(Adds that RBS declined to comment, more background on recently
By Sarah N. Lynch
WASHINGTON, April 28 A top U.S. regulator on
Monday sharply criticized her agency for failing to revoke
certain regulatory privileges afforded to the Royal Bank of
Scotland Group Plc following a criminal plea deal by one
of its units over manipulation of the Libor benchmark interest
In a statement, U.S. Securities and Exchange Commission
member Kara Stein lambasted the regulator for routinely
permitting publicly traded companies that break the law to keep
taking advantage of regulatory benefits that help them more
easily raise capital.
"We have a rule that confers a special benefit to issuers
that have a good track record. And we have a rule that calls for
automatically rescinding that benefit when the issuer
misbehaves," wrote Stein, who is a Democrat.
"Here, the commission waived that common sense rule despite
egregious criminal misconduct."
Stein's concerns center on the SEC's decision late on Friday
to let RBS keep its special status as a "well-known seasoned
issuer," or "WKSI," a tag generally afforded only to companies
that raise large amounts of capital and are widely followed in
Companies that have a WKSI status enjoy numerous benefits,
including qualifying for automatic shelf registrations, which
allow companies to raise money immediately from securities
offerings without having to wait for the SEC to review offering
But companies can potentially lose their "WKSI" status if
they are convicted of a felony or if they violate the civil
Last year, a Japanese investment banking unit of RBS agreed
to pay a $50 million criminal fine and plead guilty to wire
fraud in connection with the manipulation of the Libor rate.
The fine was part of a larger $612 million settlement that
resolved criminal and civil charges by authorities in the U.S,
the United Kingdom and Japan.
The European Commission later also separately fined the bank
391 million Euros ($541 million) for related allegations of
In her statement, Stein said the criminal case against the
RBS subsidiary should have precluded the bank from being
eligible to operate as a WKSI. Nevertheless, she said, the
waiver was still approved in a narrow 3-2 vote.
When reached by phone, SEC Democratic Commissioner Luis
Aguilar confirmed that he joined Stein in dissenting on the
A spokesperson for RBS declined to comment on Stein's
Although criminal convictions and other types of violations
can automatically cause companies to lose their WKSI status, the
SEC allows them to apply for waivers.
Throughout the past several years, many large financial
firms have managed to obtain the waivers.
Among them are Nomura Co, Fifth Third Bancorp
, UBS AG, JP Morgan Chase & Co, Wells
Fargo & Co, Morgan Stanley and Credit Suisse AG
, according to a list on the SEC's website.
The Royal Bank of Scotland was also granted a waiver in
November, after it paid more than $150 million to settle civil
charges with the SEC over allegations that a U.S.-based unit
misled investors in a financial crisis-era subprime mortgage
Stein said that the SEC has granted at least 30 WKSI waivers
since 2010, and that one firm in the last 10 years has received
over 22 different waivers.
"I fear that the Commission's action to waive our own
automatic disqualification provisions arising from RBS's
criminal misconduct may have enshrined a new policy - that some
firms are just too big to bar," Stein wrote.
The SEC's policy that governs how it will consider WKSI
waiver requests by companies was quietly updated on April 24, a
day before the commission issued the new waiver for RBS, the
agency's website shows.
The policy now contains some tougher language concerning
granting waivers in cases where there is a criminal conviction
or intentional fraud.
WKSI waivers have been controversial at the SEC before.
A September 2010 report by the SEC's inspector general into
an SEC settlement with Bank of America Corp over its
acquisition of Merrill Lynch & Co showed disagreement among
staff inside the SEC over whether to grant a WKSI waiver.
(Reporting by Sarah N. Lynch; Editing by Bernard Orr)