Generally, in the Funeral Plan, the funeral service provider undertakes to perform the funeral of the plan-holder upon his/her death, as per terms and conditions specified in the contract.

Payment for a Funeral Plan is usually made through a series of instalments.

3. Why do people opt for a Funeral Plan?

a. A Funeral Plan allows the person (plan-holder) to bring a personal touch to his own funeral with regards to the choice of hymns, coffin, and hearse amongst others. 

b. By fixing the cost of funeral at the current price, the person (plan-holder) may avoid the increasing cost of funerals.

c. It brings peace of mind to the plan-holder who, having already catered for the

organisation of his funeral, relieves his family of stress and hassles upon his death.

4. What are the possible remedies, in the event that the services provided by the Funeral Service Provider are not satisfactory?

Some of the possible remedies may be as follows:

a. to refer to the Funeral Plan contract with regards to the Terms and Conditions (in terms of what has been agreed; avenues for claims if any);

b. to refer to the Laws of Contract;

c. the surviving spouse/ heirs to lodge a civil suit against the funeral service provider and/or seek legal advice; and

d. to liaise with the Police in case there is suspicion of any fraudulent activity or misleading information.

5. Are Funeral Service Providers licensed by FSC Mauritius?

The FSC Mauritius is the independent regulator for the Non-Bank Financial Services and Global Business sectors in Mauritius.

Funeral Plans, as currently offered in Mauritius, do not fall under the definition of financial services. Therefore, Funeral Plans are not licensed nor regulated/supervised by the FSC Mauritius. 

Financial Services Commission

18 November 2014

FSC Mauritius issues FAQ on Funeral Plan

The Lawyer - Offshore special: Singapore focus

Offshore players have high hopes of Singapore but for now the work is limited, so increased competition could stymie firms’ growth

Mauritius: Post Office Round Trips

As a reforming Mauritius promises to help India hunt black money, other laundering sources open up

Which offshore financial centre is the best?

The traditional use of offshore centres as a way of enabling better tax planning – and even tax evasion – has all but fallen away. An increasing desire for countries to share tax information to ensure they are not missing out on any revenue has led to a tightening of legislation in offshore financial centres, which has given depositors more security than ever

U.S. SEC Announces Charges Against India-Based Operators of High-Yield Investment Scheme Using Social Media

The Securities and Exchange Commission today announced charges against two India-based operators of an alleged high-yield investment scheme seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.

The SEC’s Enforcement Division alleges that Pankaj Srivastava and Nataraj Kavuri offered “guaranteed” daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise.  They invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities.  They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative,” and “handsome,” and they characterized the risk as “minimal.”

The SEC’s Enforcement Division alleges that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program.  Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise’s website address.  They also communicated under the fake names of “Paul Allen” and “Nathan Jones.”  After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.

“Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, Associate Director of the SEC’s Division of Enforcement.  “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”

According to the SEC’s order instituting administrative proceedings, Srivastava and Kavuri used the Profits Paradise website and YouTube videos to detail three investment plans with terms of 120 business days.  The first plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749.  The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499.  And the third plan purportedly yielded 2 percent on investments of $3,500 and above.  Postings on Profit Paradise’s Facebook page promised investors they could “Enjoy Hassle Free Income” and advertised a “5% Referral Commission.”  The scheme also utilized a Profits Paradise Twitter account to steer potential investors to the Profits Paradise website, and Srivastava and Kavuri created a Google Plus page to promote the investment opportunity.

The SEC’s Enforcement Division alleges that Srivastava and Kavuri violated Sections 17(a)(1) and (3) of the Securities Act of 1933, and will litigate the matter before an administrative law judge.

The SEC’s investigation was conducted by Carolyn Kurr and Daniel Rubenstein, and the case was supervised by C. Joshua Felker.  The SEC’s litigation will be led by Kenneth Donnelly.  The SEC appreciates the assistance of the Securities and Exchange Board of India as well as the Autorité des Marchés Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong.

The SEC today updated an investor alert educating investors about how social media may be used to promote so-called high-yield investment programs and other fraudulent investment schemes. 

“We urge investors to exercise extreme caution if they are approached to invest in a website promising incredible returns with minimal or no risk.  So-called high-yield investment programs are often frauds,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.

BoE: Oversight Committee publishes report on role of Bank officials in relation to conduct issues in the foreign exchange market

The Oversight Committee has today published an independent report by Lord Grabiner QC.  This follows his investigation into whether, between 2005 and 2013, any Bank of England official was involved in, or aware of, conduct issues in the foreign exchange (FX) market.

The key findings of Lord Grabiner’s report are:

• There was no evidence that any Bank of England official was involved in any unlawful or improper behaviour in the FX market.
• A substantial part of the FCA’s investigation, also announced today, concerns FX traders sharing confidential information, including aggregated information about client orders, which was then used for improper behaviour. No Bank of England official was aware that this improper behaviour was happening.
• One Bank official was aware that bank traders were sharing aggregated information about client orders for the purpose of ‘matching’ – a practice that is not necessarily improper, but can increase the potential for improper conduct – and was uncomfortable with the practice in that it could involve collusive behaviour and lead to market participants being disadvantaged. Notwithstanding those concerns, the Bank official did not escalate the matter to an appropriate person.
• This constituted an error in judgment that deserved criticism, but such criticism should be limited in that the individual was not acting in bad faith, nor was the individual involved in any unlawful or improper behaviour, nor aware of specific instances of such behaviour.

With the full cooperation of the Bank of England, Lord Grabiner’s investigation extracted, and applied search terms to 1.8 million documents, and reviewed nearly 66,000 documents;  it extracted, and applied search terms to 87,000 telephone calls, and reviewed 6,700 calls or call extracts; it also conducted interviews with 10 current and former Bank officials and 18 non-Bank individuals. Lord Grabiner was also provided with assistance from the FCA, including descriptions of the types of misconduct it has been investigating, and the provision of documents which would not otherwise have been available to his investigation.

Lord Grabiner was also asked by the Oversight Committee to put forward any recommendations that he felt necessary to improve processes and procedures at the Bank. He has made three recommendations:

1. Documentation:  It is recommended that the Bank reviews whether the steps it has taken through changes to its record management policy will ensure that sufficient minutes will be taken and distributed of meetings, such as those of the Chief Dealers subgroup (CDSG).
2. Education:  It is recommended that any Bank official working in connection with the foreign exchange market should receive continuing training in the non-investment products (NIPs) code – a voluntary code of conduct for principals and broking firms in the wholesale markets, or if the Government decides to regulate the FX market, the relevant regulations.
3. Clarity over systems and controls around the Bank’s market intelligence role: The Bank should more clearly explain to market participants its market intelligence role and how it uses intelligence gathered from the market;  the Bank should set out a formal written policy clearly stating that market intelligence cannot be used for trading purposes, and should also provide staff with regular training on that policy;  the Bank should review its controls around market intelligence being, intentionally or not, passed to other market participants;  the Bank should regularly review its escalation policy and Bank officials with market intelligence roles should be given training about improper conduct.

The Bank’s Executive endorses these recommendations and intends to implement them in full and as quickly as possible.

Anthony Habgood, Chairman of Court and of the Oversight Committee said: 

“The Oversight Committee thanks Lord Grabiner for his thorough investigation and clear findings, and we welcome his recommendations. The Oversight Committee strongly endorses these recommendations and Court will oversee the executive’s implementation of them in a full and timely manner.  The Bank of England stands at the heart of the UK financial system, and must at all times hold itself to the highest standards for conduct, fairness and ethical behaviour. This is vital in maintaining the public trust in our mission to maintain monetary and financial stability.”

FSC Mauritius hosts training programme for Pension Supervisors

The Financial Services Commission (FSC), Mauritius in collaboration with the Toronto Centre, is hosting from 10 to 14 November 2014, a regional training programme on Developing Practical Approaches to Risk-Based Supervision for Pension Supervisors at the FSC House in Ebène.

Some 40 participants from the FSC Mauritius, as well as, representatives of Ministries and pension supervisory bodies of eight African countries, India and Papua New Guinea are attending the training programme to share expertise, ideas, practices and experiences relating to a risk focused approach to pension supervision.

The objectives of the five-day programme is to enable participants to better understand the importance of early intervention and how this can lead to a stronger supervisory authority, enhanced public confidence, and greater financial stability as well as defining the importance of risk-based supervision as an effective and necessary tool for supervisors.

In her opening address, the Chief Executive of the FSC, Ms. Clairette Ah-Hen, emphasised the role of the pensions industry in providing a stable consumer savings vehicle. She also spoke on the investment of capital from pension funds which she said has become increasingly important in today’s evolving business environment. 

According to Ms Ah-Hen, pension funds are one of the biggest institutional investments world-wide and are seen as important features in the quest for future economic growth and development. Those who have worked hard and saved for their future retirement in these pension funds must have confidence in the regulatory systems and trust that their interests are being protected, she added.

The local Private Pensions Industry consists of private occupational pension schemes which capture around 90,000 estimated members in insured pension schemes administered by insurance companies and self-administered superannuation funds. For further development of the sector, the Private Pension Schemes Act 2012 (PPSA) was enacted and became effective on 1 November 2012. The PPSA provides a single regulatory framework for the operation of private pensions in Mauritius in line with the standards of the international organisations like the International Organisation of Pension Supervisors (IOPS) and the Organisation for Economic Co-operation and Development.

It will be recalled that FSC Mauritius has been entrusted with the responsibility of supervising pension funds and of the institutions that provide pension products and services to ensure the protection of consumers. Pension supervision is required to achieve the degree of protection needed to support privately managed savings and is a means to help pensions adapt to market risks. The IOPS, of which the FSC Mauritius is a Governing Member, lay down a Principle on Risk Orientation.  This Risk Orientation Principle stipulates that pension supervision should seek to mitigate the greatest potential risks to the pension system.

Central Bank of Seychelles: Notice of Taking Possession of BMI Offshore Bank Ltd. (BMIO)

Seychelles Central Bank takes control of beleaguered BMIO bank

Press Release BMIO - Taking Possession

Notice of Taking Possession of BMIO

Press release BMIO: Clarification on Management by CBS

Doing Business 2015 - Starting a business: The growing efficiency of company registries

Entrepreneurs should have the opportunity to turn their ideas into a business and often a first step is to formally register a company. Yet in many countries the bureaucratic obstacles and high costs imposed by inefficient company registries deter people with good business ideas from embarking on the path of formal entrepreneurship. As the first interface between the regulator and a potential new entrepreneur, company registries hold the key to the formal economy, providing businesses with a legal identity and empowering them to participate fully and within the framework of the law. What should company registries do to encourage businesses to formalize? What are the best practices to follow?

Overview

• Company registries empower businesses to operate in the formal economy—and to reap the benefits that come with formalization.
• Online platforms for company incorporation make the process faster and cheaper.
• Electronic registration and online services substantially reduce the opportunities for bribery and other forms of corruption.
• Rwanda has made promoting private sector development a top priority on its reform agenda—and making it easier to register a business is part of that.
• Chile’s new online business registry experienced rapid take-up, accounting for nearly half of new registrations of limited liability companies in just 7 weeks.
• The United Kingdom’s corporate registry actively promotes the use of electronic services and data transparency.

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UK: FCA fines five banks £1.1 billion for FX failings and announces industry-wide remediation programme

The Financial Conduct Authority (FCA) has imposed fines totalling £1,114,918,000 ($1.7 billion) on five banks for failing to control business practices in their G10 spot foreign exchange (FX) trading operations: Citibank N.A. £225,575,000 ($358 million), HSBC Bank Plc £216,363,000 ($343 million), JPMorgan Chase Bank N.A. £222,166,000 ($352 million), The Royal Bank of Scotland Plc £217,000,000 ($344 million) and UBS AG £233,814,000 ($371 million) (‘the Banks’).

The G10 spot FX market is a systemically important financial market. At the heart of today’s action is our finding that the failings at these Banks undermine confidence in the UK financial system and put its integrity at risk.

In relation to Barclays Bank Plc, we will progress our investigation into that firm which will cover its G10 spot FX trading business and also wider FX business areas.

In addition to taking enforcement action against and investigating the six firms where we found the worst misconduct, we are launching an industry-wide remediation programme to ensure firms address the root causes of these failings and drive up standards across the market. We will require senior management at firms to take responsibility for delivering the necessary changes and attest that this work has been completed.

This complements our ongoing supervisory work and the wider reforms to the fixed income, commodity and currency markets which are the subject of the UK Fair and Effective Markets Review.

Between 1 January 2008 and 15 October 2013, ineffective controls at the Banks allowed G10 spot FX traders to put their Banks’ interests ahead of those of their clients, other market participants and the wider UK financial system. The Banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct.

These failings allowed traders at those Banks to behave unacceptably. They shared information about clients’ activities which they had been trusted to keep confidential and attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.

Today’s fines are the largest ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA), and this is the first time the FCA has pursued a settlement with a group of banks in this way. We have worked closely with other regulators in the UK, Europe and the US: today the Swiss regulator, FINMA, has disgorged CHF 134 million ($138 million) from UBS AG; and, in the US, the Commodity Futures Trading Commission (‘the CFTC’) has imposed a total financial penalty of over $1.4 billion on the Banks.

Since Libor general improvements have been made across the financial services industry, and some remedial action was taken by the Banks fined today. However, despite our well-publicised action in relation to Libor and the systemic importance of the G10 spot FX market, the Banks failed to take adequate action to address the underlying root causes of the failings in that business.

Martin Wheatley, chief executive of the FCA, said:

“The FCA does not tolerate conduct which imperils market integrity or the wider UK financial system. Today’s record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right. They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about. Senior management commitments to change need to become a reality in every area of their business.

But this is not just about enforcement action. It is about a combination of actions aimed at driving up market standards across the industry. All firms need to work with us to deliver real and lasting change to the culture of the trading floor. This is essential to restoring the public’s trust in financial services and London maintaining its position as a strong and competitive financial centre.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, said:

“Firms could have been in no doubt, especially after Libor, that failing to take steps to tackle the consequences of a free for all culture on their trading floors was unacceptable. This is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to markets. Where problems are identified we expect firms to deal with those quickly, decisively and effectively and to make sure they apply the lessons across their business.  If they fail to do so they will continue to face significant regulatory and reputational costs.”

Clive Adamson, the FCA’s director of supervision, said:

“The supervisory measures that we are announcing today will help make sure that real cultural change is delivered across the industry, and that senior management take responsibility for ensuring that the highest standards of integrity operate across all of their trading businesses.”

The FX Market  

The FX market is one of the largest and most liquid markets in the world with a daily average turnover of $5.3 trillion, 40% of which takes place in London. The spot FX market is a wholesale financial market and spot FX benchmarks (also known as “fixes”) are used to establish the relative value of two currencies.  Fixes are used by a wide range of financial and non-financial companies, for example to help value assets or manage currency risk.

The FCA’s investigation focused on the G10 currencies, which are the most widely-used and systemically important, and on the 4pm WM Reuters and 1:15pm European Central Bank fixes.

The FCA’s findings

Today’s action shows that we will not tolerate conduct that undermines the integrity of this crucial market or the wider UK financial system.

We expect firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, whether or not those markets are regulated. Although there are no specific rules governing the unregulated spot FX market, the importance of managing risks associated with spot FX business through effective systems and controls is widely recognised in industry codes.

We found that between 1 January 2008 and 15 October 2013 the Banks did not exercise adequate and effective control over their G10 spot FX trading businesses. For example policies were high level and firm-wide in nature, there was insufficient training and guidance on how these policies applied to this business, oversight of G10 spot FX traders’ conduct was insufficient, and monitoring was not designed to identify the behaviours found in our investigation.

The right values and culture were not sufficiently embedded in the Banks’ G10 spot FX businesses which resulted in those businesses acting in the Banks’ own interests without proper regard for the interests of their clients, other market participants or the wider UK financial system.

Traders at different Banks formed tight knit groups in which information was shared about client activity, including using code names to identify clients without naming them. These groups were described as, for example, “the players”, “the 3 musketeers”, “1 team, 1 dream”, “a co-operative” and “the A-team”.

Traders shared the information obtained through these groups to help them work out their trading strategies. They then attempted to manipulate fix rates and trigger client “stop loss” orders (which are designed to limit the losses a client could face if exposed to adverse currency rate movements). This involved traders attempting to manipulate the relevant currency rate in the market, for example, to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought that currency for in the market. If successful, the bank would profit.

Firms can legitimately manage risk associated with client orders by trading in the market and may make a profit or loss as a result. It is completely unacceptable, however, for firms to engage in attempts at manipulation for their own benefit and to the potential detriment of certain clients and other market participants. Our Final Notices include examples where each Bank’s trading made a significant profit.

In setting the fine for each Bank we have considered, amongst other things: the Bank’s relevant revenue, the seriousness of the breach, each Bank’s disciplinary record and response to the wider issues around Libor, the degree of co-operation shown by each Bank, and knowledge and/or involvement of certain of those responsible for managing this part of the Bank’s business.

We have also increased the penalty to reflect specifically the seriousness of the risks posed to a systemically important market and the failure across the industry to learn the necessary lessons about tackling these risks, given the similar failings which arose in the context of Libor.

The Banks agreed to settle at an early stage and therefore qualified for a 30% discount under the FCA’s settlement discount scheme. Without the discount the total fine would have amounted to £1,592,740,000 ($2.5 billion): Citibank N.A. £322,250,000 ($511 million), HSBC Bank Plc £309,090,000 ($490 million), JPMorgan Chase Bank N.A. £317,380,000 ($503 million), The Royal Bank of Scotland Plc £310,000,000 ($492 million) and UBS AG £334,020,000 ($530 million).

Our investigation lasted 13 months, involved over 70 enforcement staff and unprecedented cooperation with domestic and international regulators. We welcome the Serious Fraud Office’s criminal investigation into individuals.

Tackling the root causes

It is clear from our findings that there has been widespread poor practice in the spot FX market. The FCA has sought to take swift enforcement action against the worst offenders, and has today announced it will carry out an industry-wide supervisory remediation programme for firms to drive up standards across the market.

The FCA is already conducting broader reviews of how effectively firms reduce the risk of traders manipulating benchmarks and ensure confidential information is not abused, and will also look at how firms manage conflicts of interest. We will use our findings to inform the remediation programme as appropriate.

The remediation programme will require firms to review their systems and controls and policies and procedures in relation to their spot FX business to ensure that they are of a sufficiently high standard to effectively manage the risks faced by the business. The work at each firm will depend on a number of factors, for example, the size of the firm and its market share and impact, the remedial work already undertaken, and the role the firm plays in the market.

In some cases, the reviews will extend beyond G10 spot FX, and we will require firms to explore any read across into FX Emerging Markets, FX Sales, derivatives and structured products referencing FX rates and precious metals.

Senior management will be asked to attest that action has been taken and that firms’ systems and controls are adequate to manage these risks. This will ensure that there is clear accountability and senior management focus on the specific issues at each firm where the FCA expects to see change.  

The FCA has played a key role in developing internationally agreed regulatory standards on benchmarks including work by the International Organisation of Securities Regulators (IOSCO) and Financial Stability Board.  We are actively engaged in developing EU regulation on benchmarks and co-chair the UK Fair and Effective Markets Review which is considering wider reforms to the fixed income, commodity and currency markets.