FSA issues several warnings to companies for leaks to media

The Financial Services Authority has issued several warnings to companies to crack down on the leaks to the media. These actions were taken ahead of announcing deals as part of the regulator’s drive to stamp out market abuse. 

The authority is trying to threaten publicly traded companies with penalties and legal actions in order to compel them to start controlling the communication level of their executives and the reporters. The regulator said that it would consider rule changes if there was no improvement in the levels of leakage in the markets.

Warnings that have been issued are the part of the FSA’s strategy of “credible deterrence” which has been adopted by the authority in recent years. In their opinion, increased enforcement and tougher penalties will frighten off some white collar criminals and will also deliver home the message that financial firms must have strong controls and compliance in place or they will be expecting to undergo the same sort of actions as the firms yesterday.

Picture Source: sblawlink.com

So far this year, the FSA has imposed almost £84m in fines – more than double the £35m imposed for the whole of last year, and four times the total for 2008 (FT.com).

Now this situation can be reviewed from two different angles. From one side it is any financial firm who is interested in carrying out further disclosures to interested media or third party in order to gain aimed benefits in the market, on the other side it is such a powerful institution such as FSA who is interested in prosecuting the actual and potential criminal firms. Both of the sides are trying to reach their goals, however, the success of each one will bring different outcome to the real economy and to the advantage of the financial market. However, individual insiders will not stop leaking strategically valuable information. Therefore, FSA will be looking into individual cases to reveal those who are suspected in such practices. To further strengthen above said, FSA obligates companies' communication teams and press officers to record all telephone conversations and any other type of communication with the media.

In spite of stepping up its enforcement efforts, suspicious trading took place ahead of 30.6 per cent of UK takeovers last year – the highest level in eight years! (FT.com)

K.S.

«BASEL III»: New Global Banking Standards

The Counter-reaction to the Financial Crisis.

We all remember the consequences of the financial crisis on the international banking system that started in 2007. Obviously, it was impossible to ignore this kind of situation, and therefore, it was followed by the corresponding reaction.

On the September 12, The Basel Committee on Banking Supervision approved the global reform of the global banking sector. It was called "Basel-3, and its developers hope it will increase the financial stability of the world's banking (and the financial in general) systems, primarily by increasing banking liquidity reserves and by improving their quality.

The application of new rules on demand to the structure of assets and capital of the banks will begin in January 2013 and be fully completed by January 2015, to the structure of reserves by the 1 January 2019. The key changes are that the minimum common equity requirement will increase from today's 2% to 4.5% and in addition there will be a 2.5% conservation buffer bringing the total to 7%. Banks will be allowed to use the buffer during the emergency periods but the more it is used the greater the constraints will be on earnings distributions.

In general, the measures are pretty serious, especially given the fact that the financial system in general and banking in particular are in a fairly complicated situation. On the other hand, there is plenty of money available in the world today, and why would investors not invest in the common-equity of banks - the profit is something that is still almost impossible to get. But the main question is: whether this will give any positive system effect?

According to financial data and sources, the current scale of the financial sector has become out-of-limit: it must inevitably start to decline, and quite significantly (the relative part of the financial sector in the economy has grown significantly over the past 30 years). At the same time, the actual sector itself will start shrinking - and this decline will be significant too. This means that the financial sector will be reduced much more than the economy as a whole, that is at least by 3 and sometimes by 5-6 times. This is a so-called structural crisis: different sectors vary in different scales.

This means that the overwhelming number of banks will not only be unable to fulfil the new Basel requirements, they will have to learn how to survive. In other words, by the time when these requirements are supposed to take place in full power in the Committee's view, the modern banking system will simply disappear. And the main question that arises here: do Basel experts themselves realise that? I do not particularly have the exact answer to this question, but I suppose they don’t or they simply don’t show all their cards to the public.

K.S.

Introduction to the Financial Review

Presumably it would be a good idea to explain to the readers of this blog how it will be maintained and how the ideas for this financial blog will be generated.

First of all, I would like to say that the Financial Review blog will be updated on a weekly basis. This means that the chosen topics will be either posted in full on the date when analysed or will be posted in parts depending on the right quantity of information available from the sources.

Secondly, I am considering to use the following sources (FT, CNN, BBC, Reuters, Bloomberg, Yahoo Finance, InvestmentNews, Kommersant.ru, RBC.ru, FT.de, etc) in order to obtain the right amount of quality information for my future analysis.

Lastly, I would like to thank the readers of this blog and wish you enjoyable reading!

Best Regards,
Kirill Svintsov