April 19, 2010 / 4:19 PM / 9 years ago

EU regulators mull Goldman fraud charge fallout

BRUSSELS/LONDON (Reuters) - If illegal practices are found to have taken place at Goldman Sachs (GS.N), it will reinforce the need for Europe to act to regulate derivatives, EU market regulation chief Michel Barnier said on Monday.

“Commissioner Barnier’s view is that the issue and the kind of practices which are alleged to have taken place, which, if confirmed would be illegal and incomprehensible ... strengthen his belief and determination that Europe needs to act in the area of derivatives,” Barnier said through his spokeswoman.

“The commissioner strongly believes that we need to put an end to years of murkiness and opacity and secretive behavior in this area.”

The U.S. Securities and Exchange Commission (SEC) said last week it had filed fraud charges against Goldman Sachs, Wall Street’s dominant bank, over its marketing of a subprime mortgage product. The bank has vigorously denied the accusation.

The charge has rattled investors, fearing it may be the start of similar probes at other banks. European shares .FTEU3 fell with banks extending their declines from Friday when the Goldman news broke.

The Goldman lawsuit comes at a key moment for the industry as regulators in Europe and the United States look to implement a global pledge to crack down on derivatives this year.

Britain’s Financial Services Authority said it is looking at the circumstances surrounding the U.S. fraud suit and whether a UK-based regulatory response is needed.

“As you would expect the FSA is investigating the circumstances of this case and whether there are implications for the UK regulated entities of Goldman Sachs. If there are, we will take appropriate action,” an FSA spokesman said.

Fabrice Tourre, the lone Goldman bond salesman charged in the SEC lawsuit, is French and based at the bank’s London office. The FSA is at the fact-finding stage and has not called its enforcement unit to open formal probes.

French financial markets watchdog AMF said on Monday it has not found any evidence of fraudulent activity in France in relation to the SEC probe into Goldman.

German regulator BaFin said it was considering possible damage claims after Duesseldorf-based IKB bank lost almost all of its $150 million in the Goldman product the SEC is probing.


Peter Skinner, a British socialist member of the European Parliament’s economic affairs committee which will have joint say with EU states on a draft EU derivatives law due in June, said Goldman was already on lawmakers’ radar screens.

The bank raised concerns among EU policymakers in February when it emerged it had helped Greece with currency swaps that reduced the country’s apparent budget deficit, Skinner said.

“Nobody has yet got to the level of understanding of what this giant is involved in or capable of. Lawmakers must now sit down and discuss whether what we have discovered needs to be corrected by regulation and law,” Skinner said.

Pervenche Beres, who is drafting the European Parliament’s response to the financial crisis, said competition in the banking sector should be looked at urgently, especially after Goldman’s role in the “Greek affair” as well.

“Actions by Goldman don’t just have an impact on the American markets but also on Europe. European authorities should be armed and able to monitor and probe market players as important as Goldman,” Beres said.

Skinner wants a transatlantic approach to derivatives.

“I will be meeting with U.S. lawmakers within the next two weeks and it’s about time we started examining what we are going to do on both sides of the Atlantic on this issue,” he said.

Goldman Sachs Managing Director, Gerald Corrigan, told a British parliamentary committee in February that standards of transparency in the Greek currency swaps could have been and probably should have been higher.

The Futures and Options Association, a European derivatives industry lobby, called on regulators to pause and not pre-empt the outcome of the SEC action.

“The regulators should not jump the gun on this one,” FOA Chief Executive, Anthony Belchambers said.

Barnier has already said he may propose a legislative measure in October to curb speculation in sovereign CDS after Greek debt came under pressure on bond markets last month.

“If it was found this was a breach of the more traditional type of regulatory requirements that sit over firms, why would that call for additional regulatory action,” Belchambers said.

The International Swaps and Derivatives Association had no comment on the Goldman fraud charges.

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