Greg Kilminster
Head of Product - Content
CP3/24: PRA approach to rule permissions and waivers
The Prudential Regulation Authority (PRA) has issued a Consultation Paper (CP) 3/24 proposing a new Statement of Policy (SoP) regarding s138BA applications.
According to the Financial Services and Markets Act (FSMA) S138BA, the PRA has the power to grant a person permission to not comply with the rules or to comply with specific modifications, either by application or with the consent of the person subject to the PRA rules.
The proposed SoP will explain how the PRA intends to exercise this power.
This interim update reinforces APRA’s commitment to proactive supervision and regulation, acknowledging the evolving financial landscape and the need for resilient and well-prepared entities in the face of potential challenges. Firms are encouraged to stay informed and collaborate with APRA to navigate these priorities effectively.
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ECB to intensify climate action work
The European Central Bank (ECB) has released a statement outlining its plans to focus on climate work, address green transition, and climate and nature-related risks. The ECB has reiterated its commitment to taking climate action and has pledged to review it regularly.
The ECB has identified three main focus areas for its work between 2024 and 2025, with specific actions to tackle these issues. These focus areas include the implications of green transition, the physical impact of climate change, and nature-related risks for the economy and financial system.
Regarding the implications of green transition, the ECB will intensify its work on the effects of transition funding, green investment needs, transition plans, and how the green transition affects aspects of the economy such as labour, productivity, and growth. The results of this work will inform the ECB’s macromodelling framework. Additionally, the ECB will explore further changes to its monetary policy instruments and portfolios within its mandate in view of this transition.
Regarding the physical impact of climate change, the ECB will deepen its analysis of the impact of extreme weather events on inflation and the financial system and how this can be integrated into climate scenarios and macroeconomic projections. It will also assess the potential impact of adaptation, or lack thereof, to climate change on the economy and financial sector, including related investment needs and the insurance protection gap.
Regarding nature-related risks for the economy and financial system, the ECB will analyze the close link with climate change and the associated economic and financial implications. It will also further explore the role of ecosystems for the economy and the financial system.
The ECB will take other concrete measures, including launching its eighth Environmental Management Programme to support achieving its 2030 carbon reduction targets, including eco-design principles for the future euro banknote series and incorporating environmental footprint considerations into the design of a digital euro.
The ECB will also improve its climate-related indicators, risk monitoring, and disclosures and continue to contribute to the development of climate-related policies in European and international forums.
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FinCEN takes action against Al-Huda Bank
The Financial Crimes Enforcement Network (FinCEN) has recently released findings that highlight Al-Huda Bank’s involvement in money laundering activities.
The findings show that the bank has exploited its access to U.S. dollars to support designated FTOs, including Iran’s Islamic Revolutionary Guard Corps (IRGC) and IRGC-Quds Force (IRGC-QF), as well as Iran-aligned Iraqi militias Kata’ib Hizballah (KH) and Asa’ib Ahl al-Haq (AAH). Moreover, the chairman of Al-Huda Bank is complicit in Al-Huda Bank’s illicit financial activities including money laundering through front companies that conceal the true nature of and parties involved in illicit transactions, ultimately enabling the financing of terrorism.
As a result, FinCEN has proposed a rule that would prohibit domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of Al-Huda Bank. The deadline for responding to the proposal is 1 March 2024.
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OCC proposes new rules to improve transparency in bank mergers
The Office of the Comptroller of the Currency (OCC) has issued a Notice of Rule Proposal (NPR) aimed at improving transparency in the standards that oversee the review of business combinations, such as mergers, consolidations, and the assumption of deposits, involving national banks and federal savings associations. The proposal includes changing the OCC’s procedures and adding a policy statement summarising the principles used to evaluate bank merger transactions under the Bank Merger Act.
In a speech at the University of Michigan School of Business, the OCC’s Acting Comptroller, Michael J Hsu, highlighted that the NPR effectively proposes chalk lines demarcating the spectrum of merger applications.
Update to OCC Procedures
Currently, certain merger applications are deemed approved by the OCC on the 15th day after the close of the comment period unless the OCC takes action to remove the filing from expedited processing. The proposed rules change the process by removing provisions related to expedited review and the OCC’s streamlined business combination application.
Policy statement
To provide greater clarity to financial institutions and transparency to the public, the OCC is also proposing a policy statement that outlines general principles used in the review of applications under the Bank Merger Act and the criteria informing the OCC’s decision on whether to hold a public meeting on an application.
OCC further actions
In his speech, Hsu also highlighted other actions that the OCC is launching in that context:
• Promoting accessibility to data, transparency, and research regarding bank mergers subject to OCC review with the publication of data on bank mergers as well as a report providing a comprehensive review of the literature related to bank mergers and consolidation.
• Developing modes of analysis for banking competition that go beyond retail deposits as a proxy for market power by formulating a new framework for assessing competition that reflects the current state of the banking industry.
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FinCEN imposes $100,000 penalty on individual for violating the Bank Secrecy Act
The Financial Crimes Enforcement Network (FinCEN) has imposed a civil money penalty of $100,000 on Gyanendra Kumar Asre for deliberately violating the Bank Secrecy Act (BSA) and its implementing regulations.
Asre’s misconduct involved not registering his money services business (MSB) with FinCEN and failing to maintain an effective Anti-Money Laundering (AML) program, which resulted in no identification and reporting of suspicious transactions. During Asre’s tenure, the credit union’s risk profile increased significantly, including providing services to Asre’s unregistered MSB. As a result, hundreds of millions of dollars in high-risk and suspicious funds, including substantial bulk cash deposits, moved through the credit union without proper monitoring or reporting to FinCEN.
FinCEN has also banned Asre from participating in the conduct of the affairs of any financial institution subject to the BSA for five years.
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APRA’s Margaret Cole on operational risk for the superannuation sector
In a speech at the Connexus Chair Forum in Sorrento, Margaret Cole, Australian Prudential Regulation Authority (APRA) deputy chair, outlined APRA’s priorities for 2024, with a focus on challenges in the superannuation industry.
Cole began by identifying two key challenges: building resilience in superannuation funds and improving outcomes for fund members. She noted that APRA’s superannuation focus has been “well flagged” and stressed her desire for APRA to be transparent about prudential and supervisory developments.
High on the agenda is improving trustee’s assistance to members in retirement, and transparency in superannuation fund performance, fees and expenditure. She reminded the audience that during 2024 “a detailed transparency package covering investment returns, fees and performance test metrics, will be published soon after the annual performance test”. Also mentioned was the new Financial Accountability regime which comes into effect in March 2025
Cole then discussed the significance of prudential standard (CPS) 234, introduced in 2019 by APRA to strengthen the cyber resilience of financial institutions. Despite being in effect for nearly five years, some institutions, including superannuation trustees, have yet to address substantial gaps in their cyber controls. She reminded the audience that effective management of fraud, cyber, and data risks is crucial for member safety, with responsibility falling on trustee board members and executives.
A recent review had highlighted the risks of cyber incidents, emphasising the need for trustees to address vulnerabilities identified in the theft of member data. APRA communicated these findings to chief risk officers for use in risk assessments and fraud risk management and she therefore added that the regulator “will not hesitate to take action against entities with significant deficiencies in their information security and cyber controls.”
Cole moved on to CPS230, which aims to strengthen the management of operational risk when it comes into effect in July 2025, though she urged firms to get on board now with their planning and implementation. The new standard will increase the focus on trustee accountability for operational risk management with a requirement for boards to understand material risks and ensure appropriate management by senior management.
Cole took the opportunity to remind firms that CPS230 will prevent firms from blaming outsource providers supporting critical functions if things go wrong. She acknowledged that upgrading operational resilience to the levels required by CPS 230 will be a big effort but noted that it will consolidate five existing CPSs into one. And whilst the cost of implementation has been raised as a concern by some, she added the cost of non-compliance would be far greater and that “robust risk management won’t prevent things from going wrong, but it will put you in a much better position when they do”.
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ASIC’s Sarah Court on superannuation priorities for 2024
In a speech at the Connexus Chair Forum in Sorrento, Sarah Court, Australian Securities & Investments Commission (ASIC) deputy chair outlined ASIC’s priorities for the superannuation sector.
She began by reminding the audience of ASIC’s role in regulating the superannuation sector: one that drives trustees to enhance member outcomes and ensuring accountability for any misconduct or governance issues. She noted some of the enforcement ‘highlights’ of ASIC’s achievements in 2023, including 219 surveillances, legal actions against superannuation trustees such as Mercer, Active Super, TelstraSuper, and AustralianSuper, and $29 million imposed in penalties for misconduct.
For 2024, ASIC’s enforcement priorities in the superannuation sector revolve around three key themes.
Member services failures
Court noted several initiatives including:
- An emphasis on efficient, honest, and fair treatment of superannuation fund members.
- Issues to be addressed regarding slow, unresponsive, and non-member-focused services.
- A broader industry review focused on improving the delivery of member services, especially in death benefit claims handling.
Misleading conduct, including Greenwashing
Court reminded the audience of ASIC’s prominent position in leading the charge against greenwashing and noted:
- An ongoing focus on addressing greenwashing, considered misleading and deceptive conduct.
- Current proceedings against Mercer Super and Active Super.
- A future focus on net zero statements, use of inaccurate or misleading terms like “carbon neutral” and ensuring transparency in sustainability-related funds.
Failures to protect superannuation balances
Court noted that fines such as the following have shown the sector is falling short in protecting members’ retirement incomes:
- Civil penalty proceedings against AustralianSuper for alleged failures related to multiple member accounts, costing members $69 million.
- A $5 million penalty against OnePath for deducting fees for advice services not received.
She also raised concerns about erosion of members’ superannuation balances due to inappropriate fees and charges.
In concluding, Court reminded her audience of two key points: since 2019 fines for misconduct are more than ten times what they were before; but that the priorities outlined in the speech provides “clear guidance as to where you might focus your attention this year to avoid attracting ours”.
Click here to read the full RegInsight on CUBE’s RegPlatform