Compliance Week reports on a reminder to auditors from the SEC, via the Center for Audit Quality's International Practices Task Force, that Item 17(c) of Form 20-F says, "If the financial statements comply with IFRS as issued by the IASB, such compliance must be unreservedly and explicitly stated in the notes to the financial statements and the auditor's report must include an opinion on whether the financial statements comply with IFRS as issued by the IASB". read more

Last week saw a lot of activity relating to so-called legal entity identifiers (LEIs), being developed under the auspices of global financial regulators to help improve the measurement and monitoring of systemic risk.

 

In a major speech, Bank of England Executive Director for Financial Stability Andrew Haldane compared the LEI initiative (and those that will follow) to the development of the bar code for supply chain management and the development of HTML for the Internet. read more

In a recent speech, Meredith Cross, Director of the SEC's Division of Corporation Finance, discussed uncomlpeted rulemaking mandates under Dodd-Frank. read more

In a recent speech, SEC Chairman Mary Schapiro discussed the so-called "Jobs Act" bill currently pending in Congress, saying that it would erode important protections that support the objectivity of investment research. read more

The European Commission (EC) has issued a proposed directive on the freezing and confiscation of proceeds of crime in the European Union. The proposal, if implemented, would make it easier for Member States' authorities to confiscate and recover the profits that criminals make from cross-border serious and organized crime. read more

IOSCO has published a consultation paper on exchange traded funds (ETFs). The paper proposes common investor-protection principles or guidelines on ETFs. The report also discusses market structure and financial stability issues. The proposed principles have been developed to provide guidance for markets and market authorities. The paper is in part a response to the "flash crash", a severe drop in financial markets prices on May 6, 2010, including a 5% drop in the S&P 500 index occurring in just a few minutes. ETFs were disproportionately affected by the “flash crash.”

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Meredith Cross, Director, Division of Corporation Finance of the SEC, made a speech last week suggesting the SEC may substantially revise the 1934 Act reporting regime for foreign private issuers, or at least those for which the U.S. is the main market:

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Dodd-Frank includes several provisions that potentially raise issues for securitizations of assets outside the United States. Regulators are currently evaluating comments received on the various regulatory proposals they have issued to implement Dodd-Frank's statutory provisions. This series of blog posts will note some of the more significant issues raised by these regulatory proposals for securitizations outside the United States, starting with the 5% risk retention requirement of Dodd-Frank Section 941.

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Regulators in the United States are writing rules to implement the Dodd-Frank legislation, including rules that will determine how broadly the law will apply to activity outside the United States. Japanese and other foreign financial institutions should take advantage of this opportunity to influence the regulations, because the consequences will be very important to them, and change will be much easier to accomplish now than it will be in the future.

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The U.K. Financial Services Authority has published a report on the failure in 2008 of the Royal Bank of Scotland. The report discusses, among other things,

 

o  The reasons why RBS failed

 

o  The regulatory and supervisory shortcomings that contributed to the failure of RBS

 

o  Why enforcement actions were not brought against former senior management of RBS

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National leaders of the 27 members of the European Union (EU) met in Brussels last week to negotiate measures to address the euro crisis. Agreement was reached early Friday morning by the leaders of 23 nations on a new "fiscal compact" that provides for a variety of measures intended to enhance European financial stability, including new requirements for fiscal austerity by the participating nations. While three of the remaining four members also appear to have acceded to the compact, the U.K. leadership clearly rejected it.

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Kroll has published its fifth annual edition of its Global Fraud Report, prepared in collaboration with the Economist Intelligence Unit. Kroll's summary:

 

This year’s edition indicates a significant growth in several fraud types, including management conflict of interest, supply chain fraud, internal financial fraud and corruption and bribery. 

 

While fewer companies overall fell victim to fraud over the past year, businesses are anything but relaxed:  executives around the world expressed heightened concerns about their exposure to fraud. This Report presents the collective input of some of the world’s most talented and diligent fraud fighters.

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The International Swaps and Derivatives Association, Inc. (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) have sued to invalidate CFTC rules establishing position limits on some commodities. ISDA and SIFMA claim the rule will reduce liquidity and increase price volatility, and that the CFTC’s decision-making process was procedurally flawed. read more

In a major setback for the Department of Justice, the first company to fight Foreign Corrupt Practices Act (FCPA) charges in court has won dismissal of its conviction because, in the court's ruling, the prosecution had engaged in "flagrant" misconduct. The convictions of Lindsey Manufacturing Co., as well as its CEO Keith Lindsey and its CFO Steve Lee, were overturned by the decision. The case was dismissed with prejudice, meaning that (absent reversal of the decision on appeal) the defendants cannot be charged again. The Department of Justice filed for an appeal on the same day. read more

The Bank of England may begin pressuring bank groups to use return on assets (ROA) or another asset-based measure, rather than return on equity (ROE), as the measure of profitability for evaluating performance for the purpose of calculating executive incentive compensation. Most banks currently use ROE, targeting returns in the teens, with some targeting returns of 20% or more. However, a Financial Times column notes that "A growing swell of opinion . . . has begun questioning the validity and distortive effects of RoE as a metric." read more