Greg Kilminster
Head of Product - Content
LSE to accept Bitcoin and Ethereum ETNs in Q2 2024
The London Stock Exchange (LSE) has announced its decision to begin accepting applications for the admission of Bitcoin and Ethereum crypto Exchange Traded Notes (ETNs) in Q2 2024.
However, in line with the Financial Conduct Authority (FCA) guidance on cryptoassets, the LSE acknowledges the potential negative impact of admitting specific securities representing cryptoassets on the reputation and integrity of its markets. As a result, the LSE has put in place strict conditions that issuers must meet both before and after admission to be considered.
These conditions are outlined in a factsheet that explains the process for admitting these instruments for trading.
The LSE has yet to confirm the exact launch date.
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HM Treasury releases consultation paper on MLRs
The HM Treasury has released a consultation paper (CP) aimed at improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
The consultation is accompanied by a survey on the current cost of compliance with the MLRs, which will help in estimating the potential impact of the proposed changes.
Key points
The consultation covers four key areas, including customer due diligence, system coordination, scope of the MLRs, and registration requirements for the Trust Registration Service (TRS).
Making customer due diligence more proportionate and effective: The CP focuses on the customer due diligence (CDD) requirements in the MLRs, including enhanced and simplified checks. It explores some of the key stakeholder concerns about the proportionality of due diligence and various options to use the MLRs to achieve a better balance and support efforts to prioritise resource where it will have the greatest impact.
Strengthening system coordination: In this area, the HMT aims to strengthen system coordination across the UK’s AML/CTF regime. The proposed changes in this area reflect the need to update the MLRs to ensure continuing effective cooperation as the system evolves to take account of new and emerging threats, technological change, and changes in the legislative landscape such as the Economic Crime and Corporate Transparency Act 2023.
Providing clarity on scope of the MLRs: The CP addresses the concerns related to the boundaries of the AML/CTF regulation regime. It also discusses the necessary adjustments required to keep pace with the broader regulatory and market changes that have occurred after the UK’s exit from the EU.
Reforming registration requirements for the Trust Registration Service: The CP considers a range of potential changes to the registration requirements for the TRS, which are given effect in the MLRs. The proposed amendments aim to increase transparency in relation to certain higher risk trusts while reducing administrative burdens on low-risk trusts.
Next steps
The consultation closes on 9 June 2024. The government will then consider all responses and publish a response outlining the next steps, including draft legislation, if appropriate.
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FATF updates guidance on beneficial ownership and transparency of legal arrangements
The Financial Action Task Force (FATF) has released an updated version of its guidance on Beneficial Ownership and Transparency of Legal Arrangements. This practical guide offers advice on how to identify and evaluate the risks associated with money laundering and terrorist financing concerning trusts and similar legal arrangements.
Background
This guidance follows updates to Recommendation 25 (R25) in February 2023 and addresses trust-specific features and related AML/CFT transparency obligations. It also complements the guidance published on Recommendation 24 (R24), as both inform countries’ approaches to implementing the FATF Standards on beneficial ownership.
Content
The guidance outlines the FATF’s requirements for obtaining accurate and up-to-date information on the beneficial owners of express trusts and similar legal arrangements, as well as mechanisms for verifying this information. It also emphasises the importance of international cooperation, as these arrangements can potentially be used to facilitate cross-border money laundering or terrorist financing. It is important to note that this guidance is non-binding and does not override the authority of national governments.
Next steps
The FATF will assess countries’ implementation of these requirements during its upcoming round of mutual evaluations.
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DoJ white collar crime speech outlines key new developments
In a speech at the American Bar Association’s 39th National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco provided insights into the Department of Justice’s (DoJ) approach to corporate enforcement and highlighted some key priorities and strategies.
Emphasis on individual accountability
Monaco emphasised holding individuals accountable for corporate misconduct, reflecting a shift towards greater scrutiny of executive responsibility. By targeting senior executives and key decision-makers within companies, as she demonstrably indicated with reference to convictions of the CEOs of the world’s two largest cryptocurrency platforms, FTX and Binance, the DOJ aims to send a clear message that no one is above the law. This focus on individual culpability should be a reminder to compliance teams of the need to ensure robust oversight of high-level decision-making processes and to implement measures that promote ethical conduct throughout the organisation.
Consequences for repeat offenders
The DOJ’s commitment to imposing stiffer penalties on corporate recidivists signals a tougher stance on repeat offenders. Companies with a history of misconduct face increased scrutiny and risk more severe consequences for future violations. Monaco said: “If your company has had a recent brush with the law, now is the time to invest — and reinvest — in your compliance programs”. Compliance teams must proactively address any past instances of non-compliance and implement measures to prevent reoccurrence. This includes conducting thorough risk assessments, enhancing internal controls, and fostering a culture of integrity and accountability.
Incentivising compliance and reporting
Monaco’s discussion of incentivising compliance and reporting highlights the DoJ’s recognition of the value of proactive engagement from companies in addressing wrongdoing. By offering rewards for voluntary self-disclosure and cooperation, the DoJ is aiming to encourage a culture of transparency and accountability within the corporate sector. Her cited example of action around clawbacks is a good example: “Nothing focuses the mind like the prospect of a pay cut. That’s why the Criminal Division has been providing a dollar-for-dollar credit to companies that claw back or withhold compensation from culpable employees. It ensures that the actual wrongdoers are actually paying for their misconduct”.
Compliance teams should leverage these incentives to advocate for investment in robust compliance programmes and to promote a culture of ethical conduct and reporting within their organisations.
Expansion of whistleblower programmes
Monaco reminded the audience of the introduction, in October 2023, of a disclosure programme to incentivise companies involved in acquisitions to bring to light any misconduct discovered during due diligence and report it. She confirmed in the speech that this policy has now been formalised in the Department’s Justice Manual. Additionally, she noted the DoJ is planning a new initiative: a DoJ-operated whistleblower rewards programme. This programme aims to incentivise individuals to come forward with information about significant corporate or financial misconduct, with rewards tied to resulting forfeitures.
The aim is to encourage both companies and individuals to report misconduct promptly. This approach strengthens the DoJ’s ability to build robust criminal cases, impose significant penalties, and effectively use enforcement measures. Ultimately, Monaco said, the message to whistleblowers is clear: the Department of Justice is eager to hear from you. Similarly, to those contemplating voluntary self-disclosure, the message is straightforward: “knock on our door before we knock on yours”.
Addressing risks of disruptive technologies
Monaco addressed the risks posed by disruptive technologies like artificial intelligence, and in three examples noted that:
- Fraud using AI is still fraud.
- Price fixing using AI is still price fixing.
- Manipulating markets using AI is still market manipulation.
She added that the DoJ will look to apply stiffer sentences where AI is proven to be misused. She also reminded compliance teams of the need to assess the impact of AI on their risk management frameworks and develop strategies to mitigate associated risks effectively. This may involve implementing AI-specific compliance controls, enhancing data privacy measures, and ensuring transparency and accountability in AI-driven decision-making processes.
In concluding, Monaco summed up the main themes of her speech as follows:
“First, we’re continuing to execute on our core strategy: invest the most significant resources in the most serious cases; hold individuals accountable; and pursue tough penalties for repeat offenders.
Second, we’re using carrots and sticks to encourage companies to step up and own up and report misconduct to the government.
Third, we’re designing our own whistleblower rewards program, as part of our broader effort to fill gaps and innovate in this space.
And finally, we’re applying DOJ tools to new, disruptive technologies.”
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New Australian buy now pay later legislation issued
Following a consultation at the end of 2022 into a new buy now pay later (BNPL) regulatory framework, the Australian government has issued new draft BNPL legislation. The proposed new law is intended to apply to BNPL contracts and arrangements and will also be able to capture other classes of LCCC in the future (such as wage advances). The new draft legislation amends the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010 to bring BNPL into the existing regulatory framework for other credit products.
The deadline for commenting on the draft legislation is 9 April 2024
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