Greg Kilminster
Head of Product - Content
Binance chief compliance officer charged and fined in CFTC first
The Commodity Futures Trading Commission (CFTC) has, for the first time, brought charges against a compliance officer. Former Binance chief compliance officer (CCO) Samuel Lim, along with others, has been charged with numerous violations including:
- offering and executing illegal off-exchange futures, options, and retail commodity transactions;
- failing to register as a futures commission merchant and a designated contract market or swap execution facility;
- failing to diligently supervise, including failing to maintain a Customer Identification Program (CIP), know your customer (KYC) procedures, or an anti-money laundering (AML) program; and
- conducting activities designed to willfully evade requirements of the Commodity Exchange Act (the CEA) and Commission Regulations.
Lim has agreed to a proposed consent order for permanent injunction, civil monetary penalty of $1.5 million, and equitable relief.
CFTC’s Director of Enforcement Ian McGinley. “Chief compliance officers should take note of today’s proposed order: If your compliance program is merely ‘for show’ and is intentionally ineffective, the CFTC will hold you accountable for facilitating illegal conduct.” McGinley also commented on Lin’s strategy of regulatory evasion noting: “Binance’s chief compliance officer’s remark that Binance’s solicitation of U.S. persons would implicate a chain of events including: ‘CFTC = civil case = pay a fine and settle’ was a poor business decision.”
In parallel actions, the Department of Justice’s Criminal Division, Money Laundering and Asset Recovery Section, its National Security Division’s Counterintelligence & Export Control Section, the US Attorney’s Office for the Western District of Washington, the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) have all either announced separate charges, consent orders and fines against Binance. The Department of Justice has imposed fines of more than $4 billion and OFAC has imposed a fine of $968,618,825. FinCEN has imposed a penalty of $3.4 billion.
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Hidden risks and new horizons: What’s next for EIOPA supervision?
In a speech at the European Insurance and Occupational Pensions Authority (EIOPA) conference, Petra Hielkema, chair of EIOPA outlined the next steps for supervision and of EIOPA itself.
The speech emphasised the importance of effective supervision, cross-sectoral collaboration, and the need for regulatory frameworks to remain relevant. Some of the key points from the speech are as follows.
Cross-sectoral regulation
Hielkema acknowledged the challenges posed by horizontal regulations such as the AI Act and DORA for both insurance and occupational pensions sectors. She highlighted the importance of effective development, implementation, and supervision of cross-sectoral regulation through consultation and cooperation among stakeholders.
Hielkema then discussed the Solvency II and institutions for occupational retirement provision (IORP) II reviews, noting that the ongoing Solvency II review is an evolution rather than a revolution, with a focus on easing requirements for long-term investments while remaining prudent. She also emphasised the need to protect the legacy and address the pension gap in Europe through the IORP II review.
Challenges in cross-border business
Hielkema identified challenges in the internal market for insurance, particularly in cross-border business, where supervision may be delayed, and issues related to unsustainable business models persist. She called for addressing malfunctions and enhancing coordination between home and host supervisors to ensure effective oversight.
Enhancing European supervision
Hielkema’s speech recognised the need for an integrated and competitive insurance sector at the international level. She noted the need for EIOPA to step in earlier to resolve issues affecting consumers when national supervisors are unable or unwilling to act, and emphasised the importance of a strong European role in supervision.
Closing protection gaps
The speech also noted significant protection gaps in Europe, including low insurance coverage for natural catastrophes, cybersecurity risks for SMEs, and risks of poverty in old age, and emphasised the role of data, innovation, and technology, including AI, in addressing protection gaps, particularly in natural catastrophe modeling.
Financial literacy and awareness
Hielkema stressed the importance of financial literacy and education and called for greater awareness and understanding of the need for insurance, mentioning the effectiveness of dashboards and pension tracking systems.
Recommendations for the future
The speech recommended the sharing of data between European Supervisory Authorities to enhance data analysis and dashboard development., noting the need to make the “brave steps of combining social and labour data with [EIOPA data].”
She also advocated for further action on pension dashboards, pension tracking systems, and the Pan European Pension Product (PEPP) to address confidence and coverage concerns.
Retail Investment Strategy
Hielkema discussed the importance of promoting simpler, safer, and more accessible insurance and pension products and reiterated her support for the Retail Investment Strategy, highlighting the importance of value for money and benchmarks in ensuring consumer satisfaction.
In concluding, Hielkema reaffirmed EIOPA’s commitment to strengthening the resilience and sustainability of Europe’s insurance and occupational pensions sectors and emphasised the importance of unity, diversity, and European solidarity in achieving common goals.
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Central Bank of Ireland issues feedback statement to CP153 on individual accountability framework
The Central Bank of Ireland (the Central Bank) has published the Feedback Statement regarding the CP153 (enhanced governance, performance, and accountability in financial services). Alongside the Feedback, the Central Bank issued draft regulations and final guidance to firms on the Individual Accountability Framework (IAF).
The Feedback Statement retains the substance of the IAF guidance as drafted in March 2023 but includes a limited number of changes and clarifications regarding the original proposals.
Conduct Standards
In the Consultation Paper, firms were required to inform the Central Bank where formal disciplinary action was taken against individuals in the firm with respect to breaches of the Conduct Standards. The Central Bank has removed this requirement due to the existing and new reporting obligations and the responses received. The Implementation deadline is 29 December 2023.
Fitness & Probity (F&P) regime
The Fitness & Probity (F&P) regime requires firms and holding companies to certify the ongoing compliance with standards of fitness and probity of all CFs within the company as part of the annual PCF return. However, to address the potentially onerous nature of the new certification requirement, the Central Bank has limited the scope of the enhanced due diligence aspect of the certification requirement to PCFs, CF1s, and CF2s. Additionally, self-certification in respect of CF3 – CF11 will be facilitated. The implementation deadline is 29 December 2023.
Senior Executive Accountability Framework (SEAR)
The Central Bank confirms a deferral of the introduction of the SEAR for (Independent) Non-Executive Directors until 1 July 2025. This is to enable both the Central Bank and regulated companies to learn from the introduction of the new framework to executives in the first instance. The implementation deadline is 1 July 2024, but 1 July 2025 for (I)NED.
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ASIC outlines 2024 enforcement priorities
In a keynote speech at the ASIC annual forum, ASIC deputy chair Sarah Court has outlined the regulator’s key enforcement priorities for 2024.
The lengthy address covered a lot of ground, the key points of which are as follows.
Enforcement record
- Court said ASIC was recognised as one of the most active enforcement agencies in Australia, appearing in courts across the country nearly every business day.
- During the past three years, ASIC has initiated over 100 civil actions involving 220 defendants and prosecuted more than 100 criminal actions, resulting in nearly 100 convictions.
- The agency has secured over $600 million in criminal and civil penalties during this period.
Recent enforcement actions:
- Recent actions include penalties against major entities such as ANZ, NAB, and Westpac for various misconduct.
- Notable criminal charges include the former CEO of BBY and individuals involved in the collapse of the Sterling First group of companies.
Evolution of enforcement
Court addressed criticisms that ASIC’s enforcement approach has not changed since pre-Royal Commission days. Unlike the past with negotiated outcomes and low penalties, today’s approach, Court argued, is characterised by bold actions and higher penalties to address consumer and investor detriment effectively.
2023 enforcement priorities outcomes
Turning to 2023 priorities, which included areas such as poor product design, sustainable finance, crypto, predatory lending, superannuation governance, insurance pricing, and unfair contract terms, Court stated that: “By any measure we successfully delivered against the targets we set ourselves this time last year.”
Noteworthy achievements included the implementation of design and distribution obligations, addressing greenwashing, including bringing three cases to court, and focusing on protecting vulnerable consumers, particularly in the high-cost credit sector.
All three of the 2023 priorities will continue to be addressed in 2024, Court noting that relevant and appropriate product distribution, net zero statements and targets made without a reasonable basis, and the provision of used car finance to vulnerable consumers and breaches of financial hardship obligations will be the new priorities for these existing concerns.
New enforcement areas for 2024
Turning to 2024, Court outlined ASIC’s new enforcement priorities.
- Misconduct affecting small business: ASIC will focus on financial services and credit providers engaging in misconduct with small businesses, including unlawful credit activity and unfair contract terms.
- Compliance with the Reportable Situation Regime: ASIC will strengthen compliance in this area, as current reporting rates suggest 89% of licensees are not reporting against the regime, suggesting huge room for improvement.
- Action against gatekeepers: ASIC will target auditors, liquidators, and financial services licensees engaging in misconduct, emphasising their role in preventing corporate misconduct.
- Continued focus on markets: Anyone thinking ASIC was becoming too focused on retail and consumer issues were quickly disabused of that notion with Court stressing that ASIC remains committed to maintaining properly functioning markets, with a focus on technology and operational resilience for market operators and participants. Enduring priorities include insider trading, market manipulation, and continuous disclosure.
- Directors’ duties as an enduring priority: Court completed the list of 2024 objectives by noting the importance of corporate governance with the enforcement of directors’ duties continuing as a priority.
ASIC’s proactive and bold enforcement approach underscores the need for financial institutions to stay vigilant and align their compliance strategies with the regulator’s priorities. Compliance and risk teams should pay particular attention to the new enforcement areas for 2024, especially those affecting small businesses, compliance with the Reportable Situation Regime, and actions against gatekeepers. Regular monitoring and adaptation to evolving regulatory landscapes are crucial for financial institutions to mitigate risks effectively.
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MSRB input into SEC’s year
To facilitate the Securities and Exchange Commission (SEC) in their preparation of year-end reporting, the Municipal Securities Rulemaking Board (MSRB) has accepted the invitation to inform the SEC of its views on products and practices that may pose risks to individual investors in the municipal securities market.
The MSRB identified three areas of concern.
Deeply discounted bonds: the letter indicates that individual investors must be aware that the practice of buying discounted bonds could result in significant tax implications and hence should discuss the implications of this with their tax advisers. The letter also notes the illiquidity of certain bonds and that an investor could receive far less for a bond than they had hoped.
Growth in separately managed accounts: the use of separately managed accounts (SMAs) for municipal bonds continues to grow significantly and the MSRB has some concerns that individual investors may not have a complete understanding of the potential differences in portfolio construction, investing strategies and costs across the different ways to purchase municipal securities.
Climate risk disclosures: the letter notes that neither the SEC (with the exception of anti-fraud provisions of the federal securities law) or MSRB has direct authority over issuers of municipal securities to require that they provide disclosures regarding their municipal securities offerings. It notes too that forthcoming climate disclosure proposals would nto apply to issuers of municipal securities and hence that “the lack of standards and uniformity in climate disclosures made by issuers could be confusing for individual investors. The MSRB believes that inconsistent disclosure practices in general and climate risk disclosure practices in particular raise potential risks to investors in the municipal securities market.”
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MAS executive director’s speech on the impact of climate change on the insurance industry
On 15 November 2023, at the Connecticut Conference on Climate Change and Insurance, Daniel Wang, the Executive Director of the Monetary Authority of Singapore, delivered a speech about the impact of climate change on the insurance industry and communities. In his address, he emphasised the need to bridge data gaps, cultivate sustainable practices among insurers, and fortify resilience through legislative initiatives.
Wang acknowledged that the insurance industry has the potential to address climate change by investing in renewable assets, offering specialised policies for climate-related risks, and investing in research to evaluate climate risks, but noted that more can be done.
To address this, the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) are working towards robust climate risk management through supervisory guidance, transparency of climate risk data, sustainability disclosures, and net-zero transition plans.
While the industry made significant progress in understanding and managing climate-related risks, Wang emphasised that there is still much work to be done. He stressed the urgency of the issue and called on the insurance sector, including supervisors, to continue studying climate risks, improving capabilities in identifying, assessing, and measuring these risks, and exploring new and innovative ways to mitigate them. The industry also continues to have a role to play in climate adaptation, working with the public sector to find solutions to serve communities in the face of climate change.
Singapore Developments
Wang also provided updates on Singapore’s developments in addressing climate-related risks. As part of Project Greenprint, MAS and the Singapore Exchange piloted a digital ESG disclosure portal named ESGenome. The portal allows SGX-listed companies to report baseline ESG metrics in a structured and efficient manner and for investors to access the data in a comparable and consistent format. He mentioned that over 180 listed companies have been onboarded onto ESGenome, with over 40% starting to populate their data.
Climate-related disclosures
Wang also mentioned that MAS welcomes the publication of ISSB’s disclosure standards for corporate sustainability reporting and is working with other government agencies for a coordinated Whole of Government approach to strengthening and phasing in sustainability disclosure requirements.
Transition planning
Finally, Wang noted that MAS issued a consultation paper on Transition Planning Guidelines (TPG) last month. TPG builds on MAS’ existing environmental risk supervisory guidance and focuses on insurers’ internal strategic planning and risk management processes. The guidelines aim to help insurers prepare for the risks and potential changes in business models associated with the transition towards net zero. Responses to the consultation paper are due by 18 December 2023.
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FTC issues agency financial report for fiscal year 2023
The Federal Trade Commission has released its agency financial report for the fiscal year 2023. The report:
- outlines the FTC’s achievements in safeguarding consumers and promoting competition, reaffirming its commitment to responsible resource management and sound financial operations.
- includes audited financial statements for the year.
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Year-end update by AusPayNet CEO on payment consultations and reforms
The CEO of the Australian payment network (AusPayNet), Andy White, has provided an update on payment consultations and reforms in Australia, as well as AusPayNet’s year-end plans. Below is a summary of the key takeaways.
End of year consultations
- The second round of consultation on payments licensing will focus on the obligations and rights associated with payments licenses.
- A consultation on cheques will consider the future of cheque use and the support required to retire the cheques system.
- A consultation on scams will propose a framework and principles for obligations on, and consumer expectations of, the various actors in the scam’s lifecycle.
Update on upcoming payment reforms
- Treasury consultation on the Payment Systems (Regulation) Act 1998 (PSRA) published in June 2023 follow-up.
- Treasury consultation on regulating screen scraping practices published in August 2023 follow-up.
AusPayNet’s plans
- AusPayNet is working on a programme to become an authorised standards-setting body (ASSB).
- Advanced Encryption Standard (AES): a migration planning working group will be established in February 2024 to define a strategy, approach, and plan to migrate to AES. The interim release of AES Migration Strategy is expected by June 2024.
- Sustainability in payments: AusPayNet has launched the Emerging Technology Experts Group (ETEG) to gain a deeper understanding of the environmental impact of payment technology and processes. The ETEG will develop insights throughout 2024, which will be presented through AusPayNet publications and events.
- Accessibility in payments: AusPayNet plans to expand the Accessibility Guidelines for PIN entry on touchscreen terminals issued in 2019 to include a wider range of payment products and services, such as mobile payments, and a broader range of disabilities.
- There are several upcoming board changes, including the appointment of Nish Dharmaratne as the Westpac-appointed director, replacing Chris Campbell. Bianca Bates (JPMorgan Chase Bank, NA) was elected as director, while Kirstin Renner (Citibank NA) and Rebekah Murchie (National Australia Bank) were appointed as an alternate director.
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