ESMA publishes its annual report      

Following the EBA and EIOPA annual reports, ESMA published its own 2022 review. It sets out key achievements for the year including:  

• Peer reviews on the supervision of cross-border services, on prospectus and on the Brexit relocation process  
• Responses to the geopolitical challenges of the Russian invasion and ensuing the energy crisis   
• The first ever mystery shopping exercise coordinated amongst multiple national competent authorities.   

SEC charges PIMCO for disclosure and policies and procedures failures        

The Securities and Exchange Commission (SEC) has announced that registered investment adviser Pacific Investment Management Company LLC (PIMCO) will pay $9 million to settle two enforcement actions relating to disclosure and policies and procedures violations involving two funds PIMCO advises 

In the first action, the SEC found that, between September 2014 and August 2016, PIMCO failed to disclose material information to investors concerning the use by PIMCO Global StocksPLUS & Income Fund (PGP) of interest rate swaps and the material impact of the swaps on PGP’s dividend.  

In the second action, the SEC found that, between April 2011 and November 2017, PIMCO failed to waive approximately $27 million of advisory fees as required by its agreement with the PIMCO All Asset All Authority Fund. Additionally, until at least 2018, PIMCO did not have adequate written policies and procedures concerning its oversight of advisory fee calculations and related fee waivers. PIMCO has since disbursed to investors the $27 million in fees that should have been waived, plus interest and a performance adjustment. 

The charges serve as a further reminder of the importance of full disclosure obligation and having appropriate policies and procedures in place – and enacting them. 

Office of the Comptroller of the Currency speech on risk and compliance in an era of rapid innovation       

Acting Comptroller of the Currency Michael J Hsu has been speaking about current challenges at the American Bankers Association (ABA) Risk and Compliance Conference. 

Hsu’s speech focused on two challenges: tokenisation and AI. On the former, noting he has always been a crypto sceptic, Hsu commented that “the crypto industry remains largely self-referential and disconnected from the real world. Moreover, the non-permissioned nature of public blockchains makes them attractive to criminals and others engaged in illicit finance, and full compliance with anti-money laundering rules is extremely difficult for crypto intermediaries to achieve.” He added that trusted blockchains, as opposed to public, do have the potential of ensuring full AML compliance. 

So far as AI is concerned, Hsu commented on its potential to “to reduce costs and increase efficiencies; improve products, services and performance; strengthen risk management and controls; and expand access to credit and other bank services. But AI also presents significant challenges.” 

For risk and compliance teams, his suggested approach to deal with rapid innovation is to adopt three principles: 

• innovate in stages, 
• build the brakes while building the engine, and 
• engage regulators early and often. 

He suggests too that risk and compliance professionals need to be involved at the outset “at the innovation table” adding that the “ask for forgiveness” approach may work in some industries but not in banking and finance and hence: better to seek permission. 

APRA issues minor consultations        

The Australian Prudential Regulation Authority APRA released for consultation proposed minor amendments to the prudential framework for authorised deposit-taking institutions and insurers.  Changes to the following standards are being proposed: 

• Prudential Standard APS 180 Capital Adequacy: Counterparty Credit Risk (APS 180) 
• Prudential Practice Guide APG 210 Liquidity (APG 210) 
• Prudential Standard APS 120 Securitisation (APS 120) 
• Prudential Practice Guide CPG 110 Internal Capital Adequacy Assessment Process and Supervisory Review (CPG 110) 
• Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320) 

Comments are requested by 19^th July. 

SEC charge individual in $30m fraud       

The Securities and Exchange Commission filed charges against Josh S. Verne in connection with an approximately $30 million offering fraud that targeted more than 100 investors, many from the Philadelphia area. 

The complaint asserts that Verne engaged in fraudulent activities that targeted investors, including individuals who were close friends and family members. Verne allegedly deceived them by providing false information about his previous business achievements, personal wealth, his authority to pool investor funds for purchasing securities, and the intended use of the funds provided by investors.  

Between 2018 and 2020, Verne purportedly sought investments for his online rent-to-own enterprise, known as Ownable, LLC, as well as its affiliate company, Ownable Capital Partners I, LLC. Additionally, Verne established three limited liability companies with the alleged objective of consolidating investors’ funds for investment purposes in Ownable and two unrelated startup ventures not associated with Verne. 

The complaint asserts that Verne illicitly diverted at least $9.3 million of investors’ funds for his personal gain. These misappropriated funds were reportedly utilised for various unauthorised expenses, including the payment of private school tuition fees and engaging an interior designer for a beach house. Furthermore, Verne allegedly used the funds to charter private jets, repay substantial personal loans, and facilitate payments resembling a Ponzi scheme, where earlier investors were paid with funds acquired from subsequent investors.