More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
LIBOR supervision will be taken from the British Bankers’ Association (BBA), the lobby group that has been responsible for its oversight, and given instead to the Financial Services Authority (FSA), Britain’s financial regulator. In addition, more than 100 LIBOR rates bound to maturities and currencies that lack sufficient trading data to allow for proper determination will be done away with, according to FSA Managing Director Martin Wheatley.
Bloomberg reported Friday that Wheatley also said lenders contributing to the setting of the benchmark rate will be subject to a code of conduct backed up by criminal penalties. The determinations came in a report prepared by Wheatley at the request of George Osborne, chancellor of the Exchequer, and released in London Friday.
“Governance of LIBOR has completely failed,” Wheatley said in the report. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.” He did not recommend scrapping the London interbank offered rate altogether, saying that since it is a factor in many existing contracts such a move would be too disruptive to borrowers.
Wheatley, who will become the chief executive officer of the new Financial Conduct Authority next year when the FSA will be divided into two separate agencies, also recommended that the FSA be given greater powers to vet bankers who contribute to setting the rate.
Each day, banks estimate their cost of borrowing from one another for different spans of time and in different currencies, and provide those estimates to the BBA to determine LIBOR. The top and bottom quartiles of submitted estimates are discarded and the remaining estimates are averaged to determine the rate for each currency. The rates are published before noon in London each day.
Wheatley said that the FSA will encourage more banks to submit quotes as part of its recasting of LIBOR, and he added that its new authority would allow it to compel uncooperative banks to provide quotes. He also recommended that the number of LIBOR reference rates should be slashed from 150 to 20 within the next 12 months, by eliminating currencies and maturities that see only very limited trading.
LIBOR for the dollars of Australia, New Zealand and Canada should be eliminated, he said, as it also should be for Danish and Swedish kronors. Rates for 4, 5, 7, 8, 10 and 11 months should be discarded, and he also recommended cutting one-week, two-week, two-month and nine-month tenors.
LIBOR submissions should be backed by trade data, he added, and said in the report, “Transactions will need to be recorded and there needs to be a requirement for regular external audit of submitting firms.”
Simon Maughan, a banking analyst at Olivetree Securities in London, was quoted saying of Wheatley’s suggestions, “Repealing LIBOR was just not an option. He’s done the right thing here.” Maughan added, “Improve it, make it based on real transaction costs, get rid of some of the currencies, that seems like a sensible approach.”