Eva Dauberton
News Editor
FCA issues reminder on discontinuation of synthetic USD LIBOR
The Financial Conduct Authority (FCA) has issued a reminder regarding the expected discontinuation of the remaining synthetic US dollar LIBOR settings at the end of September 2024 (1-, 3-, and 6-month synthetic US dollar LIBOR).
In the notice, the FCA urges market participants with outstanding US dollar LIBOR exposures to ensure they are prepared for these remaining synthetic US dollar LIBOR settings to cease by the expected deadline of 30 September 2024.
Parties to contracts still referencing US dollar LIBOR should take steps to transition to appropriate, robust reference rates and renegotiate with counterparties where necessary.
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US Treasury and IRS finalise new digital assets tax reporting rules
The US Treasury (Treasury) and the US Internal Revenue Service (IRS) have issued final regulations regarding the reporting of digital asset sales by brokers on behalf of customers.
Some context
Under section 6045, brokers are required to file an information return for each disposition made on behalf of a customer if the property disposed of is a security, commodity, option, regulated futures contract, securities futures contract, or forward contract, and the disposition is for cash.
Although owners of digital assets have always been responsible for paying taxes on the sale or exchange of their assets, reporting under section 6045 was not previously required.
The final regulations align reporting requirements for brokers of digital assets with the long-standing reporting requirements for traditional financial services. This alignment aims to ensure that owners of digital assets receive accurate, easy, and cost-effective information from brokers to file their taxes and provide the IRS with the necessary information to address related potential tax evasion risks.
Key takeaways
The regulations cover brokers operating custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs).
The IRS acknowledges the challenges of implementing new reporting requirements, which is why the agency is offering transitional and penalty relief from reporting and backup withholding rules for certain transactions. This relief aims to facilitate a gradual implementation process.
Under the final regulations:
- Brokers must report gross proceeds for transactions effected on or after 1 January 2025.
- Brokers must report basis on certain transactions effected on or after 1 January 2026.
- Real estate professionals that are treated as brokers must report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions with closing dates on or after 1 January 2026.
- For certain sales of stablecoins and non-fungible tokens (NFTs), brokers may choose to report the transactions on an aggregate basis to the extent the sales exceed respective de minimis thresholds.
- A separate de minimis threshold also applies for processors of digital asset payments (PDAP sales).
This reporting will be made on the soon-to-be-released Form 1099-DA.
Next steps
The final regulations do not include reporting requirements for brokers commonly referred to as decentralised or non-custodial brokers who do not take possession of the digital assets being sold or exchanged. The Treasury and the IRS plan to address these brokers in a separate set of final regulations.
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FinCEN proposes rule to enhance AML/CFT programs
The Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury has announced a proposed rule to enhance and modernise financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs.
The rule aims to explicitly require these programs to be effective, risk-based, and reasonably designed, allowing financial institutions to allocate their resources and attention in line with their risk profiles.
Some context
The Bank Secrecy Act (BSA) already mandates certain types of financial institutions to establish AML/CFT programs, with additional obligations imposed in some instances. The AML Act made changes to the BSA’s AML program requirements, which this proposed rule seeks to adopt.
This proposal also aligns with a key recommendation in Treasury’s De-risking Strategy, which suggests introducing regulations that mandate financial institutions to have AML/CFT programs that are reasonably designed, risk-based, and supervised on a risk basis while considering the effects of financial inclusion.
Key takeaways
This proposed rule would:
- Amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process.
- Require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements.
- Promote clarity and consistency across FinCEN’s program rules for different types of financial institutions.
The proposal also articulates certain broader considerations for an effective and risk-based AML/CFT framework, as envisioned by the AML Act.
Next steps
The proposed amendments serve as a foundation for potential future changes in the AML/CFT framework as part of the multi-step, multi-year implementation of the AML Act.
Interested parties can submit written comments on FinCEN’s proposed rule within 60 days of its publication in the Federal Register (the Federal Register publication is scheduled for 3 July 2024).
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Mortgage lenders under scrutiny as CFPB addresses misreporting practices
The Consumer Financial Protection Bureau (CFPB) has released a statement addressing the issue of inaccurate data reporting practices by mortgage lenders under the Home Mortgage Disclosure Act (HMDA).
The HMDA mandates that mortgage lenders report data on loans and applications they receive, as well as the loans they originate. This data is crucial for regulators and the public to assess whether mortgage lenders are effectively meeting the housing needs of their communities. Unfortunately, the CFPB has observed that some lenders fail to report HMDA data accurately or intentionally submit incorrect information, disregarding their legal obligations.
The CFPB’s note includes a data analysis demonstrating an increase in mortgage lenders failing to report the necessary HMDA demographic information. The CFPB attributes this to intentional misreporting, ineffective policies and procedures at the institutional level, a lack of monitoring and controls regarding loan officer practices, and application interfaces that discourage the collection of demographic information.
The note also highlights two recent enforcement actions taken against Freedom Mortgage Corporation and Bank of America, resulting in civil penalties of $3.95 million and $12 million, respectively.
As a result, the CFPB is reminding mortgage lenders of their obligations and urging them to carefully review their reporting practices and HMDA compliance systems to ensure accurate and complete data. The CFPB will continue to prioritise this issue in supervisory examinations of mortgage companies and will take appropriate action against non-compliance.
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EBA revises guidelines on arrears and foreclosure
The European Banking Authority (EBA) has released a revised version of its Guidelines on arrears and foreclosure (EBA Guidelines) in response to changes made to the Mortgage Credit Directive (MCD)
The Credit Servicers Directive (CSD), which regulates the sale, purchase, and servicing of non-performing loans (NPLs), came into effect in December 2021. The CSD introduced amendments to Article 28(1) of the MCD on arrears and foreclosure by replacing the existing wording with a near-verbatim replication of Guideline 4 of the EBA Guidelines, which addresses the resolution process between creditors and borrowers.
As its content is now embedded in binding Union Law, the EBA has decided to remove Guideline 4 from the EBA Guidelines.
The aggregate requirements set out in the MCD and the EBA Guidelines have remained unchanged, and the amended EBA Guidelines will apply within two months of the publication of the translated versions.
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EBA publishes final draft RTS on extraordinary circumstances for continuing the use of internal models for market risk
The European Banking Authority (EBA) has released its final draft Regulatory Technical Standards (RTS) clarifying the extraordinary circumstances for continuing the use of internal models and disregarding certain overshootings in accordance with the Fundamental Review of the Trading Book (FRTB) framework.
Some context
Under articles 325bf(6) and 325az(5) of Regulation (EU) No 575/2013 (‘CRR’), as amended by Regulation (EU) 2024/1623 (‘CRR3’), competent authorities may permit institutions to derogate from certain requirements of the regulatory framework for the use of internal models or apply a softer version of those requirements, where a situation of extraordinary circumstances has occurred.
The determination of such extraordinary circumstances is made by the EBA, which must issue an opinion on the matter, in accordance with article 325az(9) CRR.
Key takeaways
The draft RTS establish a high-level framework for identifying a situation of extraordinary circumstances, by specifying the conditions that must be met and the indicators that the EBA will use to make this determination.
Next steps
The draft regulatory technical standards will be submitted to the Commission for endorsement following which they will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union. The technical standards will apply from 20 days after their entry into force.
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SEBI consults on disclosure of risk-adjusted return by mutual funds
The Securities and Exchange Board of India (SEBI) has published a consultation paper regarding the disclosure of risk-adjusted return by mutual fund schemes (MF Schemes). The main objective of this paper is to gather feedback on a proposed approach that aims to ensure consistency in disclosures.
Some context
Currently, asset management companies (AMCs) provide disclosures on scheme returns to investors through various documents, either on a mandatory or voluntary basis. However, SEBI believes that the inclusion of “Risk Adjusted Return” (RAR) of a scheme portfolio would offer a more comprehensive measure of the scheme’s performance. However, the existing regulatory framework does not require the disclosure of RAR alongside the returns of a MF scheme.
Key takeaways
To address this issue and ensure consistency, SEBI’s proposals focus on the use of the Information Ratio (IR) as a measure for disclosing RAR alongside the scheme’s performance. Specifically, the proposals cover the following aspects:
- Making it mandatory to disclose the IR of a scheme portfolio along with the return of its respective benchmark whenever the return of the scheme is disclosed.
- A specific methodology for calculating the IR for different categories of Mutual Fund schemes with provisions regarding the frequency and requirements for funds with less than a year of performance.
- A proposed format for disclosing the IR.
Next steps
The deadline for feedback is 19 July 2024.
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APRA issues letter on superannuation industry readiness for prudential standard
The Australian Prudential Regulation Authority (APRA) has issued a letter to all registrable superannuation entity (RSE) licensees, sharing the initial findings from its targeted thematic review of the superannuation industry’s readiness for Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190). CPS 190 requires RSE licensees to consider potential threats to their financial viability, develop plans to navigate these events and maintain the necessary capabilities to implement these plans. The effective date of CPS 190 for RSE licensees is 1 January 2025.
Key takeaways
The thematic review involved a survey of 12 RSE licensees, focusing on the requirements related to trigger frameworks and recovery and exit actions. This was further supplemented by an in-depth review of four RSE licensees' draft recovery and exit plans.
The letter provides opportunities for improvement and examples of best practices to enhance the industry’s understanding and preparedness to effectively recover or execute an orderly exit during times of stress.
Specifically, APRA highlights the need for improvements in the following areas:
- Early warning indicators and trigger levels in the trigger framework should be more relevant to the operating environment and risk profiles of RSE licensees.
- Enhanced preparatory measures should be considered for recovery and exit options, along with an increase in capability to reduce execution risk.
- Proactive communication strategies should be implemented to support the effective execution of recovery and exit plans, especially during periods of stress.
Next steps
Starting 1 January 2025, APRA will begin supervising compliance with CPS 190, including RSE licensees’ adherence to the requirements measured against the Supervision Risk and Intensity (SRI) model.
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ASIC urges AFS to review Financial Advisers Register records
The Australian Securities and Investments Commission (ASIC) has called on Australian financial services (AFS) licensees to review the accuracy of their financial advisers’ records on the Financial Advisers Register. This comes after a recent check revealed errors and inconsistencies in some of the provided information.
AFS licensees are urged to promptly verify all the recorded details with a particular focus on advisers’ approved qualifications, their ability to offer tax (financial) advice services, business address, and telephone number. Any incorrect or outdated information must be corrected. ASIC reminds firms that knowingly providing false or misleading information to ASIC or failing to ensure the accuracy of the information provided to ASIC is a serious offense. It is also an offence to fail to update the Financial Advisers Register within 30 business days of a financial adviser’s details changing.
Steps ASIC is taking
- From 1 August: To ensure the accuracy of approved qualifications recorded on the Financial Advisers Register, ASIC will initiate a compliance program, which will remain a significant focus until 1 January 2026, when all financial advisers must comply with the qualification standard.
- From 1 July: The public view of the Financial Advisers Register will no longer indicate whether a financial adviser’s education and training meet the requirements of an 'approved' qualification. However, it will still display the information about an adviser’s relevant qualifications and training provided by Licensees (without the approved qualification marking).
- Until 31 July 2024: Licensees can access a one-off dataset to help them identify education and training marked as 'approved'. This dataset can be used in addition to checking an adviser’s details on an individual basis.
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EIOPA published factsheet on Colleges activities in 2023
The European Insurance and Occupational Pensions Authority (EIOPA) has released a fact sheet outlining the key activities undertaken in 2023 as part of the Colleges of Supervisors (Colleges).
The document details the general progress and changes in the number of Colleges, the main topics addressed in the Colleges in 2023 and offers insights into the focus for 2024.
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