Britain sets out new law to break up errant banks

Updated 04 February 2013
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Britain sets out new law to break up errant banks

BOURNEMOUTH, England: British banks that fail to shield their day-to-day banking from risky investment activities will face being broken up, finance minister George Osborne said on Monday.
Britain is shaking up its system of bank regulation following the 2008 financial crisis, when the government poured 65 billion pounds ($102 billion) of taxpayers’ money into rescues of Royal Bank of Scotland and Lloyds.
The sector has also come under fire for rigging the Libor global interest rate, mis-selling insurance, breaking money laundering laws and paying bonuses widely seen as excessive.
Banks were already expected to have to “ring-fence” operations such as standard bank accounts and payments from their riskier investment banking activities, which will hit major players such as Barclays, HSBC, and RBS.
But Osborne said he was prepared to go further. “If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether — full separation, not just a ring-fence. In the jargon, we will ‘electrify the ring fence’,” he said in a speech.
The break-up of banks which fail to keep to the rules was demanded by members of parliament who reviewed government plans late last year.
Under the new rules, the Bank of England will monitor whether banks ensure that risks taken by their investment banking arms do not endanger their retail divisions.
If the central bank finds a breach, the government will make the politically sensitive decision on whether to employ the “nuclear option” of forcing banks to sell one of the two arms.
Osborne said the government could punish directors of failed banks by banning them from the industry. “I want to see how we can strengthen the sanctions regime for senior bankers — for example, should there be a presumption that the directors of failed banks do not work in the sector again?” he said.
RBS is expected to be fined for attempted manipulation of Libor this week. Osborne repeated his call for fines to be paid out of money earmarked for bankers’ bonuses, saying it would cause “enormous public anger” if the taxpayer footed the bill.
“The thing that could have potentially been the cause of real public anger this spring (would have been) money from the taxpayer going to pay the RBS Libor fines in America,” he said.
Asked whether there should be resignations at RBS as a result of the bank’s imminent fine for rate rigging, Osborne said it was “quite well known that RBS are thinking about changes” amongst the investment bank’s senior management.
“It is right that those who are responsible — not just those who are directly responsible, but also those who were dong the supervising, must also bear a level of responsibility,” he said.
RBS is expected to part company with the head of its investment bank, John Hourican, when the settlement is announced later this week.
Banks have come to accept the idea of a ring-fence, having initially resisted it. A source close to one of Britain’s biggest lenders said the industry’s main concern had been to have clarity over what future regulation will involve.
The source said that, with lenders already under intense scrutiny, Osborne’s decision was a longer term move designed to prevent banks letting standards drop when attention is less focused on the industry.
Antonio Horta-Osorio, chief executive of Britain’s biggest retail bank, Lloyds, had earlier welcomed the ring-fencing proposals, saying it would lessen the chances of taxpayers’ money having to be used again to bail out UK banks.
STRIKING A BALANCE
Legislation will go to parliament later on Monday, and Osborne said he expected it to be passed within a year.
The British Bankers Association, a lobby group, said the plans were “regrettable.”
“This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses,” it said.
Osborne, who delivered his speech at US investment bank J.P. Morgan’s offices in Bournemouth, southern England, insists his reforms strike the right balance between responding to public anger and avoiding a populist over-reaction.
“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system. The anger people feel is very real. Let’s turn that anger from a force of destruction into a force for change,” he said.
Britain’s shadow finance minister, Ed Balls, said the government had not gone far enough.
“For all the rhetoric and the partial climb-down he has been forced into, George Osborne is still failing to deliver the radical banking reform we need,” he said.
Shares in UK banks were lower following the speech. RBS led the fallers, down 1.6 percent, with Lloyds and Barclays trading 1 percent lower and HSBC down 0.9 percent.
However, Tony Anderson, a partner in the banking team at international law firm Pinsent Masons, said the move could backfire on the government — making it more difficult to sell of its shareholdings in RBS and Lloyds.
“There could be significant political fallout for the Government from any proximity between a sell down of shares in a state owned bank and a full separation of banking operations following a breach of the ring fencing measures,” Anderson said.


Telegram Russia ban spurs privacy debate

Updated 21 April 2018
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Telegram Russia ban spurs privacy debate

  • Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
  • A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities.

LONDON: Telegram, the messaging app that re-located from Russia to Dubai, has again fallen foul of the authorities in its mother country. So what is it about the social media platform that simultaneously has governments worldwide so concerned and freedom of speech advocates so agitated?
Telegram has always attracted a mix of criticism and respect for its use of encryption to ensure its messages between users remain confidential.
A Moscow court decided last week to block the app in Russia because it refused to hand over encryption keys to authorities — sparking fresh controversy around the app, which has previously been banned in countries such as Iran, Afghanistan and Indonesia.
Telegram has been under close scrutiny in Russia since legislation was passed in mid-2016 that required communication companies to hand over encryption keys to the Federal Security Service (FSB), if requested.
There was also a move to place companies on a “register of information distributors,” which requires firms to store user online communications for a set period of time and hand over data to the authorities when needed.

 


Some of Russia’s large social networks are reportedly on the register and Telegram was pressurized to register in mid-2017. Other Western social media companies such as WhatsApp are not listed. WhatsApp did not immediately respond to a request for comment.
Weeks after joining the register, Telegram refused to agree to FSB requests for encryption keys, resulting in the Russian media watchdog Roskomnadzor seeking court approval this month to block the app.
On the day of the court decision, Telegram’s founder Pavel Durov tweeted: “Privacy is not for sale, and human rights should not be compromised out of fear or greed.” The company has also said it is technically impossible to transfer encryption keys.
It was not the Russian entrepreneur Durov’s first run-in with Russian authorities. Telegram — which was launched in 2013 — originally had its development team based in St. Petersburg, but had to leave the country due to local IT regulations. It is currently based in Dubai.
The messaging app prides itself in being the most secure and independent form of instant messaging that respects the need for privacy. Its “secret chats” option makes use of end-to-end encryption that ensures only users can read them. Messages cannot be forwarded and you can order messages to “self-destruct” within a set amount of time. It can also alert users if the recipient of the message takes a screenshot of the correspondence. So-called Telegram “Channels” can be used to broadcast public messages to a large audiences.
While WhatsApp — which is owned by Facebook — also provides end-to-end encryption, Telegram differentiates itself with claims it is faster and more secure.
Damir Gainutdinov is a legal analyst at Russian human rights group Agora, which represented Telegram in court. He has headed up its project on the defense of online freedom in Russia since 2010.
He told Arab News that the block placed on Russia was more of a power-play by the authorities.
“I think that Russian authorities believe that Telegram is a threat because they cannot control it.
“But I wouldn’t say that it is really the biggest threat. The attack on Telegram is more about showing that they can block any global service if they want,” he said.
Russia’s government has argued that the app helps to enable terrorist attacks in the country, saying that access to encrypted messages is a national security issue.
The FSB said a suicide bomber who killed 15 people on a St. Petersburg subway in April last year had used Telegram to plan the attack.
Voices from outside Russia have also criticized Telegram for not doing enough to clamp down on terrorists using the app. “Terrorists and extremist groups such as ISIS (Daesh) use encrypted applications like Telegram because it allows them to recruit new members, fundraise, incite to violence, and even coordinate terrorist activity without the threat of being discovered,” said executive director David Ibsen at the US-based non-government organization Counter-Extremism Project.
“ISIS also created public channels on Telegram to broadcast pro-ISIS news updates and disseminate other propaganda materials,” he told Arab News. Durov has been quoted as saying at a conference in 2015 that the right to privacy is more important to the company than “our fear of bad things happening, like terrorism.” Following the Paris attacks in 2015, Telegram did revise its policy on its public channels, but it has refused to take down private Daesh chats, according to Ibsen.
Social media sites are coming under increasing pressure from authorities worldwide to do more to limit the promotion of extremism online.
In a statement to Arab News, Twitter said it had permanently suspended 274,460 sites in the second half of last year — down more than 8 percent on the previous reporting period.
While Telegram is far from the only social media app to be criticized for its counter-terrorism policies, it is seen by some as the more reluctant player in the battle against online extremism. “Social media companies remove content regularly that violates their stated terms of service, and some of this includes extremist and terrorist videos, images and other propaganda,” said Ibsen. “However, despite the availability of technology that can identify and permanently prevent prohibited materials from being re-uploaded, the biggest social media platforms are not taking this vitally important step,” he said.
“Telegram has become a refuge app from the moment the preferred apps (Twitter in particular) started to clamp down on extremist content,” said Rik Coolsaet, a professor of international relations at Ghent University in Belgium who has written extensively on counter-terrorism efforts. “Its encryption offered a secure environment for terrorist recruiters and groomers, but at the same time limited their propaganda outreach, since it is more difficult to access. For that reason, Twitter remains their preferred app,” he added.
Russia is not the only country clamping down on Telegram. Iran restricted certain channels in December last year during the protests and there have been recent threats that restrictions could be reimposed. A estimated 40 million Iranians use Telegram’s channels and messaging services.
“In the case of Russia and Iran, the Telegram crackdown has much more to do with controlling the lives of its citizens than it does with preventing terrorist activity,” said Ibsen.
Telegram did not respond to Arab News’ request for comment.

 

Q&A
We talk to leading world cyber terrorism expert Chris Sampson, co-author of “Hacking ISIS: How to Destroy the Cyber Jihad” and an analyst with the Terror Asymmetrics Project

Why are governments so worried about Telegram?
Telegram was launched as an encrypted messaging app. This meant that government agencies were less likely to be able to intercept messages passing across the Internet and read private conversations. However, in September 2015, Telegram also created an option for channels, which act like chat groups. This allowed like-minded individuals to essentially host a chat room. Unless the channel was set to public you couldn’t read what was discussed without being given an invitation link. Groups like ISIS began using these channels to share propaganda and information. Other groups use Telegram in much the same manner. Non-violent resistance groups around the world would also use the messaging app and channels to communicate so authorities in the countries they fear would be less likely to intercept their discussions.

Will clamping down on social media apps be effective?
As governments crack down and ban apps, others will rise and replace them with new features and focus on security from outside eyes. They will operate either within the legal construct or outside of it depending on the countries they seek to circumvent. Since laws around the world differ dramatically, what is legal in one country could be illegal in another. We’ve seen this already happen as countries sought to ban use of Telegram, WhatsApp or even Twitter. Inevitably the access to the technology remains the same and users find a way to use both encrypted messaging and social media platforms.

Does Russia’s action set a precedent?
Countries such as Indonesia, Iran, Afghanistan and others have banned Telegram. Brazil banned WhatsApp around the timing of the World Cup only to lift the ban. Such bans are largely ineffective because the majority of users are engaged in lawful communications yet want their privacy, those engaged in illegal and potentially violent activities make up a fraction of the userbase. The better solution is to know where nefarious users are lurking on the web and keep track of them in observable spaces. Banning the public’s access to messaging apps will always fail. Telegram and similar companies should deny government agencies the keys to encryption unless there is a reason given that would justify unlocking communications. If the governments are able to seize a phone and unlock it, they’ll already have access to a suspect’s communication if they haven’t erased the data.

Decoder

Telegram

Telegram, founded by Russian entrepreneur Pavel Durov in 2013, is an app that enables encrypted messaging, together with “self-destruct” messages. It is used by 200 million people worldwide. Authorities in a number of countries criticized it for providing secure communications channels for terrorists and criminals.