Tag Archives: Financial Services Authority

Major Security Problems at Baltic Bank Group

Documents discovered by EconoTwist’s confirms a major security problem at the Baltic Bank Group DnB NORD, owned by the Norwegian partly state-owned bank DnB NOR. According to a report by the Danish Financial Authority the Baltic bank group is lacking a sufficient IT security strategy, and do not meet the regulatory requirements for IT security in financial institutions. Other documents reveal a unique insight on how the US government are monitoring and controlling foreign bank activity.

DnB NOR Bank ASA New York Branch is prohibited from establishing, maintaining, administering, managing or engaging in a correspondent banking relationship, such as an account for or on behalf of all of the following entities:”

When DnB NORD was established in 2006, they were bragging about their new advanced, state-of-the-art,  technological solutions. Five years later the Financial Authority finds that there’s no fully implemented security policy, and that the Latvian-based bank group on several key business areas do not meet the regulatory requirements of IT security for financial institutions.

Now, that’s something you won’t find in the regular earnings reports from the Norwegian state controlled owner, DnB NOR.

The inspection was conducted by the Danish Financial Authority in October – December 2010, and the report is dated June 17. 2011.

Contrary to most reports of this kind, I have not been able to find an English version, but here’s the conclusions, translated from Danish:

  • “On inspection, the FSA its IT strategy and IT security policy, organizational issues, outsourcing, backup, contingency planning and systems development.”
  • “FSA’s assessment is that the bank in some areas do not meet the regulatory requirements for IT security for financial institutions.”
  • “The bank had not updated IT security and some key business times in relation to IT security is not fully implemented, the Bank has not secured a sufficient legal basis for controlling the main supplier and the reporting rate from this.
  • “The Bank also has a faulty IT security preparedness.”

And the Danish Financial Authority concludes:

“Based on the inspection, FSA have given the bank an order to undertake a risk assessment on the IT security area and prepare an IT security policy based on a current risk assessment. There are also given orders that the bank’s guidelines for outsourcing must follow the law in this area, and that the bank must develop an IT contingency plan.”

Now, let’s have a look at the English version of  the report:

No mention of the IT security problems. This reports the Danish Supervisory Authority examined the 13 largest credit exposures, and carries out spot checks on another 100 credit exposures to corporate- and retail customers.

Here’s the findings:

  • “In some cases we noted shortcomings in the calculation of the indication of impairment. In the opinion of the Supervisory Authority it had, however, no significant effect on the Group’s total impairment charges at the time of the inspection. Bank DnB NORD A/S has been ordered to strengthen the quality of the Lithuanian subsidiary bank’s impairment calculations.”
  • “Prior to the inspection the DnB NORD Group raised its solvency ratio to 13.2 percent. The increase was made as a consequence of discussions with the Supervisory Authority. The actual solvency is 13.5 percent.”
  • “The Supervisory Authority has instructed Bank DnB NORD A/S to have intensified focus on any changes in the financial situation in Lithuania or changes in the country’s legislation that might have influence on the Group’s impairment charges or solvency need.”
The US Instructions
Returning to the security issues:
The Baltic bank’s servers seem to be more or less wide open, and internal documents are available though a simple Google-search.
Below is some of the correspondence with US authorities, revealing the increasingly monitoring of, and control with, any foreign bank that directly or indirectly do business in the US, or with US corporations:
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The US Customer Identification Program:
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Special Measures
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Unlawful Internet Gambling

This is just some examples of the documents I’ve been able to pull out of the DnB NORD system. I’m about to look into the rest, and analyze the importance of these.

I’ll keep you posted!

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Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Technology

UK And France Want Ban On High Frequency Trading

Britain and France is planning a crackdown on ultra-fast stock trading that they belive caused the so-called “flash crash” in the US stock market on May 6th this year, alarming both regulators and global investors, Reuters.com report.  Jepp, here we go again. Why don’t we just forbid the whole internet and get it over with…and don’t forget the cell phones!

“My natural tendency would be at least to regulate, to oversee it very strictly and after a cost-benefit analysis of these methods, maybe to forbid it.”

Christine Lagarde

They have the Internet on computers, now?!

 

French Economy Minister Christine Lagarde says the form of computerized trading, known as high-frequency trading (HFT), may need banning in some cases. She’s being backed up by the UK Financial Authorities.

“My natural tendency would be at least to regulate, to oversee it very strictly and after a cost-benefit analysis of these methods, maybe to forbid it,” Lagarde said at a parliamentary commission hearing on financial speculation. Reuters.

“Or at least give market authorities the power to forbid it in circumstances that are considered exceptional,” she added.

Britain, Europe’s biggest stock market, where HFT accounts for about a third of trading on the London Stock Exchange, also signals tougher rules were needed – but emphasise that the rules must be proportionate and targeted.

“HFT was simply the evolution of trading to a much faster pace due to advances in technology,” Alexander Justham, director of markets at the UK’s Financial Services Authority, told a TradeTech 2010 markets industry conference.

Adding: “We are not here to turn the clock back.”

Computerized trading and methods such as algorithmic trading transacts a huge number of shares in microsecond.

“If you drive so fast, the technology should be that you can break as fast as well,” Justham says.

Justham also says, according to Reuters, that HFT has narrowed bid/offer spreads,  but the jury was out on whether it has led to more efficient trading or whether it has created unfair advantages in trading.

Arguing that there’s a key differences between the US and European stock markets, such as controls on who can trade, and the availability of so-called “circuit breakers” to stop the most brutal moves.

“We are absolutely not complacent about the general risk of what all this means. Has the playing field been tilted?” Justham asks.

Well, in this bloggers view it’s the authorities that’s been tilted.

And just to be completely precise: I do definitely see the problems related to high frequency trading. Especially the fact that some market participants are able to get sensitive information before anyone else in the market does, and that’s just plain unfair. However, it’s the exchanges themself who offer this service to selected customers.

So, in my view the regulators should start by regulating themself before they impose yet another set of rules on the investors.

Anyway – Bank of France governor, Christian Noyer, said about the same in front of a French parliamentary panel on Wednesday evening,  that HFT was a real problem.

“I would only see advantages if it was scrutinized as much as possible,” Noyer said.

Read the full story at Reuters.com.

Related by The Swapper:

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Filed under International Econnomic Politics, National Economic Politics, Philosophy, Technology

Sarkozy, Brown Fails To Agree On Hedge Fund Rules

A meeting between French President Nicolas Sarkozy and UK Prime Minister Gordon Brown on Friday has failed to clinch a breakthrough on hedge fund and private equity regulation, as EU talks approach their endgame.

“Its Cayman rules that apply, and Cayman judges.”

french diplomat


Both sides said they were confident a deal could be struck in the coming days however, with the Spanish EU presidency keen to secure a common member-state position when finance ministers meet in Brussels next Monday and Tuesday, the EUobserver report.

“We’ve had good talks on this and I’m pretty confident that we can get a very satisfactory outcome in our discussions over the next few days,” Mr. Brown said in a joint press conference with the French leader after their meeting in London.

At the heart of the current debate are so-called ‘third country’ measures: If the latest Spanish text is agreed by qualified majority on Tuesday, non-EU domiciled funds will need individual member-state permission before they can market their products to investors in that country.

The UK and US are in favor of a European hedge fund ‘passport’ however, an idea contained in the original legislative proposals put forward by the European Commission last April, but subsequently removed.

Under the a ‘Schengen-type’ concept, permission from one national regulator, for example the Financial Services Authority in London, would be sufficient to give a foreign-domiciled fund access to Europe’s 500 million citizens, without the need to apply in each separate EU capital.

London is home to roughly 70 percent of the EU’s hedge fund and 80 percent of private equity industry. However, a majority of the UK firms are actually domiciled overseas, in particular in the Cayman Islands.

“But what happens if a Cayman fund fails,” said one French diplomat on Friday, indicating his country’s objections to the passport idea. “Its Cayman rules that apply, and Cayman judges.”

Spanish diplomats say the UK has failed to muster a blocking majority for Tuesday’s finance minister discussion, and while their “objective is to find the largest consensus possible,” they would not rule out the possibility of a sealing a deal against UK wishes.

A member state common position – known as a ‘general approach’ in Brussels legalese – is necessary before negotiations can begin with the European Parliament, a co-legislator in the area.

Also high up on the finance minsters’ agenda is the question of Greece. Following fresh austerity measures announced by Athens last week, a commission report is expected to say enough has been done to bring the country’s deficit down by the promised four percent this year, with implementation now the key.

Whether there will be a further announcement on the financial support plan being prepared for Greece, in case Athens runs into debt refinancing difficulties in the coming months, is a topic of much discussion in economic circles.

One senior Greek source told EUobserver this week that “there could be a clear message” that would go beyond the ‘solidarity’ pledge given by EU leaders in February.

Bloomberg was reporting on Friday that ministers would discuss whether a Greek bailout should be funded by EU bonds guaranteed by euro region governments.

Original article at EUobserver.com

Related by the Econotwist:

Geithner Warns E.U.

E.U. To Reform Economic Policy

Beginning Of The End For The European Union?

European Commission Warns Of “Lost Decade”

Wave Of Protests To Hit Troubled E.U. States

E.U. Parliament Spending Out Of Control?

Naked self-interest

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Filed under International Econnomic Politics, National Economic Politics