The Wolfsberg Group have published a revised paper (the first was in 2003) suggesting how financial institutions can develop suitable anti-money laundering screening, monitoring and searching processes and procedures.   The Group have revised the paper to reflect developments since that time, such as the use of automated transaction monitoring systems and the introduction of the risk-based approach.

The revised paper provides more guidance on the design, implementation and ongoing maintenance of transaction monitoring frameworks. 

If you were wondering what the Wolfsberg Group is, it’s an association of eleven global banks, “which aims to develop financial services industry standards for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies”.  It used to be 12 banks – my 2007 post.   I gather from the website, Basel Institute on Governance (acronym, BIG) the Group came together in 2000, at the Château Wolfsberg in north-eastern Switzerland with two board members of the Basel Institute on Governance, to work on drafting anti-money laundering guidelines for private banking.  A very pretty place to get together; this is the view from the romantically named Chateau Wolfsberg, courtesy of “Richard Nicholson of Chester“:

Emissions (or carbon) trading is the buying and selling of  the right to emit carbon dioxide.  It is a growing market, which worries both the Financial Markets Law Committee and Friends of the Earth although they make their arguments from, naturally, very different positions. 

The FMLC are concerned about legal uncertainties in the carbon emission allowances which underlie this market and have published a paper on this (October 2009).  The FMLC point out that in the European Union Emissions Trading Scheme (EU-ETS), the largest carbon markets scheme, nothing provides any indication of the legal nature of emission allowances. Emission allowances, they say, have aspects of administrative grants  or licences and of private property, and different conclusions as to their legal classification may already have been, or are in the course of being, reached in a number of Member States.

This matters because the legal nature of an emission allowance is relevant to decide which law govers the creation, transfer and cancellation of the allowance.  Are they capable of being stolen?  How do you treat them for tax and accounting purposes?  If the holder becomes insolvent, how should the allowance be dealt with?  If, as is happening, derivative interests in emissions are traded (allowances being recognised as a valuable financial commodity) should they be subject to regulation as an investment?

The FMLC believes that unless these issues are sorted out, they could slow down development of the market in carbon emission allowances.

Friends of the Earth, natuarally, have a different point of view in their report, “A dangerous obsession“.   They don’t want banks to risk a collapse in confidence in the market by trading in derivatives of carbon credits.  Taking a step back, in fact, they question whether carbon trading can reduce emissions levels effectively.  They want governments to use more direct tools, e.g, they say, investment and regulation.  The conclusion of their report demands the expansion of emission trading schemes to be halted globally, that the schemes be not linked, that offsets be removed from existing schemes and that schemes be reformed to avoid “abuse and profiteering by industry and finance”.  They draw a parallel with the uncertainty surrounding the trading of derivatives in emissions against the collapse of the sub-prime mortgage market.

The FSA has responsibility for regulation of the emissions derivatives markets.  It published a paper, “The emissions trading market: risks and challenges“ in March 2008.   The paper sets out some technical considerations for risk managment of the emissions market.  Personally, I think it is time they had another look at the topic, given this paper pre-dates the financial crisis.

The United Nations Climate Change conference is being held next month in Copenhagen. Iit is likely this issue will get more of an airing in the next few weeks.

The bill has been dropped.  I commented on the introduction of this bill in February of this year and the implications for lenders.  The bill would have amended the Law of Property Act 1925 to require a mortgagee to obtain the court’s permission before exercising the power of sale on residential property.  It was dropped from the Parliamentary process on 5 November 2009.

On 1 October 2009 virtually all sections of the Companies Act 2006 that had not been implemented earlier came into force.  This tour de force of UK legislation (the largest Act on the statute book, now)  has reached the end of its marathon along the implementation timetable.  The main areas of change are in relation to the formation of companies, the memorandum and articles, share capital, and directors’ home addresses.  This is a helpful note that is on Law-Now (my firm’s website) which sets out the detail of the new regime.

The tax treatment of debt buy-backs has been changed with immediate effect.  A Ministerial Statement explaining this was published on Hansard  on 14 October.  This will affect any transaction that involves debt being bought back by a borrower group.  If a borrowing company is released from a liability and pays less than the amount borrowed in order to do so, the discount is normally subject to tax. Until now, the practice in such transactions was to rely on an exemption avoiding a tax liability.  Now, however, the rules have been tightened.  Are the reasons for this an underlying policy for all government departments to do what they can to swell the public coffers?  There was a perceived abuse of the exemption, e.g. by healthy companies buying back their listed debt at a discount without paying tax but surely overall, buying back debt should be encouraged? The Finance Bill, when published, will have details of the proposed legislation.

Have you seen any serious evidence that bonuses directly led to the financial crisis in the autumn of 2008?  I can understand how the argument runs, that if you incentivise  traders or bankers on a lowish basic wage with promises of a substantial bonus to take bigger and bigger risks , one day the whole pack of cards will probably fall down.  But has there been any research supporting the thesis?  City AM’s Allister Heath this morning draws attention to a paper,  Bank CEO Incentives and the Credit Crisis, which looked at whether bonuses paid to CEOs of banks affected the bank’s performance and concluded there was no relationship between size of bonus and success, or failure of the bank.  The paper only considered CEOs and it would be useful to extend the study to traders.

Unless you are a member of the participitating universities, you won’t be able to download the paper in full but the authors’ summary is helpful.

Continuing the trend of retailers who have managed to secure the votes of their landlords for a CVA (JJB, eg), now Focus (DIY) has been the latest company to succeed.  CVAs have proved attractively flexible in the past year or so helping companies to avoid more formal administration procedures and restructuring.

During August 2009, the retailer needed to secure the CVA to be able to renew its two-year revolving credit facility with the bank.  The banks wanted Focus to deal with its so-called “dark store situation”.  38 non-trading stores were draining £12m a year from the retailer’s resources.

The CVA means that Focus will now save £8.6m of the £12m annual cost. Under the terms of the CVA, Focus will not pay rent, service charges and insurance on the stores. In return, the landlords will receive a share of a £3.7m compensation fund, paid in two equal parts next year.

The Financial Services Authority began consultation earlier this summer (2009) on changes it proposes to its Retail Distribution Review.  The emphasis is on independence, clarity and fairness in the relationship between adviser and investor.  My firm, CMS Cameron McKenna are holding a briefing on RDR and on the FSA after the credit crunch: (how ARROW, Supervision, Policy and Enforcement have changed) in Edinburgh on 16th September 2009 and in London on 22 September.  Please email fs.seminars@cms-cmck.com if you would like a place.

From the 1 October 2009, banks will be able to rely on a certificate of registration as conclusive evidence of a limited partnership’s existence and registration.  The Legislative Reform (Limited Partnerships) Order will clarify the process for registration of limited partnerships by the registrar of companies.

Bank Law Blogger has been on a very long summer holiday.  Let me tell you about the beautiful fifteenth century Collegio del Cambio in the Italian city of Perugia.  This Bankers’ Guild is gloriously decorated.  In days when banking was very profitable, local boy Il Perugino frescoed the walls of the Council Room.  Those bankers had an eye on good PR, associating themselves with the four cardinal virtues (prudence, fortitude, temperance and justice), prophets, sybils and antique heroes from Rome and Greece.   Well worth a visit, perhaps next time you’re in Perugia for the chocolate festival.

For Bank Law Blogger, the holidays are over …