Risk & Compliance

Regulator Blasts SEC Waivers to Five Banks

SEC commissioner says there were "compelling reasons" to reject the waiver requests of banks convicted of rate-rigging.
Matthew HellerMay 26, 2015

A U.S. Securities and Exchange commissioner has blasted her colleagues for granting waivers to five banks facing disqualifications, saying the commission may have made criminal convictions of large financial institutions “largely symbolic.”

JP Morgan Chase, Citigroup, UBS, Barclays, and the Royal Bank of Scotland Group received a series of waivers earlier this week even though they had pleaded guilty to criminal charges of manipulating foreign currency exchange and interest rates. The pleas were part of a settlement with the Department of Justice in which the banks agreed to pay $2.5 billion in fines.

The waivers issued by the SEC allowed the banks to continue being “well-known seasoned issuers” or WKSIs — a designation that lets them raise capital quickly without prior SEC approval. In addition, Barclays and UBS got waivers from automatic “bad actor” disqualifications, enabling them to continue raising capital through private deals.

In a dissent released on Thursday, Commissioner Kara M. Stein said there were “compelling” reasons to reject the banks’ waiver requests, the main one being “the recidivism of these institutions.”

The Commission, she noted, had granted at least 23 WKSI waivers to the five institutions in the past nine years and the latest criminal charges came on the heels of the DoJ’s prosecutions of UBS, Barclays, and RBSG for manipulating the benchmark London Interbank Offered Rate.

“Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored,” Stein warned.

The commissioner suggested that the “repeated instances of noncompliance at these global financial institutions” may be “indicative of a continuing culture that does not adequately support legal and ethical behavior. Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.”

According to a recent study, the SEC disproportionately granted 82% of waivers to large financial firms between July 2003 and December 2014. Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, has introduced legislation that would make the review of requests for “bad actor” waivers more rigorous.