U.S. SEC debates waivers for rule violators in swap dealing

Wed Aug 5, 2015 2:12pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - The debate over granting waivers to people with a history of regulatory violations heated up on Wednesday, when U.S. securities regulators proposed a process that would permit swap dealers to do business with those who have broken the law.

The plan would permit large swap-dealing banks like Goldman Sachs or Morgan Stanley to petition the SEC for waivers so they can employ or do business with individuals or subsidiaries with criminal convictions or found liable for civil violations, such as fraud.

The issue of granting waivers has been controversial at the SEC since last year, when Democratic Commissioner Kara Stein started questioning whether the agency was too often granting waivers to big banks that break the law.

Such waivers permit them to continue normal business operations, even if they have been convicted of a crime or found liable for civil fraud.

In some cases, companies or individuals who break the law are automatically disqualified from engaging in certain activities, such as private capital-raising, unless the SEC grants them an exception.

The SEC's plan aims to address a measure in the 2010 Dodd-Frank Wall Street reform law, which gives the SEC new powers to police over-the-counter swaps that derive their underlying value from equity or debt products.

Large dealers must register with the SEC and abide by rules on capital, margins and business conduct.

The law states that dealers or major traders are prohibited from employing or doing business with staffers or units when they are statutorily "disqualified" from participating in the securities industry due to prior misconduct.   Continued...

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange  in the Manhattan borough of New York January 24, 2014.  REUTERS/Lucas Jackson