Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.

A Financial Conduct Authority (FCA) probe into a trading scheme that claimed multiple tax rebates on dividend payments is now focused on nine companies and three individuals. The City watchdog has been part of the cross-border cum-ex inquiry for seven years and although Britain was not impacted by cum-ex trading, lawyers and authorities say much of the structuring and organising of the scheme took place in London. The FCA had been working with European authorities to investigate "substantial and suspected abusive share trading" in London markets that allegedly supported dividend stripping tax avoidance schemes in Denmark, Germany, France and Italy. The FCA, which does not have the power to investigate tax fraud, but can investigate civil and criminal market abuse, has so far fined three small brokerages a combined £2.9m. It has closed inquiries into eight individuals due to a lack of evidence and discontinued an investigation into one company.

 

Reuters

The National Audit Office (NAO) says HMRC lost £9bn after it reduced the number of staff tackling tax dodging during the pandemic. The spending watchdog said the decision to move thousands of tax compliance staff to Covid support schemes reduced HMRC’s capacity to investigate people and businesses not paying the right amount. Around 1,350 workers were redeployed throughout 2020/21, reducing the number of those working on tax compliance by 12%. NAO analysis shows that before the pandemic, tax revenues from compliance work amounted to 5.2% of total HMRC revenue on average. This dropped to 4.2% between 2020 and 2022. Criminal prosecutions for tax-related offences fell to 163 in 2020/21 from around 700 in the year before. A spokesman for HMRC said it is adding a further 2,500 people to its compliance workforce next year, increasing its ability to recover unpaid tax “and ensure everyone pays what is due."

 

Financial Times

The Daily Telegraph

The Treasury is set to postpone its programme to digitise the tax system for two years because the computer systems are not ready. The roll-out of the Making Tax Digital (MTD) programme will now be pushed back from April 2024 until 2026. This will mark the second delay: an April 2023 roll-out was postponed because IT systems were not ready. MTD will see anyone with annual income of more than £10,000 have to keep accounting records digitally and then file quarterly updates to HMRC using new software. Under the current system, self-employed workers and small businesses file a single annual update. Paul Falvey, tax partner at BDO, said it was “very disappointing for a critical element in modernising our tax system to be further delayed,” while Nimesh Shah, chief executive of Blick Rothenberg, said the lack of preparation for the introduction by HMRC had been “shambolic,” adding that no pilot had been carried out to test the software. Claire Roberts, a partner at Moore Kingston Smith, said: “A delay is essential to properly address the issues being raised and alert taxpayers to the mammoth changes coming down the track.”

 

The Times

The European Union has moved closer to a deal over transatlantic data transfers aimed at resolving concerns about US spying.  The EU's executive Commission has published a draft decision following a breakthrough preliminary agreement in March between Brussels and Washington to resolve a yearslong battle over the privacy of EU citizens’ data that businesses routinely store in the US. Business groups said the development will provide certainty to thousands of companies sending data between Europe, which has stricter data privacy rules, and the US, which doesn’t have a comprehensive federal privacy law. “We are now confident to move to the next step of the adoption procedure. Our analysis has showed that strong safeguards are now in place in the US to allow the safe transfers of personal data between the two sides of the Atlantic," EU Justice Commissioner Didier Reynders said. The framework “will help protect the citizens’ privacy, while providing legal certainty for businesses," he added.

 

Yahoo! News

Euractiv

Wall Street Journal

Ferenc Biro, the leader of Hungary's new anti-fraud agency, has pledged to use all the powers at his disposal to fight suspected corruption. The Integrity Authority, which is part of Prime Minister Viktor Orban's commitment to the European Union in order to obtain billions of euros worth of previously suspended funding, expects to be fully operational by the end of March. "It is important to be clear about what powers the law has granted to this authority. I do not intend to overstep them, however, I plan to use our room for manoeuvre to the maximum extent possible. And this can be considered rather broad," Biro said, adding "We will be equipped with modern weapons, which have thus far not been used in this fight and are effective." But non-government organisations say the authority’s inability to issue indictments on its own is a key weakness, and makes it reliant on existing state institutions to co-operate. Biro, who has two decades' worth of private sector experience in forensic accounting and compliance measures, said: "Our number one responsibility will be to ensure that the EU resources which will be forthcoming are spent in a targeted and lawful way to the last cent."

 

Reuters

UK business minister Grant Shapps is facing a legal challenge from a Chinese-backed company after its takeover of a Welsh microchip factory was blocked over national security concerns. The government had ordered Nexperia to unwind its takeover of Newport Wafer Fab, the UK's largest semiconductor plant, citing "potential national security risks." The judicial review is the first major challenge to the government's flagship National Security and Investment Act, which gave ministers enhanced powers to call in foreign takeovers and block deals. Law firm Clifford Chance wrote this week that the act "perhaps controversially" does not define national security, creating the possibility that "political considerations" could influence decisions.

 

The Daily Telegraph

Officials from France's National Financial Prosecutors' Office have searched General Electric's industrial site in eastern France as part of an inquiry into claims the company avoided millions of euros in taxes by transferring profits abroad. The tax inquiry stems from claims by Fabien Roussel, the head of France's Communist Party, who told authorities in July 2019 of his "suspicions of tax optimisation and fraud" by the company.

 

Reuters

The Treasury Select Committee has approved the appointment of Ashley Alder as chair of the Financial Conduct Authority (FCA) despite highlighting his apparent lack of experience in certain areas. The committee, which held a pre-appointment hearing to scrutinise Mr Alder’s selection, said: “His apparent inexperience of consumer regulation and UK financial services suggests that it will be important that his knowledge of these areas be developed quickly so that he can become fully effective in his new role.” Mr Alder, who has been chief executive officer of Hong Kong’s regulator, the Securities and Futures Commission, since 2011, will begin as FCA chair on February 20th. Mr Alder said he does not intend to take on any other commitments, saying that despite being advertised as a part-time job, the position will require “more commitment than that.”

 

FT Adviser

UK cybersecurity company Arqit Quantum, which seeks to offer solutions to security challenges posed by the advent of quantum computing, faces an investigation by the US Securities and Exchange Commission (SEC) over its merger with a special-purpose acquisition company (SPAC) last year. The company’s  market value rose from $1.4bn to more $4.5bn following the completion of the SPAC merger in September 2021. Its shares have since fallen significantly amid a broad investor retreat from SPACs and young high-growth companies.  “Arqit is . . . cooperating with an SEC investigation relating to the business combination between Arqit and Centricus Acquisition Corp., including by voluntarily producing documents,” the company said in a filing, adding that the SEC had told the company it was “a fact-finding inquiry.” An Arqit spokesperson said: “This is a standard disclosure. If any further disclosure is required it will be done through the appropriate channels.”

 

Wall Street Journal

Christof Schulte, the head of the Financial Intelligence Unit, Germany's anti-money laundering authority, has resigned. His departure follows a massive backlog of unprocessed reports of suspicious activity being uncovered. PYMNTS.com notes that the news comes as the European Union is finalising a new AML framework designed to strengthen the bloc’s ability to fight financial crime. Underscoring the significance of the package in a speech last month, Mairead McGuinness, the EU’s commissioner for financial services, financial stability and capital markets union, said the new measures mark “a tectonic shift in our approach.”

 

Financial Times

PYMNTS.com

US regulators have inspected the work of auditors in China for the first time. Beijing allowed the Public Company Accounting Oversight Board (PCAOB) to examine papers from Chinese auditors after the PCAOB last year said that Chinese authorities had prevented the watchdog from completely inspecting and investigating in mainland China and Hong Kong. A deal was agreed in August, removing the risk that around 200 Chinese companies could be kicked off US stock exchanges.

 

Financial Times

Reuters

The Times

A group of Hong Kong-based small investors have urged HSBC to spin off its Asia business. The group has taken out a newspaper advert calling for a resolution to be put forward at the bank’s AGM in April, saying HSBC should restore its pre-pandemic dividend and plan for the split. The shareholders say HSBC “underperforms its peers, violates dividend commitments and ignores shareholders’ interests.” Ken Lui, founder of the Hong Kong Investor and Entrepreneur Institute, said he had contacted 500 shareholders as part of his campaign. This marks the latest push for HSBC to spin off its operations in a region where it makes most of its money. Chinese insurer Ping An, a prominent shareholder, last month called for a break-up and job cuts to reduce costs. HSBC has resisted calls for a spin-off, saying: “The conversations we’ve had with other institutional investors are that they also do not believe there is an economic case for splitting.”

 

Daily Mail

American International Group's Financial Products (AIGFP) unit, which the Wall Street Journal describes as “the one that nearly took down the global economy in 2008 with wrong-way bets on mortgages” and brought its parent company AIG to the edge of bankruptcy, has filed a voluntary petition for chapter 11 bankruptcy in Delaware, as a way to close for good. To prevent the unit’s collapse, AIG took one of the US government's biggest bailout packages, reaching more than $182bn at one point. The package was fully repaid by 2013. AIGFP has existed over the years as a legal entity to resolve outstanding litigation. One lawsuit remains, AIG said in a regulatory filing. The pending suit, in a Connecticut state court, was filed in 2019 by 46 former Connecticut-based AIGFP executives who are seeking to recover profit-sharing bonuses under deferred-compensation plans that predate the financial crisis. AIG's legal position is that the former executives aren't entitled to any recoveries because the crisis-era losses eliminated all of the profit-sharing, bonus-account balances, and AIGFP never returned to profitability.

 

U.S. News

Wall Street Journal

Investment bankers are bracing themselves for a drop in their bonuses in the wake of a slump in dealmaking. Payouts are likely to be significantly lower than last year, when variable compensation for financiers was boosted by a surge in deals. Data from financial information provider Refinitiv show that so far in 2022, investment banking fees generated in Britain have fallen by 43% year-on-year to $5bn. This compares to the $8.9bn recorded in 2021. It has been reported that Goldman Sachs is considering cutting its bonus pool for its investment bankers by at least 40%. Rivals are also set to lower variable pay, with the bonus pool for investment bankers at JPMorgan expected to shrink by between 25% and 30%.

 

The Times

The Bank of England has raised interest rates to the highest level for 14 years as it looks to tackle inflation. Although inflation fell from 11.1% in October to 10.7% in November, it remains more than five times higher than the Bank's 2% target. The Bank’s Monetary Policy Committee (MPC) voted to hike rates to 3.5% from 3% - the ninth consecutive increase. Bank of England Governor Andrew Bailey said that while he is aware that high interest rates "have a real impact on people's lives," by increasing rates "we can bring inflation down sooner."

 

BBC News

The Times

City AM

Daily Mail

The I

GfK’s consumer confidence index increased by just 2 points to minus 42 in December compared with November. This represents a record eighth month in a row that the measure of financial optimism gave a reading of -40 or worse on an index where a minus score represents negative confidence. Britons' confidence in their personal finances is at the lowest level on record. Respondents rated their personal financial situation at -28 points, 23 points lower than in December 2021, while the gauge of confidence in the UK's overall economic situation sat at -66 points, 27 points lower than a year ago.

 

Financial Times

The I