CUBE RegNews: 16th October

Greg Kilminster

Greg Kilminster

Head of Product - Content

CFTC charges multiple individuals and firms in $280 million Ponzi scheme

The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against several firms and individuals accused of orchestrating a $280 million Ponzi scheme that defrauded more than 2,000 customers. 


The defendants include Traders Domain FX LTD., Ares Global Ltd, Algo Capital LLC, and Centurion Capital Group Inc, as well as a number of individuals who are alleged to have run the scheme through a series of fraudulent trading platforms and pooled accounts. 


The complaint alleges that from November 2019 to the present, the defendants misappropriated customer funds intended for leveraged commodity trading in gold and other assets, while issuing false trading records and blocking customer withdrawals. The CFTC claims that the defendants used a network of “sponsors” to solicit funds and provide assurances to customers even as the scheme began to unravel, delaying withdrawals and issuing conflicting explanations. 


A statutory restraining order has frozen the defendants' assets and granted the CFTC access to their records. A preliminary injunction hearing is scheduled for October 29. The CFTC seeks the return of ill-gotten gains, civil penalties, and a permanent injunction to prevent further violations. 


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Industry detects £1bn in fraudulent claims amid crackdown on insurance fraud

The Association of British Insurers (ABI) reports that the UK insurance industry detected £1.1 billion in fraudulent claims in 2023, marking a 4% increase over the previous year. A total of 84,400 fraudulent claims were uncovered, up by 16%, with an average claim value of £13,000. 


For the first time, the ABI provided detailed breakdowns on the types of fraud detected. Exaggerated loss claims, where individuals inflated the value of their claims, topped the list with 25,700 cases valued at £407 million. Motor insurance fraud remained the largest category, with 45,800 cases worth £501 million, representing over half of all detected claims. 


Property fraud also rose by 16%, with fake claims totalling £143 million. Insurers thwarted 583,000 fraudulent insurance applications, up by 17%, where applicants deliberately misrepresented information for financial gain. 


The ABI highlighted several high-profile cases of fraudsters brought to justice. These include a “ghost broker” who sold 900 fake motor insurance policies and a claimant who exaggerated injuries, only to be caught by footage from UK television programme The Jeremy Kyle Show. ABI Assistant Director Mark Allen emphasised that fraud increases costs for all policyholders and remains a top industry priority. 


Ursula Jallow of the Insurance Fraud Bureau (IFB) noted that increased awareness is crucial to combatting fraud, while Detective Chief Inspector Tom Hill from the City of London Police warned that fraud is far from victimless, with its impact felt across society. 


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ESAs seek swift adoption of technical standards under DORA

The European Supervisory Authorities (EBA, EIOPA, and ESMA – collectively the ESAs) have called on the European Commission to adopt the draft technical standards under the Digital Operational Resilience Act (DORA) following the Commission’s rejection of the initial standards. The ESAs expressed concerns that changes proposed by the Commission could add complexity and hinder the Act’s effective implementation across the financial sector. 


Some context 

Under DORA, financial entities are required to report on their relationships with information and communications technology (ICT) third-party providers. The draft technical standards, developed by the ESAs, initially mandated the use of the Legal Entity Identifier (LEI) for identifying these providers. However, the Commission proposed the inclusion of the European Unique Identifier (EUID) as an alternative, sparking concerns from the ESAs. 


According to the ESAs, the dual identifier approach could complicate compliance processes for financial entities, particularly regarding consistency and data quality. “The introduction of the EUID will cause unnecessary complexity,” the ESAs warned, suggesting that it might also impede the timely designation of critical ICT third-party service providers (CTPPs). 


Key takeaways 

  • Identifier complexities: The ESAs argue that allowing both LEI and EUID identifiers could lead to inconsistent data and increased burdens for financial entities. While the EUID is cost-free for EU companies, its inclusion could introduce unforeseen challenges, such as increased reporting requirements and verification difficulties. 
  • Operational impact: The ESAs highlighted that the additional identifier could delay the designation of CTPPs by the ESAs. They noted that the coexistence of LEI and EUID could complicate the monitoring process under DORA and urged that entities should prioritise LEI usage when both identifiers are available. 
  • Feedback from industry: The ESAs’ concerns are informed by a “dry run” exercise, which gathered practical feedback from financial entities on the draft standards. Based on this feedback, they recommended further refinements to ensure that the standards are workable once implemented. 


Next steps 

The ESAs are calling for a prompt decision from the Commission on the identification system under DORA. This urgency stems from their role in designating CTPPs in 2025. Financial entities are encouraged to prepare their reporting frameworks to comply with the new requirements, with the expectation that submission of information registers will commence in the first half of 2025. The ESAs’ final recommendations stress the importance of a cohesive approach to identifiers, aiming to streamline reporting and ensure clarity for all stakeholders involved. 


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Ireland’s National Payments Strategy targets modernisation, fraud prevention

In a speech at the Central Bank’s offices in Dublin, Deputy Governor Derville Rowland launched Ireland’s National Payments Strategy, laying out a comprehensive roadmap for the future of the country’s payments ecosystem. 


Modernising payments for the future 

Rowland framed the National Payments Strategy as essential to ensuring that the Irish market remains at the forefront of payment innovations. “The Strategy will ensure that the Irish market stays up-to-date with modern payment functionalities and technologies,” she said, adding that it will establish measures to bolster the security and resilience of retail payments. 


One of the key objectives is to implement Pay-by-Account solutions, which will rely on instant payments and Open Banking capabilities. This initiative aims to improve the efficiency and accessibility of payments, with the Central Bank leading a Research and Insights Programme to deepen understanding of the affects these advancements may have on the sector. 


Rowland emphasised that the success of the Strategy depends on collective engagement, noting that the payments ecosystem must remain interconnected with Europe to ensure continuity and growth. She called on the industry to work collaboratively to bring the National Payments Strategy to life over the next five years. 


Tackling fraud through collective action 

Fraud prevention is central to the National Payments Strategy. While payments fraud remains relatively low in Ireland, Rowland highlighted the growing threat of sophisticated social engineering scams targeting consumers. “As payments evolve, so too do the techniques used by fraudsters,” she stated, stressing the importance of security-by-design in new payment solutions. 


To counteract these threats, Rowland underscored the need for industry-wide cooperation: “The fight against fraud is not limited to any individual firm.” She advocated for stronger collaboration among financial institutions, technology companies, and other stakeholders to address evolving fraud tactics. 


Rowland also referenced recent progress in cooperation with major technology firms, such as Google, which has committed to implementing a verification process for financial services advertisers. “An effective financial services verification policy is a key disruptive tool in the fight against online financial scams,” she said. 


The establishment of the Anti-Fraud Forum under the National Payments Strategy will further enhance coordination across sectors, involving telecoms and social media companies in efforts to curb fraud. This forum, Rowland explained, will facilitate “formal cooperation” between industries whose platforms are often exploited for fraudulent activity. 


Building trust through collective responsibility 

The ultimate aim of the National Payments Strategy is to enhance public trust in the payments system by aligning its goals with consumer and business interests. Rowland highlighted the shared responsibility of all participants in the payments ecosystem, asserting that the success of the strategy “will be largely determined by the organisations in attendance today, and the degree to which we all engage in and support this multi-year programme of work.” 

In her closing remarks, Rowland called on the industry to take action: “The Department of Finance has set out the roadmap for the future of the Irish payments ecosystem, and it is now up to us, as a collective, to put our words into action.”


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DTCC launches digital sandbox to boost digital asset adoption

The Depository Trust & Clearing Corporation (DTCC) has launched DTCC Digital Launchpad, an industry sandbox designed to accelerate digital asset adoption by fostering collaboration among market participants. This new open ecosystem aims to break down industry silos by bringing together financial firms, tech providers, and other stakeholders to co-develop scalable digital asset solutions. 


“With DTCC Digital Launchpad, we aim to unify stakeholders and build a digital asset ecosystem as secure as today’s traditional securities framework,” said Frank La Salla, DTCC’s President and CEO. Industry projections estimate that tokenised securities could reach $16 trillion by 2030, but progress has been slow due to conflicting standards and processes across digital asset initiatives. 


DTCC’s dual-track platform features an Industry Launchpad, which will debut pilot projects in early 2025, and a Client Launchpad, allowing firms to explore their own use cases with DTCC’s support. 


The Launchpad’s proof-of-concept, developed with Japan Securities Clearing Corporation (JSCC), highlights the potential for tokenisation to streamline collateral management. By automating processes such as margin calls through smart contracts, the initiative showed how blockchain can improve efficiency and reduce capital costs for clearinghouses and their clients. 


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PRA proposes restatement of capital requirements regulation in new rulebook

The Prudential Regulation Authority (PRA) has issued a consultation paper, CP 13/24, proposing significant updates to its Rulebook, aimed at restating key provisions of the assimilated Capital Requirements Regulation (CRR). This initiative is part of the PRA's ongoing effort to align UK financial regulations with a comprehensive domestic framework following the UK’s departure from the EU. 


Some context 

The consultation paper outlines the PRA's intentions to restate the relevant aspects of the CRR within its regulatory framework, including the establishment of new parts concerning securitisation and settlement risk. This move follows the recent amendments in financial regulations under the Financial Services and Markets Act 2023 (FSMA 2023), which provides the foundation for revoking and restating assimilated financial services law. 


The PRA’s proposals build on previous publications aimed at implementing Basel standards and adapting the UK's prudential regime for deposit-takers and designated investment firms. This includes a series of consultation papers that have progressively shaped the financial landscape since the UK’s exit from the EU. 


Key takeaways 

The PRA's proposed changes are extensive, involving both the introduction of new rule components and amendments to existing PRA Rulebook sections. Notable aspects include: 

  • New parts of the rulebook: The PRA intends to introduce new rule sections on securitisation and settlement risk. 
  • Amendments to existing parts: Significant amendments are proposed for multiple sections, including those related to counterparty credit risk, own funds, and leverage ratios. 
  • Credit ratings mapping: The PRA plans to update and restate the credit ratings mapping tables within the Technical Standards, a necessary adjustment following the UK’s transition away from EU regulations. 
  • Amendments to supervisory statements and policy statements: This includes revisions to various supervisory statements and the introduction of draft statements outlining the PRA’s approach to waivers and permissions in specific areas, including securitisation and counterparty credit risk. 


The PRA's approach aims to ensure that requirements remain consistent with current practices while allowing for necessary modifications that enhance regulatory clarity. 


Next steps 

Stakeholders, including regulated firms and financial institutions, are encouraged to review the proposed changes and provide their comments by 15 January 2025.


Following the consultation period, the PRA will consider the feedback received and make necessary adjustments before finalising the updates to the Rulebook. The implementation timeline will be confirmed post-consultation, with a focus on ensuring a smooth transition to the new regulatory framework. 


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