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Comment for Proposed Rule 77 FR 13450

  • From: Mark Smith

    Comment No: 57491
    Date: 4/27/2012

    Comment Text:

    Dear CFTC

    CFTC should require a policy for foreign banks operating in United States with respect to the way potential future exposures are calculated. Banks can overstate the way they calculate exposure to be able to charge higher fee from hedge end users. Foreign banks should be required by CFTC and the SEC to furnish a copy of the CVA, counterparty and market exposures. A good example of this is the case between ANZ Bank and Primebrokers of which clients were disadvantage. One of the contributing factor is gross negligence from the head of market quant risk and director of credit risk. During the litigation ANZ Bank's risk management team were requested by Primebroker to provide a copy of ANZ's potential credit exposure documentation on the said derivative product in question. The head of market risk quant and credit director who approved this product during the GFC failed to provide this document and according to our source all the documents were erased by the head market quant risk, credit director together with their team to conceal fraud and negligence in the conduct of their duty, and to avoid negligence and risk management being contaminated from any fraudulent act. All employees with risk management and compliance function should also have a registered license either from the regulatory body standard from country of domicile or from the US licensure. What is potentially happening is that because market and credit risk functions are not duly licensed they were not held accountable to their misconduct from an external regulatory level and as we all experience from the recent investment bank defaults. Internal compliance, internal governance, and internal audit can be corrupted too by this misconduct. The development of credit and market risk specification in particular valuing pricing, CVA, capital, and exposure should not be allowed to be externally sourced by banks from consulting firm. This is just one way for banks to hand ball the risk to a consulting firms, not only does this defeat the purpose of having a risk management team in guarding the asset of the bank for depositors and shareholders, it may create another systematic risk if these functions are outsourced from external consultant because the market is dynamic and assumptions change.

    You may want to re-consider requiring capital and margin from foreign banks with the type of risk management reputation like ANZ Bank.

    Attached are links to a publicly known litigation between ANZ Bank and Primebrokers. ANZ Bank operates in United States and distributes derivative products in the US. The derivative product in question was approved in the height of GFC and the litigation started in 2009 to 2011. US investors also sued ANZ bank over Opus Prime.

    1. ANZ risk managers 'knew of' dangers
    ANZ’s market and credit risk head, directors and their team do not accept accountability and hard work to make it right. They just want to sit on their fat bonus. This is the risk culture in ANZ. This is the same with their compliance, product managers, and front office executives.
    2. ANZ misled Primebroker, court hears
    3. Opes Prime investors blame ANZ for losses
    Comments that ANZ Bank is more to blame and that it has poor compliance have merits and that ASIC and ASX does did not do anything. If US is to allow banks of poor risk and compliance quality and that it’s local regulatory body is complacent. US should put tougher requirements for foreign banks like ANZ Bank.
    4. Merril Lynch was also included in the investigation with respect to Opus Prime.
    5. US investors sue ANZ over Opes Prime
    6. ANZ pays $20m to Primebroker
    7. Financial crisis has echo in brokers' suit against ANZ

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