US authorities' StanChart hearing holds answers for investors
Updated: 2012-08-15 06:55
By Billy Mak(HK Edition)
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The global financial market was in a hustle and bustle recently as a result of some regulatory actions by the US authorities. The incident that has attracted the most attention recently involves the Standard Chartered Bank, which is being accused by the New York State Department of Financial Services, of hiding $250 billion worth of transactions involving Iran.
While the Standard Chartered incident is still a heated topic among investors, this is not the first case of a UK financial institution being accused by US regulators of being lax with their international compliance procedures. Early this year, Barclays was also accused of manipulating the LIBOR (London Interbank Offered Rate). The case that hasn't faded out relates to the HSBC, which is much like the Standard Chartered, a UK-headquartered bank that operates and gains the majority of its profits from the Asia-Pacific, Africa and Middle East countries. Though the financial institutions share a common background, the accusation by the US authorities and the reactions of these two banks are somewhat different. HSBC was accused of failing to prevent money laundering activities from Mexico and Iran, and HSBC admitted it immediately and has indicated it is prepared to face the consequences. In the case of Standard Chartered, the New York Department of Financial Services has accused the bank of hiding U-turn transactions for Iran, which is in the US' economical sanction list, making the accusation even more severe. What differentiates Standard Chartered more from the HSBC is that the bank denying the accusation and it is even trying to appeal for the DFS' "defamation".
Although many market watchers are of the view that this incident is a result of the competition between the world's top two international financial centers, New York and London, others believe that this maybe an event motivated by politics. It could also be the result of stricter US regulations toward financial institutions around the world after the 2008 financial tsunami. Earlier even before the accusations against these UK banks, the US regulators have already tried to investigate many local institutions, such as Citi Bank and J.P.Morgan. Thus aside from possible political wrestling, these incidents also suggest that the USA is paying more attention to risk management after the global financial crisis.
Standard Chartered is one of the three banks that has the right to issue currencies in Hong Kong. The event may threaten its status and reputation as an institution that plays a key role in the Hong Kong market. Based on the regulations of the Hong Kong Monetary Authority, the city's de facto central bank, a bank will lose its right to issue currencies in Hong Kong if any single stockholder holds more than 20 percent stake. The biggest stockholder of Standard Charter is the Singapore government, which owns around 19 percent of the bank's shares. As the stock price has fallen sharply on the news, it is possible the Singapore government may raise its shareholdings, taking advantage of the lower price. However, if this is the case, Standard Chartered may lose its right to issue currencies in Hong Kong. Whether the financial giant can step out from this dilemma and keep its license in the New York State is still unknown. Maybe the Wednesday hearing by the US authorities of the Standard Chartered case will give investors an answer.
The author is Associate Professor at Department of Finance & Decision Sciences of Hong Kong Baptist University. The views expressed here are entirely his own.
(HK Edition 08/15/2012 page2)