Greg Kilminster
Head of Product - Content
SFC amendments to position limit regime to take effect in December 2023
The Securities and Futures Commission (SFC) has announced that changes to the Securities and Futures (Contracts Limits and Reportable Positions) Rules will take effect on 22 December 2023. The amendments, which were detailed in a June 2023 position paper, aim to improve the position limit regime by providing more clarity on regulatory requirements related to funds, making compliance easier, and giving more flexibility to the market.
The changes include:
- Providing more clarity on the Rules’ application to asset managers who manage funds or sub-funds of umbrella funds and setting out the regulatory expectations for trustees with respect to the Rules’ requirements.
- Expanding the list of “specified contracts” for granting excess position limits.
- Introducing an excess position limit regime for clearing participants.
- Raising the statutory position limits for certain futures and options contracts.
- Prescribing position limits and reporting levels for some new contracts.
- Imposing large open position reporting requirements for holiday trading contracts.
To help market participants understand the changes, the SFC has published an FAQ and updated the guidance note on related regulatory requirements.
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US Treasury speech on cross-border payments
Nicholas Tabor, deputy assistant secretary for international financial markets at the US Treasury, recently spoke at a conference organised by the Bank of Korea (BOK), South Korea’s finance ministry, and the International Monetary Fund (IMF) and aimed to bring together financial experts and policymakers to discuss the economic implications of digital currencies. During his speech, Tabor focused on the improvement of cross-border payments.
Tabor discussed how cross-border payments are often slow, expensive, opaque, and difficult to access, especially for customers in emerging markets and developing economies. He emphasised the need for improvement in this area and highlighted several key considerations for future policies. These included the fact that:
- Innovation in payments is not solely technological, and strategic alignment and a common long-term vision and objectives are essential for any operators pursuing interlinkage.
- Cross-border payments implicate a wide range of domestic and international policy issues, including banking regulation, transparency and privacy, national security, economic and financial inclusion, and a jurisdiction’s role in the global economy. Thus, making progress on payment policy requires engagement from a broad set of public and private actors.
- Robust international standards are essential to progress in cross-border payments and broader financial stability.
Tabor discussed the current US initiative on the matter. The US Treasury and Biden Administration have been pursuing a complementary role to the Federal Reserve. Since last fall, the Treasury has led a working group on the future of money and payments, considering the implications of new payment technologies for broader US policy objectives, like the smooth functioning of the international financial system, national security objectives, and privacy and financial inclusion. All while dovetailing with the focus and independent work of the Federal Reserve.
Tabor closed his remarks stating, “The easy steps towards improving cross-border payments are behind us; the hard, detailed work of identifying and addressing frictions is what remains.”
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HKMA Dear CEO letters
The Hong Kong Monetary Authority has issued two Dear CEO letters to all of its authorised institutions (AIs).
The first letter advises AIs to take a balanced approach to lending that considers both prudent risk management and the financial intermediation function. In response to rumours about banks calling in loans due to declining property values, the letter clarifies that, even in such situations, early repayments won’t be demanded as long as mortgage payments are on schedule.
The HKMA’s approach aligns with past practices during economic downturns and extends across all property types for both personal and corporate customers. For businesses with property-backed credit facilities, banks are advised not to rely solely on collateral for repayment, and advises that credit lines should not be adjusted solely based on changes in collateral values.
During credit reviews, banks are urged to consider factors like credit demand, overall financial position, and repayment ability. If a reduction in a corporate customer’s credit limit is decided, banks are required to provide a detailed explanation and allow time for alternative financing arrangements.
In cases of financial difficulty, the letter advises banks should follow the “Hong Kong Approach to Corporate Difficulties” guidelines, avoiding abrupt credit tightening and working towards mutually acceptable solutions.
Consumer protection in respect of digital marketing activities
The second letter highlights key observations and sound practices from HKMA’s supervisory work on consumer protection in digital marketing activities. In the ever-evolving landscape of digitalisation in financial services, the letter notes the growing role of digital channels, including third-party platforms and influencers, in AIs marketing efforts and the subsequent need to have appropriate consumer protection measures in place.
The recent thematic review, aligned with the revised Code of Banking Practice (CoBP) in December 2021, focused on consumer protection in digital marketing for general banking products. Common issues were identified in areas like marketing material review, third-party selection, editorial controls, informed decision-making, and influencer marketing.
While not mandatory, the HKMA noted sound practices during the review, providing AIs with valuable reference points. The details of these observations and practices are outlined in the accompanying Annex to the letter. Released alongside the further revised CoBP on 7 December 2023, the letter serves as a reminder for AIs to review and enhance their digital marketing activities, ensuring robust consumer protection measures are in place.
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BoE and CMA MoU
The Bank of England and the UK’s Competition and Markets Authority (CMA) have agreed a memorandum of understanding to enable closer working between the parties, including the exchange of appropriate information, to assist them in discharging their statutory functions.
The CMA is an independent non-ministerial UK Government department and is the UK’s principal competition and consumer protection authority. The MoU states that ‘relevant information’ will be shared for the purposes of ‘promoting more favourable outcomes’ in regard to each entities statutory objectives. Example of cooperation may include, states the MoU, the following:
- Information on workstreams, investigations, specific issues of concern, policy proposals or policy developments that appear directly relevant to the other’s role;
- Information and data otherwise obtained during the exercise of either party’s respective functions which appears relevant to the functions of the other;
- Notifying the other about any relevant action contemplated (or taken) by a party which is or may be relevant to the functions of the other; and
- Information obtained during the exercise of either party’s respective functions that is or may be relevant for the purposes of any joint project or investigation.
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CFTC issues trio of enforcements
The Commodity Futures Trading Commission has announced three separate enforcements and fines.
Avinash Singh and Highrise Advantage, LLC have been charged $25,558,594.00 in restitution with a fine of $76,675,782.00 for cheating and defrauding investors who deposited funds directly into the Highrise ‘master fund’ from where the funds were commingled with other non-pool participant funds. Highrise then transferred a portion of the pool participants’ funds into forex trading accounts in Highrise’s own name. Highrise and Singh collected almost $58 million from investors and feeder funds, but used less than $2.5 million for actual forex trading, misappropriating over $25 million and using investor funds to make Ponzi-type payments and pay personal expenses.
In its first pig-butchering action (by which victims are ‘fattened up’ by fraudsters before being defrauded) the CFTC has fined Cunwen Zhu and his company Justby International Auctions a $4,000,000 civil monetary penalty and $1,352,843 in restitution for defrauding at least 29 victims. In total nearly $1.5 million was transferred by the victims to Justby to trade digital assets and/or forex on supposedly legitimate trading platforms. Instead of using the funds to trade on behalf of these customers, Zhu and Justby misappropriated all of the customers’ funds. The victims had been supplied with false trading records and material information was not disclosed to them. The trading accounts did not exist and no trading of any sort occurred.
Finally, Michael DaCorta must pay $53,270,336.08 in restitution and an $8,453,628.48 fine for his role in operating and participating in a fraudulent scheme that resulted in 800 pool participants sending more than $80 million to several management companies to partake in retail forex transactions. DaCorta committed the violations despite a 2010 settlement with the National Futures Association (NFA) that prohibited him from trading in any capacity that would require NFA registration.
DaCorta and the other defendants solicited participants through in-person meetings and conference calls, making false claims such as guaranteed annual returns of at least 12% and annual profits exceeding 20%. Participants were also encouraged to recruit others for referral fees.
However, DaCorta and the defendants deposited only a portion of participant funds into a forex-trading account, resulting in the loss of all funds. Additionally, significant sums were misappropriated for personal use. To conceal these actions, false account statements were issued to participants.
Click here to read the full RegInsight on CUBE’s RegPlatform