Greg Kilminster
Head of Product - Content
Unity through strength: CBI speech on retail sector
In a speech at the International Investment Funds Association Conference, Deputy Governor of the Central Bank of Ireland, Derville Rowland, discussed the evolving landscape of retail investments and emphasised the need for a strengthened focus on investor protection, especially as digitisation reshapes the market.
Rowland began by acknowledging the event’s alignment with World Investor Week, an initiative of IOSCO aimed at promoting investor education and protection. She noted IOSCO’s mission to bolster investor confidence in the global financial markets, adding, “Much like the work of the International Investment Funds Association, IOSCO’s mission is centred around investor protection and promoting investor confidence in the integrity of financial markets.”
The impact of digital transformation
Rowland highlighted the shift in the retail investment market post-financial crisis, with digitalisation profoundly altering how investors engage with financial services. She pointed out that while digitalisation has increased accessibility and fostered competition, it has also introduced new risks. “We must consider and keep pace with the evolving manner in which retail investments are marketed, how information is disclosed, and how products are being sold,” she explained.
According to Rowland, the growing presence of fintech and challenger firms is reshaping the competitive landscape. “Existing firms will face increased competition from challenger firms,” she said. “There will be a need to innovate quickly and invest heavily in order to meet the increased expectations from consumers.” However, she also urged regulators to balance the need for innovation with appropriate oversight, noting that innovation should be “harnessed in a proportionate and risk-cognisant manner.”
Promoting an ‘investment culture’ in Europe
Rowland cited statistics to demonstrate the challenge of fostering a stronger investment culture in Europe. “At the end of 2023, the EU27 share of global equity market capitalisation stood at just 11% compared to 45% for the US,” she said. She argued that, by promoting diversified collective investment funds, the funds sector could help drive a shift towards a more investment-oriented culture among European retail investors.
While Rowland acknowledged that there are benefits for investors in participating in diversified funds, she noted the potential broader benefits for the financial system. “The sector has an important role to play in reducing the reliance on the banking sector,” she said, adding that diversifying sources of finance could mitigate some of the fragilities associated with over-reliance on traditional banking.
Rising threats from fraud and scams
Rowland addressed the growing sophistication of fraud schemes targeting retail investors, sharing a stark statistic: “In Ireland, the Gardaí recorded that fraud incidents increased by 95% between 2019 and 2022, with the investment fraud element increasing by 358% during that period.” To tackle these issues, the Central Bank recently announced that it would focus on “combatting financial crime” as the first theme of its new innovation sandbox programme.
A significant part of this strategy involves collaborating with large technology firms. Rowland commended Google’s commitment to implementing a verification process for financial services advertisers, which she described as “a key disruptive tool in the fight against online financial scams.”
Responding to investor challenges
To better understand the retail investor experience, Rowland shared that the Central Bank’s latest consumer research and mystery shopping exercise had identified ongoing challenges. “Investors are telling us that they still find engaging with the sector challenging in some ways,” she noted, particularly regarding complex disclosures. Many investors expressed difficulty understanding key regulatory information, which is often more technical than product-related benefits.
The Central Bank’s research also highlighted persistent perceptions among some retail investors that the market is only suitable for those with significant knowledge. Rowland observed that such perceptions could discourage potential investors from entering the market, thus impeding efforts to build a more inclusive investment culture.
Rowland called on firms to reflect on whether they were genuinely aiding investor decision-making through the information provided, particularly for newcomers to the market. “If the information is a challenge or difficult to understand at the outset, does that instil confidence with investors or is it more likely to attract them to products with a simple message but less regulatory protections?” she asked.
Fostering an investor-centric culture
Rowland emphasised the need for firms to adopt a retail investor-centric culture, especially regarding fee structures. “A firm which has a strong investor-centric culture will be challenging themselves on such fee arrangements to assess whether they are justifiable and appropriate,” she asserted.
She suggested that regulators and firms alike should prioritise building trust with investors, warning that “trust of investors is hard-earned and easily lost.” To maintain investor confidence, Rowland advocated for a collaborative approach among industry participants, policymakers, and regulators to address the challenges identified by retail investors.
Effective regulation and global alignment
Rowland concluded by highlighting the importance of high-quality regulation in maintaining market integrity. She reiterated the role of the Central Bank of Ireland in safeguarding investor interests and identifying systemic risks, adding that regulatory efforts should “support innovation and product development to meet the changing needs of investors.” Rowland also stressed the importance of global regulatory alignment, describing IOSCO as “the global standard-setter for financial markets regulation.”
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EBA issues guidelines on redemption plans for crypto-asset issuers
The European Banking Authority (EBA) has published new guidelines detailing the orderly redemption of token holders in the event of a crisis faced by an issuer under the Markets in Crypto-Assets Regulation (MiCAR). The guidance targets competent authorities responsible for overseeing issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs), laying out the requirements for redemption plans aimed at protecting token holders.
Some context
These guidelines form part of the regulatory framework introduced by MiCAR, which mandates issuers to establish and maintain redemption plans in anticipation of potential financial crises or liquidity issues. This move by the EBA highlights the growing focus on consumer protection and risk management within the crypto-assets market, as Europe seeks to strengthen oversight amid increasing adoption of digital assets.
Key takeaways
The EBA’s guidelines specify the components of a robust redemption plan. Issuers are expected to define their strategies for asset liquidation, outline the steps involved in redeeming tokens, and identify critical functions necessary to support these actions. These redemption plans are required to ensure equitable treatment for all token holders, with particular emphasis on processes that maximise asset liquidation proceeds while covering associated costs.
Issuers must also consider governance arrangements, including the roles and responsibilities of those managing the redemption process, and a communication strategy to inform stakeholders of relevant developments. For issuers operating under pooled issuance models, there is a requirement to establish a common plan, ensuring consistency in the redemption process across all parties involved.
The guidelines also outline triggers for activating a redemption plan, which include insolvency, resolution actions, or the withdrawal of an issuer’s authorisation. Competent authorities must assess whether issuers are able to fulfil their obligations, and coordination with prudential and resolution authorities is essential to align with early intervention or crisis management measures.
Next steps
The guidelines are to be translated into all EU official languages and will soon be available on the EBA website. Competent authorities must report their compliance with these guidelines within two months of their publication. The guidelines will take effect two months after their translation.
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Hong Kong’s SFC highlights deficiencies in private fund management practices
Hong Kong’s Securities and Futures Commission (SFC) has issued a circular outlining significant compliance deficiencies among asset managers handling private funds and discretionary accounts. The circular identifies widespread lapses in conflict-of-interest management, risk oversight, and investor disclosure, all of which pose substantial risks to investor protection and market integrity.
Some context
The SFC's findings stem from recent supervision activities targeting asset managers in Hong Kong. The circular underscores how certain practices among asset managers violate the SFC’s Code of Conduct, Fund Manager Code of Conduct (FMCC), and Internal Control Guidelines. With Hong Kong striving to reinforce its position as a leading asset management centre, the SFC’s concerns over persistent misconduct underscore the need for a renewed focus on regulatory compliance across the industry.
Key takeaways
The SFC’s review highlights several troubling trends:
Conflicts of interest: Asset managers often failed to prevent or adequately manage conflicts arising from transactions, such as financing related entities with fund assets, accepting monetary benefits from fund transactions, and favouring internal redemptions over those of external clients. Such actions, in some cases, led to significant investor losses. The SFC reiterated that asset managers must take reasonable steps to avoid conflicts and disclose all material conflicts to investors.
Risk management deficiencies: Inadequate risk controls and insufficient due diligence were prevalent, with managers often failing to align transactions with investors' mandates. Examples include the lack of measures to manage credit and concentration risks, leading to considerable financial losses due to defaults. The SFC calls on asset managers to enhance their risk management frameworks to ensure investments remain within prescribed mandates and risk parameters.
Poor investor disclosures: The SFC noted lapses in information sharing, particularly on concentrated positions, investment losses, and other events impacting fund value or liquidity. Such transparency is essential for investors to make informed decisions. Managers must comply with the FMCC's disclosure requirements to maintain investor trust.
Inappropriate valuation practices: Instances of managers misrepresenting asset values, particularly by valuing distressed investments at cost rather than fair market value, were also observed. This misrepresentation risked misleading investors about the actual fund performance. The SFC reiterated the importance of robust and transparent valuation methodologies, especially for illiquid or suspended assets.
Next steps
To address these deficiencies, the SFC has announced plans for thematic inspections and potential disciplinary action against managers failing to comply with regulatory requirements. Asset managers are urged to conduct independent audits of their internal controls and compliance programmes and to self-report any breaches proactively.
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Australian government confirms merger reform
The Australian government has outlined significant reforms to its merger policy, aiming to promote competition, protect consumers, and streamline the merger review process. The reforms, set to be implemented through amendments to the Competition and Consumer Act 2010, include a faster approval process for mergers deemed in the national interest and enhanced powers for the Australian Competition and Consumer Commission (ACCC) to target transactions that could drive up living costs or harm market competition.
Some context
Announced in April 2024, the reforms were developed after extensive consultation with stakeholders, including representatives from consumer groups, businesses, agriculture, legal practitioners, and academia.
The reforms are slated to take effect on 1 January 2026, with provisions allowing businesses to voluntarily notify the ACCC of transactions from 1 July 2025.
Key takeaways
The updated merger control system seeks to expedite reviews by reducing statutory timelines for ACCC assessments. Phase 1 reviews are set to be cut from an average of 75 days to 30 days, while the combined Phase 1 and Phase 2 reviews will drop from 192 days to 120 days, offering a 37% reduction in review time.
The ACCC will also be able to issue “waivers” to businesses uncertain about meeting notification thresholds or compliance requirements. The reforms additionally grant the ACCC the discretion to approve mergers yielding net public benefits, weighing public benefit against potential public detriment. Notably, the ACCC’s “substantial lessening of competition” test has been clarified for mergers, and concepts from the Corporations Act 2001 have been integrated to simplify the definition of “acquisition.” The reforms eliminate the Tribunal fast-track review option, though the Tribunal retains the discretion to accept new information under specific conditions.
Next steps
Pending parliamentary approval, the government will further consult on subordinate legislation, with Treasury planning to engage with stakeholders on additional notification thresholds, fees, and transparency safeguards throughout 2024 and 2025. The ACCC is set to release guidelines in early 2025, subject to legislative approval, to aid in the transition to the new system.
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HKMA and HKAB endorse new banking industry integrity charter
The Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks (HKAB) have announced their full support for the Banking Industry Integrity Charter, launched by the Independent Commission Against Corruption (ICAC).
The Integrity Charter provides a collaborative platform for banks to bolster their internal anti-corruption capabilities and cultivate a culture of integrity within their organisations and among their business partners. By joining the Charter, banks commit to adhering to enhanced integrity standards, with the ICAC offering tailored guidance, case studies, and specialised training sessions to help banks mitigate corruption risks.
The Integrity Charter marks a significant step forward in reinforcing Hong Kong’s status as a global financial centre grounded in ethical business practices and robust anti-corruption measures.
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Hong Kong Monetary Authority implements new anti-fraud measures and confirms Basel III rollout
The Hong Kong Monetary Authority (HKMA) has introduced two major updates for financial institutions aimed at bolstering security and compliance. The two separate updates, announced in letters sent to authorised institutions, focus on enhancing anti-fraud protections for online payment card transactions and the commencement of the Basel III final reform package.
Enhanced anti-fraud measures for online payments
The HKMA has issued guidance on new anti-fraud measures for online payment card transactions, urging authorised institutions (AIs) to adopt strengthened security protocols by the end of 2024. Following a rise in malware scams that exploit mobile banking applications, the HKMA has collaborated with law enforcement and industry partners to implement measures aimed at curtailing these schemes.
According to HKMA data, a measure introduced in February—whereby banks restrict access to mobile banking apps on devices with suspicious applications—has already shown success. Since its implementation, there have been no new cases of malware-related mobile banking fraud, down from 30 incidents in 2023. Nonetheless, the HKMA has noted new fraud tactics where criminals trick customers into downloading malicious apps, through which they gain access to credit card details and intercept SMS one-time passwords (OTPs).
In response, the HKMA recommends that AIs adopt “bound device” authentication by default, rather than relying on SMS OTPs, for mobile banking customers where possible. Bound device authentication typically ties a customer’s mobile device to their online banking credentials, reducing the likelihood of OTP phishing or interception by malicious apps. Any request by customers to change this default method will be treated as high-risk and should not be verified using SMS OTPs.
The HKMA also highlighted the importance of educating customers about the benefits of mobile banking apps as a more secure alternative to SMS OTPs. Banks are also advised to enhance their fraud monitoring for transactions verified via SMS OTP, particularly for customers who are not yet using mobile banking apps.
The HKMA expects all institutions to implement these measures by 31 December 2024.
Basel III final reforms to commence in January 2025
In a separate update, the HKMA announced the publication of Commencement Notice for Parts 3 and 5 of the Banking (Capital) (Amendment) Rules 2023, which will take effect from 1 January 2025. This notice brings Hong Kong in line with the Basel III final reform package as stipulated by the Basel Committee on Banking Supervision.
The reform package introduces significant changes to how banks manage credit, operational, market, and credit valuation adjustment (CVA) risks. Among the key updates, Part 3 of the amendment addresses the output floor—a new minimum capital requirement—along with other modifications to credit risk and operational risk frameworks. Part 5 focuses on market risk and CVA adjustments.
To facilitate a smooth transition, the HKMA has chosen not to include Part 4 (which deals with minimum haircut requirements for securities financing transactions) in the Commencement Notice. The HKMA has explained that this section will be implemented later, pending similar moves by other major jurisdictions. Meanwhile, amendments to related rules, including Banking (Disclosure) Rules and Banking (Liquidity) Rules, will also take effect from 1 January 2025.
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Fine and jail for fraudulent share trading
A man has been convicted in Singapore of fraudulently inducing others to trade in shares under the Securities and Futures Act (SFA). Oon Yun Cong was sentenced to 16 months' imprisonment and fined S$12,105.70 for his actions.
The Monetary Authority of Singapore (MAS) and the Commercial Affairs Department of the Singapore Police Force conducted a joint investigation into Oon's activities, which were referred by the Singapore Exchange Securities Trading Limited.
Between April and November 2020, Oon made false statements in two Telegram chat groups to encourage members to purchase shares in securities he held. These statements included exaggerated target sell prices and false claims of share purchases.
Oon also conspired with a friend to make similar false statements in the same chat groups. The friend was previously convicted and sentenced for similar offences.
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