Missing three deadlines has sapped officials, Whitehall figures say
Missing three deadlines has sapped officials, Whitehall figures say
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Even more remarkable, the surplus rose to £63 billion, making finance the biggest contributor to the balance of payments of any sector of the economy.
Indeed, the continued out-performance of finance might be enough to make even the most committed believers in remaining inside the European Union wonder why so much attention has been paid to motor manufacturers and supply chain woes, and so little to the nation’s best performing asset.
A shining light: The predicted self-destruction of the City of London as a result of Brexit is taking time to materialise
Nevertheless, there are real worries about the shape of any free-trade agreement (FTA) with the EU to be sought by the Boris Johnson government if it is elected. Any FTA will need to provide some comfort to the City. The minimum requirement will be an equivalence which accepts that British financial regulation is at least as robust as that of Brussels, even if it differs in detail. This is regarded as the kind of reassurance that the US investment banks need if the stream of staff shifted to Frankfurt, Paris, Dublin and elsewhere is not to become a torrent.
The shape of any finance deal should be of acute interest to government, because if big trades were to be redirected through Frankfurt offices, the tax revenues would depart these shores with them.
It is worth noting that although the 27 countries that make up the EU are the City’s biggest market, the US is not far behind with financial services exports reaching £21.7 billion in 2018.
Japan and Canada are big recipients of UK-based financial services with non-EU countries taken together already more valuable to the UK than Brussels.
Britain’s success in finance is as much down to heritage and skill and exploiting the country’s offshore status as anything else. That is why the renminbi foreign exchange trade has moved to London, and why the Hong Kong Stock Exchange set its sights on the London Stock Exchange.
The opportunity for Britain to take its trading, insurance and banking skills to the fast growing Pacific region has already been demonstrated by the Prudential, HSBC and others, and the LSE deal with Shanghai.
But care must be taken to ensure the existing EU financial trade is not lost in the rush across the oceans.
As chief executive of Lloyds Banking Group since 2011, Antonio Horta-Osorio has focused relentlessly on building a UK domestic champion.
That has meant discarding overseas assets, building a safer balance sheet and doing infill acquisitions such as MBNA credit cards and the Tesco mortgage book.
Horta-Osorio also has invested heavily in technology, both to bring the cost-income ratio down and to future proof the bank from newer tech players such as Monzo.
The UK focus makes Lloyds dependent on what happens in the broader economy. The vulnerability was exposed by third quarter results. An extra £1.8 billion was set aside for more payment protection insurance (PPI) compensation. The cost has been telegraphed and brings the total exposure up to a whopping £22 billion for the bank.
More worrying for investors will be the £371m write-off of a loan to collapsed travel operator Thomas Cook. Underlying levels of bad debts are low and the bank is well capitalised for shocks.
The risk must be that with a slowing economy and prevailing uncertainty, the implosion at a once venerated travel business may not be the last spot of bother for the Lloyds boss.
Bit of a shame that departing Smith & Nephew chief executive Namal Nawana chose to be Mr Greedy.
So determined was Nawana to take-off into the pay stratosphere, he unsuccessfully tried to persuade his board and investors to switch the medical equipment company’s quote to the US, where souped-up pay is a badge of honour.
He leaves behind another UK health sector company in reasonable fettle, with a sales upgrade based on big advances in hip and knee replacements and a supercharged contribution from sports medicine with joint repairs a big winner.
The US is zipping along strongly – up 7.2 per cent, with S&N sales there more than other advanced nations, including the European Union, combined.
That should limit Brexit pain.
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Formula 1 boss Ross Brawn has warned the new financial regulations “have teeth” and will bite teams if they fall foul of the 2021 rules.
As part of the 2021 blueprint, which has been officially ratified by the World Motor Sport Council following unanimous agreement from all parties, a $175m, fully enforceable cost cap will be introduced in the hope that success will be dependent on how teams spend their money rather how much they spend.
And Brawn has said teams can expect big consequences if they do breach the sport’s new, strict financial regulations.
“Financial regulations are the dramatic change in F1,” Brawn said in the official reveal at an FIA press conference in Austin, Texas.
“We’ve tried for these in the past, and we’ve not been successful. I think the crucial thing about the financial regulations now is that they are part of the FIA regulations.
“So the sanctions for breaching financial regulations will be sporting penalties of some sort, depending on the severity of the breach.
“Whereas before we had the resource restriction, which was a gentlemen’s agreement between teams – well there’s not many gentlemen in the paddock I’m afraid, and that was a failure.
“But this has teeth. If you fraudulently breach the financial regulations, you will be losing your championship. So it has serious consequences if teams breach these regulations.”
Brawn went on to say the financial regulations set out will need further refinement, but reiterated that Formula 1 must have greater control over team spend.
He added: “We’ve got a very strong team of financial experts within the FIA and within F1, and we’ve sought outside support on this.
“Deloitte are one of the experts on sports finances, they’ve been very involved with the football world, and you can see the positive effect that’s starting to have.
“They’ve been pretty well thought out, but they will need development, like any regulation.
“I fully expect that we are going to have challenges in the future to implement this, but it’s absolutely essential for the good of F1 that we have a control on the finances and how much is spent in F1.
“They are essential for the well-being of F1. Budgets have been escalating. F1 is almost a victim of its own success in that the rewards of success are so valuable that the justification for investment keeps coming.”
To gain insight into where the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) have been focusing their oversight and what their priorities will be in 2020, look no further than their recent words and deeds. A common thread running through the recent public statements and enforcement activity of both agencies is a commitment to maximizing the resources at their disposal to expedite resolutions, whether by leveraging technology, deploying multi-pronged approaches, engaging in industry outreach, or coordinating with fellow regulators.
One critical component of the SEC’s current enforcement arsenal is its use of sophisticated proprietary data analytics. For example, the SEC’s Retail Strategy Task Force, established in 2017, analyzes a “big data” feed of hundreds of millions of securities transactions to proactively identify patterns of suspicious activity and recidivist bad actors. Through the Task Force, the SEC has thwarted schemes targeting retail investors, including offering fraud, securities fraud, and market manipulation. The Task Force has also used data analysis to trace assets for disgorgement and remediation.
The Commission is also analyzing “big data” to identify patterns of suspected insider trading. During a panel at the Securities Enforcement Forum 2019 on October 23, 2019, presented by Securities Docket, in Washington, D.C., Joseph Brenner, Chief Counsel of the SEC’s Enforcement Division, stated that 20% of the Commission’s insider trading cases are generated through data analysis by the Market Abuse unit. Brenner explained that analysts are able to compare trading activity both within and outside a period when suspects had access to material non-public information. For example, in the EDGAR hacking case, the data analysis showed that the defendants’ rate of investing successfully ranged from 70-98% within the period, but dropped to 0-50% outside the period, effectively eliminating any defense of coincidence.
Another strategy the SEC has deployed to streamline enforcement is the use of self-reporting initiatives. In February 2018, the SEC implemented the Share Class Selection Disclosure Initiative (“SCSDI”). Under the initiative, investment advisors were encouraged to self-report possible securities law violations relating to their failure to properly disclose fees associated with mutual fund share classes. Those who disclosed were offered favorable settlement terms, including standardized statutory charges and disgorgement of ill-gotten gains, but no additional penalties. The initiative has, thus far, resulted in 95 settlements and investor restitution of $135 million, as compared to nine settlements in the 12 months prior to the first SCSDI orders. Over two recent appearances at the Southeastern Securities Conference in September, and the Securities Enforcement Forum in October, Steven Peikin, Co-Director for the SEC Division of Enforcement, touted the success rate of the SCSDI and credited the initiative for pushing firms to improve their sales practices regarding mutual fund share class suitability and related disclosures. Peikin indicated the SEC will look to repeat the SCSDI’s success with the deployment of more initiatives where the Commission identifies systemic industry issues.
In addition to maximizing its existing resources, the SEC is also exploring multiple fronts for enforcement, as in the case of cybersecurity, where the SEC is targeting disclosures both before and after a data security breach. The SEC has consistently required public companies to disclose data breaches promptly and to enact policies and procedures governing breach response, and has prosecuted companies that fail to timely disclose breaches. In February 2018, the SEC issued guidance regarding disclosure of cyber risks in a company’s public filings. Companies must accurately disclose to investors not only the risks of a data breach, but also the potential impact a breach could have on the company’s business and operations. In October, at the Securities Enforcement Forum, Carolyn Welshhans, an Associate Director in the SEC’s Enforcement Division, clarified that cybersecurity disclosure – both the risk and the breach – would be a top enforcement priority. Welshhans specifically mentioned that companies that have experienced data breaches who then file disclosures that only disclose the possibility of a breach would almost certainly violate Reg FD (i.e., “fair disclosure”) (17 CFR Parts 240, 243, and 249). At the same event, SEC Chairman Jay Clayton explained that a key risk factor companies will need to consider in connection with the cyber risk disclosure is whether loss or impairment of their intellectual property through a cyberattack or data breach poses a material risk that must be disclosed to investors.
Finally, the SEC is broadening its cryptocurrency enforcement arsenal. Initial actions in this area primarily focused on prosecuting fraudulent conduct in connection with Initial Coin Offerings. More recently, however, enforcement actions have expanded to encompass a more generic set of non-fraud securities violations, such as touting and failure to register cases. This treatment belies any notion that cryptocurrencies are an “exotic” asset subject to special treatment by the SEC, and cryptocurrency companies should expect the same level of enforcement as any other public company.
For its part, the CFTC has advanced its enforcement initiatives by ramping up its whistleblower program and successfully bringing joint actions with other regulators and law enforcement. Since May, the CFTC has heavily marketed its whistleblower program by way of four alerts on the topics of money laundering, insider trading, foreign bribery, and virtual currency. In a recent press release announcing a whistleblower award of $7 million, CFTC Director of Enforcement James McDonald highlighted how critical the CFTC’s whistleblower program is to its enforcement efforts, stating that “forty percent of our investigations now involve whistleblowers. We expect that number to increase as the CFTC continues to expand its whistleblower program.”
In terms of enforcement activity, the CFTC has significantly increased its coordination with other agencies, filing fourteen actions in parallel with criminal actions brought by other entities in 2018. This number eclipsed the total from the previous five years combined. These actions primarily are spoofing cases, but also include retail and virtual currency fraud, manipulation of global benchmarks, and investigatory obstruction. Just this past month, the CFTC coordinated civil enforcement actions against two individuals indicted by the U.S. Department of Justice for engaging in a spoofing scheme to artificially affect the prices of precious metals in order to maximize trading profits and minimize losses.
Going forward, those regulated by the SEC and CFTC can expect these two regulators to continue refining innovative approaches to enforcement, with the specific areas of enforcement remaining consistent – cybersecurity, retail investor protection, insider trading, market manipulation, money laundering, foreign bribery, and disclosure enforcement. The SEC has taken great pride in its advancements in data analytics, self-reporting initiatives, and programs designed to protect the most vulnerable retail protectors. The CFTC, meanwhile, is charging ahead with a spirit of regulatory burden sharing and coordination. Whether this will translate into increased regulation, smarter regulation, or both come 2020 remains to be seen.
Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.
On September 5 2019, the Government of Indonesia’s Directorate General of Taxes (DGT) issued DGT Decree KEP-599/PJ/2019 (KEP-599). This new decree relates to Article 23/26 under DGT Regulation PER-04/PJ/2019 and obliges income tax withholders to prepare withholding slips and submit monthly Article 23/26 withholding tax (WHT) returns.
KEP-599 stipulates that taxpayers that meet certain criteria and are registered under certain tax offices must prepare withholding slips and submit monthly Article 23/26 WHT returns in accordance with DGT Regulation PER-04/PJ/2019. Companies should check the attachment to KEP-599 to confirm whether or not they meet these criteria.
These requirements will still apply even if a taxpayer’s registered tax office has changed. If a taxpayer’s status as a VAT-able company (pengusaha kena pajak – PKP) is revoked, it should follow the requirements set out under DGT Regulation PER-53/PJ/2009 instead of DGT Regulation PER-04/PJ/2019.
At the same time (September 6), the Ministry of Finance (MoF) issued MoF Regulation 128/PMK.010/2019 (PMK-128). This new regulation contains provisions for the reduction of gross income on professional placements, internships and/or learning activities in the context of mentoring and the development of human resources in certain competencies.
PMK-128 provides that the reduction of gross income can be as high as 200% of total expenses incurred for professional placements, internships and/or learning activities, provided the requirements and competency criteria are satisfied. The regulation lists the types of deductible expenses and criteria for obtaining the additional gross income reduction, and includes example calculations.
To enjoy the facility, a taxpayer is required to submit a notification through the OSS system. The effectiveness of such programmes will be evaluated by the related ministry or local government office. If the programme is considered ineffective, the facility will not be provided in the subsequent fiscal years. PMK-128 came into effect on September 9 2019.
Most recently, on September 24 2019, the DGT issued Circular SE-25/PJ/2019 (SE-25). This latest circular provides a guideline for calculating the amount of Article 25 income tax instalments in the current fiscal year for taxpayers that are required to prepare periodic financial statements; these taxpayers include new taxpayers, banks, state-owned and local government-owned enterprises, public companies and certain individual entrepreneurs.
SE-25 introduced several changes that affect the amount of Article 25 instalments that certain taxpayers with periodic financial statement obligations must pay. This impacts any taxpayer that: has carried forward a fiscal tax loss; is a public company benefiting from the tariff reduction facility; obtains the net income reduction facility; and that obtains the 50% tariff reduction facility.
The circular also provided confirmation of the definition of ‘net fiscal profit’ for the above-mentioned companies. It confirmed the Article 25 instalment for the current tax year for taxpayers that no longer meet the criteria of taxpayers, as referred to in Government Regulation 23 of 2018, (final tax for taxpayers with certain maximum revenue). It also provided a calculation of Article 25 instalments for certain individual entrepreneurs.
SE-25 provided explanations regarding the overbooking procedures for Article 25 instalment overpayment. It explained the Article 25 Instalment obligation which is calculated based on MoF Regulation 215 215/PMK.03/2018, which is effective starting from the fiscal period January 2019. The final aspect is that during the transition period of January 2019 to March 2019, any administrative penalty incurred due to the incorrect calculation of Article 25 instalment is nullified by an official assessment, as it is considered to be not the taxpayer’s mistake.
Missing three deadlines has sapped officials, Whitehall figures say
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