Walt Lukken, President and CEO of the Futures Industry Association: Derivatives industry cannot ignore digital assets

In his speech at the International Futures Industry Conference, Lukken reminded listeners that the global derivatives industry cannot ignore digital assets.

• A recent report showed volume in global crypto derivatives hit $3 trillion dollars in January and accounted for more than 60% of all trading in digital assets.
• Furthermore, several major crypto exchanges have purchased regulated futures exchanges, identifying derivatives markets and its regulatory framework as strategically important.
• And capital keeps pouring into the crypto space. In the last quarter of 2021 alone, venture capital firms have invested $10 billion dollars into crypto and blockchain startups.

Lukken added: “Whether you’re a convert or a skeptic, these developments require us to pay attention to this growing asset class — or ignore it at our own peril.”

HK SFC quarterly report available

The Hong Kong Securities and Futures Commission quarterly report for OCtober to December has been published. Highlights include:

Regulatory enhancements

• Risk management guidelines: SFC launched a consultation on proposed risk management guidelines for licensed persons dealing in futures contracts.
• Position limit regime: SFCpublished consultation conclusions on proposed changes to the position limit regime and began a further consultation on additional amendments related to position limits and reporting requirements for funds.

Enforcements

• Disciplinary actions: SFC disciplined three licensed corporations and five individuals during the quarter, resulting in total fines of $7.61 million.
• Market surveillance: SFC made 1,366 requests for trading and account records triggered by untoward price and turnover movements.
• Cooperation with the CSRC: SFC held a high-level enforcement cooperation meeting with the CSRC in November.
• Joint operation with ICAC: SFC conducted a joint operation with the Independent Commission Against Corruption (ICAC) concerning suspected ramp and dump schemes involving the stocks of six Hong Kong-listed companies, other market misconduct and corruption offences. Eight individuals were arrested.

HKMA letter to CEOs

In a letter published by the Hong Kong Monetary Authority (HKMA), Enforcement and AML Executive Director, Carmen Chu has provided practical guidance on key anti-money laundering and counter-financing of terrorism (AML/CFT) requirements for account opening processes for banks.  Chu highlights three challenges in customer onboarding:

• establishment of source of wealth and source of funds;
• ongoing monitoring; and
• AML Regtech adoption.

The HKMA has prepared a set of “Do’s and Don’ts” and good practices with the aim of helping the management as well as staff.

SEC speech on global financial markets

The Institue of International Bankers hosted SEC commissioner Mark Uyeda who shared his regulatory approach to the securities markets and highlighting a number of areas that may benefit from attention and effort among securities regulators:

• cross-border clarity on regulatory scope as entities that might operate internationally need to know which rules apply to them and which do not.
• conflicts of law across jurisdictions need to be addressed. If the regulation in one jurisdiction says you must do X, and the regulation in a second jurisdiction says you may not do X, then you cannot lawfully operate across those jurisdictions.
• duplicative regulation increases the costs of cross-border securities activity without corresponding benefits if they address regulatory issues in an unnecessarily redundant manner. In order to permit a healthy flow of cross-border activities in financial markets, countries do not need to have exactly the same rule book. If one jurisdiction has a different regulatory approach to an issue, then, so long as the regulatory outcome is qualitatively comparable and transparent, a jurisdiction might choose to recognize the compliance of a foreign-based entity with another jurisdiction’s regulations as satisfactory, and thus ease restrictions on cross-border flows of activity associated therewith.
• identifying gaps in a foreign regulatory framework that the home jurisdiction believes are of key importance. While a jurisdiction might choose to recognize some aspects of a foreign regulatory framework, it does not have to embrace the whole of that framework to facilitate cross-border activity.
• healthy competition among jurisdictions when crafting regulations is not necessarily a bad thing. There is likely to be more capital market activity in jurisdictions where there is cost-effective and high-quality regulation.

Uyeda concludes: “The economic benefits to be gained from increased regulatory cooperation across borders that facilitates a more globalized capital market cannot be overstated. This goal becomes even more important among similarly-minded societies during times when the ideas of free enterprise, democracy, and personal liberty are under threat. However, this requires some degree of trust and resource-intensive collaboration among regulators across borders.”

SEC updates list of firms using inaccurate information to solicit investors

The Securities and Exchange Commission (SEC) has updated its list of unregistered entities that use misleading information to solicit primarily non-US investors, adding 96 soliciting entities, three impersonators of genuine firms, and five bogus regulators.

 The latest additions are firms that SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under US securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

“This latest update to the list reflects the Commission’s ongoing effort to protect retail investors across all investment products – including crypto asset securities,” said Jose M. Rodriguez, Chief of the SEC’s Office of Market Intelligence. “

CFTC commissioner outlines future approach to promoting market resilience to climate risk

In a speech given at the International Swaps and Derivatives Association, CFTC Commissioner Christy Goldsmith Romero has highlighted a number of new proposals to help financial markets resilience in the face of climate change.

• The CFTC should enhance its understanding of the use of derivatives markets to manage climate-related financial risk by creating a new category that identifies Environmental/Climate-Related products that are trading in derivatives markets.
• The CFTC should follow a similar oversight and approach to Environmental/Climate-Related products as those adopted for digital assets.
• The CFTC should conduct consumer education of Environmental/Climate-Related products.
• The CFTC should develop a “Heightened Review” framework for any self-certified environmental/climate-related products (including those relating to carbon credits), just as it did with derivatives on digital assets.
• The CFTC should increase market intelligence to monitor and surveil markets to promote integrity and resilience to climate risk.

The commissioner concluded: “A thoughtful approach is to have the Commission increase its oversight by first categorizing products as environmental/climate-related, and then conducting oversight similar to our approach for overseeing digital assets.  Heightened review, targeted law enforcement, and increased market surveillance can ensure the integrity of these markets, so that they are resilient to set backs and contribute to a sustainable future”.