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Financial Planning > Tax Planning

Regulators eye broker rule, interest rate rigging, big banks

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(Bloomberg) — U.S. Securities and Exchange Commission Chair Mary Jo White said the agency will develop stricter rules for brokers, wading into a battle between Wall Street and the White House, which has said biased financial advice is costing investors billions of dollars.

White’s comments Tuesday at a securities industry conference in Phoenix follow a move by the Labor Department to make brokers put the interests of retirement savers ahead of their own, a so-called fiduciary duty. The SEC, which oversees the brokerage industry, has studied the issue for years without taking any regulatory action.

The financial industry has been watching closely for White’s position, which would break a standoff between the two Democratic and two Republican commissioners. White said she will begin talking with the other commissioners about the outlines of new rules. She said getting a balance is “absolutely essential.”

DOJ targets currency manipulation

U.S. prosecutors investigating currency manipulation are considering revoking years-old settlements and prosecuting banks for rigging interest rates, according to people familiar with the matter.

The Justice Department is weighing whether evidence of wrongdoing in currency trading means banks violated old deals resolving probes into the rigging of benchmark interest rates that included promises they wouldn’t break the law, said two people, who asked not to be identified because final decisions haven’t been made.

The Justice Department can tear up the deals if it finds the banks committed any crime after they were negotiated. The agreements, which are similar to putting banks on probation, leave the institutions exposed to criminal charges if they are revoked.

Deferred-prosecution and non-prosecution agreements, as they are called, have been widely used by the Justice Department in recent years in investigations ranging from sanctions violations to market manipulation. A decision to revoke such a deal with a bank appears to be unprecedented.

Such settlements require the banks to admit responsibility and cooperate with ongoing investigations. Justice Department spokesman Peter Carr declined to comment.

Critics, including Securities and Exchange Commission Chair Mary Jo White, who pioneered such agreements, argue the deals have been overused and don’t curb misconduct. The Justice Department defends the settlements, saying they force banks to correct wrongdoing and allow oversight.

Compliance policy

The European Parliament’s lead lawmaker on draft rules for breaking up the bloc’s biggest banks said he’s seeking a compromise that would ban proprietary trading while leaving other key decisions in the hands of supervisors.

Gunnar Hoekmark, a Swedish center-right lawmaker in the assembly, said he is hopeful the legislators from other political groups will back an approach under which supervisors would assess a bank to determine if it should have to split off its trading activities.

While talks on the law are progressing, the assembly will likely won’t be ready to vote on its negotiating position on the law this month, Hoekmark said by telephone on March 17.

EU parliament legislators have part of the power over the draft bank-structure law, which was proposed last year. The assembly can amend the plans, while the final text must also be agreed on by national governments to take effect.

The bill would cover banks that have assets exceeding 30 billion euros ($32 billion) in three consecutive years and trading activities of more than 70 billion euros or 10 percent of assets. It specifically captures the European banks labeled as globally systemic by the Financial Stability Board.

The commission’s blueprint sought to ban the lenders from certain activities, such as proprietary trading and investing in hedge funds, while also forcing supervisors to assess whether the banks should have to separate off some trading activities into separately capitalized units.

Compliance action

The European Union is stepping up its fight against tax avoidance and fiscal fraud with a plan to force the bloc’s 28 nations to share information on sweetheart deals for international companies.

A lack of transparency helps companies engage in “aggressive” tax planning and needs a harmonized EU approach, the European Commission said in the draft of a new law, obtained by Bloomberg News. The proposals, scheduled to be published Wednesday, would make the exchange of data on so-called tax rulings mandatory for all EU nations.

“Taxpayers often take advantage of the absence of common rules for the exchange of information to set up structures that shift profits to low-tax countries,” which may not be where the value was created, according to the proposals.

The EU is clamping down on corporate tax-dodging after the revelation last year of hundreds of leaked Luxembourg pacts showed some international companies effectively lowered their tax bills to less than 1 percent of profit. Regulators are also examining whether some arrangements are illegal state aid.

The commission in Brussels didn’t immediately respond to a request for comment on the proposals.

–With assistance from Dave Michaels, David McLaughlin and Tom Schoenberg in Washington and Stephanie Bodoni, Gaspard Sebag and Jim Brunsden in Brussels.


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