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Last updated: April 29, 2014 1:38 am
A commissioner with the Securities and Exchange Commission accused the agency of having “strayed from its mission” by granting waivers allowing two banks that pleaded guilty to interest-rate rigging to access capital markets without regulatory scrutiny.
Kara Stein, a Democrat who was sworn in as an SEC commissioner in August, issued a rare public dissent on Monday over the agency’s decision, in a 3-2 vote, to allow Royal Bank of Scotland to continue to receive a special filing benefit. RBS’s Japan unit pleaded guilty last year to rigging benchmark interest rates.
Ms Stein said the RBS decision followed one by the SEC’s staff last year that granted the same waiver to UBS, which had a Japan unit plead guilty to rate rigging. The two actions, she said, had raised concerns that the SEC may have “enshrined a new policy – that some firms are just too big to bar”.
At issue is an SEC provision that allows certain large well-known companies to raise capital by filing a shelf offering registration that becomes effective upon its filing. Companies without the waiver have to wait until their registrations are reviewed and approved by SEC staff, which can delay fundraising.
Ms Stein said this was the first time since the rule was instituted nearly 10 years ago that the SEC had granted waivers to companies that had admitted criminal misconduct. But she used the dissent to note that the SEC was granting dozens of waivers to financial institutions that cross lines, effectively eliminating a key punishment from the SEC’s arsenal.
“In granting this waiver, I believe the commission has strayed from its mission, and strayed from a careful and prudent course,” Ms Stein said.
Mary Jo White, SEC chairman, took the helm with a mandate of a tougher enforcement programme. She changed a decades-long policy that enabled companies and individuals to settle without admitting or denying wrongdoing, saying she would require it in certain cases. The new waivers, people familiar with the matter say, contradict this promise of tougher enforcement.
Ms Stein’s comments come amid a broader debate over whether companies have been held accountable for misdeeds. There is a feeling among some critics, including lawmakers on Capitol Hill, that fines have become the cost of doing business for major financial institutions.
When the SEC waives automatic penalties for criminal misconduct by the largest banks, it sends a dangerous signal about how weak it is in its enforcement of the law
- Democratic Senator Elizabeth Warren
In an unusual twist, Preet Bharara, the US attorney in Manhattan, made waves last month when he suggested he would file criminal charges against more institutions if regulators allowed banks that have been convicted of criminal offences to keep their banking charters. The threat of revoking a bank’s charter has been held back by prosecutors, he said.
“Prosecutors and regulators have to work in concert. When they don’t, they create a gaping liability loophole that blameworthy companies are only too willing to exploit. The good news is that this dynamic is changing for the better, and I expect you will see hard proof of that in the future,” he said.
Democratic Senator Elizabeth Warren said: “When the SEC waives automatic penalties for criminal misconduct by the largest banks, it sends a dangerous signal about how weak it is in its enforcement of the law.
“We are still paying the price for a financial crisis that was caused in part by regulators looking the other way while big financial institutions broke the law.
“Big corporations should not get special treatment when they break the law, and the SEC needs to learn from its past failures in oversight, to demonstrate no one is above the rules, and to show some backbone.”
Senator Chuck Grassley was concerned about the RBS waiver and intended to look into the situation in more detail, according to his office. He has expressed concern about the SEC’s use of waivers to lessen an enforcement action in previous cases.
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