Greg Kilminster
Head of Product - Content
Enforcement
Regulators looking to clear their desks before the summer and a UK election has led to a raft of activity which regulated firms need to be mindful of.
There were relatively few major enforcements during July as regulators were focused on new consultations and policies nevertheless, the following firms were fined multi-million sums by US regulators:
- Silvergate for negligence-based fraud and violations of reporting, internal accounting controls, and books-and-records provisions;
- Citigroup for violating a cease and desist order which mandated the firms to improve data quality management programs; and
- Green Dot for unfair and deceptive practices and a deficient consumer compliance risk management program.
In the world of crypto, the UK’s Financial Conduct Authority (FCA) levied a £3,503,546 fine on CB Payments Limited (CBPL) for contravening regulatory requirements designed to mitigate financial crime risks.
In Australia, the Australian Prudential Regulation Authority (APRA) fined OnePath Custodians Pty Limited (OPC) AU$10,704,600 alongside an accompanying order to address compliance deficiencies and the Australian Federal Court ruled that American Express Australia Limited (Amex) must pay AU$8 million in penalties for violating the design and distribution obligations (DDO).
Consultations
Starting in Europe, where on one day alone we noted:
- the European Banking Authority’s (EBA) consultation on draft Regulatory Technical Standards (RTS) for the credit valuation adjustment (CVA) risk of securities financing transactions (SFTs);
- from the European Securities and Markets Authority (ESMA)
- two consultations targeted at benchmark administrators (BMAs), credit rating agencies (CRAs), and three categories of market transparency infrastructures;
- a consultation on draft guidelines and RTS on liquidity management tools under the revised Alternative Investment Fund Managers Directive and the Undertakings for Collective Investment in Transferable Securities Directive.
This activity was swiftly followed by a further ESMA consultation on various aspects of the Central Securities Depositories Regulation refit and on draft RTS specifying the criteria for how investment firms establish and assess the effectiveness of their order execution policies.
ESMA also consulted on draft RTS specifying the criteria for how investment firms establish and assess the effectiveness of their order execution policies under the Markets in Financial Instruments Directive (MiFID II) review.
ESMA joined its supervisory colleagues in consulting on the draft Guidelines on templates for explanations and opinions, and the standardised test for the classification of cryptoassets under the under Markets in Cryptoassets regulation (MiCAR). Finally, from ESMA came a series of consultations to implement changes resulting from the review of the Markets in Financial Instruments Regulation.
The EBA published several additional consultations too including its own draft guidelines on reporting requirements to help competent authorities and the EBA fulfil their obligations under MiCAR, and on the same day a consultation paper proposing changes to the Implementing Technical Standards (ITS) on the joint decision process for internal model authorisation under the Capital Requirements Regulation.
Finally, at the end of the month the EBA issued a consultation on revisions to the draft implementing ITS on the provision of information for the purpose of resolution plans.
Elsewhere in Europe, the European Central Bank issued a consultation on its draft Guide on governance and risk culture, aiming to strengthen governance standards among banks, and the Basel Committee on Banking Supervision (BCBS) released a consultation paper outlining principles for effectively managing third-party risk in the banking industry.
Across the channel, UK regulators were catching up following the pre-election sensitivity period which abruptly paused the regulatory timetable.
Towards the end of the month activity gathered pace with the FCA issuing a number of consultations and discussion papers including proposed changes to its politically exposed persons guidance swiftly followed by three consultation papers considering proposed rule changes to strengthen the UK wholesale market.
In addition, we covered the FCA’s discussion paper on the regulation of commercial and bespoke insurance business and its call for input to gather feedback on potential refinements to retail conduct rules after the introduction of the Consumer Duty.
Not wanting to be left behind, the UK’s Payment Systems Regulator (PSR) issued draft guidance for Payment Service Providers (PSPs) which aims to assist PSPs in evaluating whether a claim is solely related to a civil dispute and, therefore, not subject to reimbursement. At the end of the month the Prudential Regulation Authority consulted on its approach to international banks.
The Bank of England and HM Treasury also joined in the consulting beano with the latter consulting on new climate-related financial disclosures for central government bodies and the former issuing a discussion paper to consider innovation in money and payments.
In the United States, the Financial Crimes Enforcement Network (FinCEN) announced a proposed rule to enhance and modernise financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. We followed up on this development later in the month reporting on various agencies proposals to make changes to their respective BSA compliance program rules to align with FinCEN’s proposals.
Another joint agency initiative consulted on efforts to streamline regulatory requirements as part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, which mandates a decennial review of regulations to identify outdated or unnecessary requirements.
Elsewhere, the Financial Stability Board (FSB) released a consultation on its proposed recommendations to enhance harmonisation in data frameworks related to cross-border payments and the Consumer Financial Protection Bureau (CFPB) issued proposed rules to simplify and enhance the process for homeowners seeking mortgage assistance.
The consultation bandwagon continued in Australia where we noted three Treasury consultations on capital gains tax and payment times reporting rules and a government consultation on reforming mergers and acquisitions (M&A) legislation as part of its plans to implement the M&A reform it announced in April 2024.
Policies and Procedures
Despite numerous consultations, it was in the policy realm that regulators really excelled in July.
We start in the UK where the FCA confirmed its fees and levys at the start of the month, before getting stuck into much meatier fare including the publication of policy statement 24/6, which includes the final UK Listing Rules, which took effect at the end of the month.
A week later, the FCA finalised its overseas funds regime rules, also taking effect at the end of July and the regulator finished the month with new rules pertaining to cash access, taking effect in September, and new rules from August introducing additional payment optionality for investment research.
The PRA also issued a number of new policies including policy statement 14/24, which addresses the leverage ratio treatment of omnibus account reserves and makes minor amendments to the leverage ratio framework and policy statement 13/4 on funded reinsurance.
The PRA also issued policy statement 12/24 containing the final statement of policy on its approach to rule permissions and waivers.
Elsewhere in the UK, the PSR issued its own policy statement outlining the criteria it will use to determine whether to grant an extension or exemption to parties affected by specific directions or requirements and the Financial Reporting Council (FRC) announced comprehensive revisions to the UK Stewardship Code.
In Europe, a spate of final standards and rules were announced including the BCBS update on various policy initiatives, which covered the disclosure framework and capital standard for banks' cryptoasset exposures, the interest rate risk in the banking book standard, and principles for third-party risk management. Later in the month BCBS also published its final disclosure framework for banks’ cryptoasset exposures, along with targeted amendments to its cryptoasset standard.
Meanwhile ESMA published a final report which included the second package of technical standards under the Markets in Cryptoassets Regulation and on the same day we covered the EBA’s new guidance around the Travel Rule.
ESMA also updated its Reporting Manual on the European Single Electronic Format (ESEF) to provide technical improvements and guidance aimed at facilitating the analysis and comparison of data in annual financial reports.
The month was full of change for Australian regulated firms. At the beginning of the month, the government issued the ‘Delivering Better Financial Outcomes reform package’, which aims to expand the supply of financial advice, and the Australian Prudential Regulation Authority (APRA) issued a final updated version of the core prudential standard that governs strategic planning and member outcomes in superannuation.
APRA went on to finalise its Interest Rate Risk in the Banking Book (IRRBB) requirements for authorised deposit-taking institutions; release the final version of its new digital Prudential Handbook; and publish final prudential standards, a final prudential practice guide and a response to its November 2023 consultation on targeted changes to liquidity and capital requirements. On the same day we reported on a new Banking Code of Practice published by the Australian Banking Association.
On the reporting front, the Australian Securities and Investments Commission (ASIC) confirmed changes to the financial reporting requirements for superannuation trustees and the Treasury announced changes to the tax reporting regime, requiring companies to include a tax consolidated entity disclosure statement in their annual financial reports.
In Hong Kong, regulators announced the final legislative proposals for regulating stable coin issuers, and the Hong Kong Monetary Authority (HKMA) issued a Dear CEO letter to all authorised institutions regarding changes to cryptoasset disclosure requirements. In Singapore, the Monetary Authority of Singapore announced its revised compliance toolkit for banks.
Over in the US, the US Treasury and the US Internal Revenue Service issued final regulations regarding the reporting of digital asset sales by brokers on behalf of customers. The US Securities & Exchange Commission (SEC) approved amendments introducing new disclosure scenarios to Rule G-47, which focuses on time of trade disclosure.
Later in the month the SEC also announced the establishment of the new Interagency Securities Council (ISC) to enhance coordination among federal, state, and local agencies in combatting securities fraud and on the same day we reported various US agencies had issued final guidance on reconsiderations of value (ROVs) for residential real estate transactions and a final rule implementing quality control standards for automated valuation models used in valuing homes by mortgage originators and secondary market issuers.
Key speeches
North America
- In a speech at the Data Innovation for the Future of Regulation conference, Frank Elderson, Member of the Executive Board of the European Central Bank (ECB) and Vice-Chair of its Supervisory Board, discussed the necessity of embedding a robust data culture within banking supervision and articulated the ECB’s strategy for leveraging data and technology to enhance regulatory oversight and ensure the stability of the financial system.
- In a speech at the Financial Literacy and Education Commission’s public meeting, Michael J Hsu, Acting Comptroller of the Currency, highlighted the pivotal role banks play in combating consumer fraud.
- In a speech at the Exploring Conventional Bank Funding Regimes in an Unconventional World conference, Federal Reserve Governor Michelle W Bowman reflected on the failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank and discussed the critical need for regulatory reform in the banking sector, particularly in light of recent disruptions.
- In a speech at the International Swaps and Derivatives Association (ISDA) Board of Directors, Michelle W Bowman considered the implications of implementing the Basel III standards in the United States and globally.
Europe
- In a speech at a McCann Fitzgerald event, Patricia Dunne, the Director of Securities and Markets Supervision at the Central Bank of Ireland (CBI), spoke about legislative and regulatory developments affecting the investment fund sector in Ireland.
- In a presentation made to the Peterson Institute for International Economics, Claudia M Buch, Chair of the Supervisory Board of the European Central Bank (ECB), highlighted the significant transformations in the European banking supervision landscape.
- In a speech at the Institute of International Finance and Amazon Web Services, Gerry Cross, Director of Financial Regulation, Policy, and Risk at the Central Bank of Ireland and Chair of the Joint European Supervisory Authorities (ESAs) sub-committee on Digital Operational Resilience, discussed the regulators’ approach to issuing Level 2 standards for the Digital Operational Resilience Act (DORA).
- In a speech at the Point Zero Forum 2024, in Zurich, Denis Beau, First Deputy Governor of the Bank of France, spoke about the evolution and implications of artificial intelligence (AI). During his address, he presented the issue from the perspectives of central bankers and financial supervisors, outlining the challenges, opportunities, and next steps.
APAC
- In a speech to launch the Monetary Authority of Singapore (MAS) Annual Report for the financial year 2023/24, Chia Der Jiun, Managing Director of MAS, provided a wide-ranging overview of the global economic landscape, Singapore's financial sector progress, and future priorities in digital finance and sustainability.
- In a speech at the 20th Annual Financial Markets Law Conference, Jane Brown, Head of Insurance at the Financial Markets Authority (FMA) in New Zealand, shed light on the FMA’s regulatory outlook and priorities. Her speech encompassed the implementation of the Conduct of Financial Institutions (CoFI) regime, the forthcoming transfer of consumer credit regulation from the Commerce Commission to the FMA, and the evolution of the FMA's regulatory approach.